PayPal and Google Checkout are both services provided by eBay and Google respectively to enable online shoppers to pay for their shopping easily. While PayPal has been around for a long time, Google Checkout was launched only in April 2007.

While PayPal has the advantage of a wider user network it is not without its fair share of customers complaints. The main grievances customers have with PayPal are their high fees and their policy of freezing customer accounts, without calling or trying to understand the nature of the clients’ business, on usually flimsy grounds.

EBay users and other online vendors have looked for alternative payment methods for long now, and are extremely hopeful that Google Checkout will at least cause PayPal to wake up and correct their arbitrary practices and become more customer friendly.

According to Heather Dougherty of Hitwise US, alternative payment methods have been growing in popularity, at the expense of established players such as PayPal and Google Checkout. Leading this group is newcomer Bill Me Later, whose ‘buy now, pay later’ and ’90 days same as cash’ options have propelled its traffic up 271% up from last year.

While the Google Checkout and PayPal are direct competitors, their manners of functioning are slightly different and their main client bases come from widely different sources. PayPal sources its clientele mainly from its parent company eBay and a few other email and social networks, with only about 2.2% of their customers coming from non-auction shopping and classified sites, while 45.3% of Google’s customer base is retailers.

It is expected that Google checkout will gradually incorporate a few new features in its services, which will make it a real threat to PayPal’s dominance of the market, especially through the much wider user base of its parent company, Google.