Google Base Is The Merchant of Record, Now That's Interesting

I wrote a short post today on Google Base now intermediating payments between buyers and sellers.  One point that I feel compelled to elaborate on a bit more is that Google is apparently the merchant of record in these purchases. This is very interesting.

In contrast, EBay has done everything they can not to become the merchant of record for transactions on its site.  Anyone who has purchased something on EBay knows that you settle up with the merchant directly, usually via Pay-Pal, and not through EBay.  In contrast, when you buy something via Google Base, you will pay Google who in turn will pay the merchant.  Even though the Terms of Service contain language which says that legally the transaction is between the buyer and seller and not between the buyer and Google, that's not actually what is happening in terms of money flows.

Anyone familar with the credit card industry is bound to be very surprised by this given that the merchant of record typically takes responsibility for all charge backs, fraud, etc.  Google claims that all transactions processed are non-refundable, but if they are processed via credit cards that is not the case because the issuing bank can always refuse to pay the merchant bank and the merchant bank will typically then stick the merchant with the so-called charge-back. Given this, it is not clear to me how Google can realistically plan on avoiding charge-backs (my guess is that they will force the end sellers to accept them).   Now there's a lot of verbiage in the terms of service that basically say they don't have to follow the standard credit card rules, but I wonder how these would stand up in court or more importantly a challenge from an issuing bank.

Why would Google go to the trouble of taking on all this additional risk?  I am not 100% sure but I have a few gusses:

1. They wanted to make the buying experience as seemless and immediate as possible.  Having a single seller from a payment perspective clearly accomplishes this.  Just enter your payment details once and you will theoretically be able to purchase from thousands of different sellers through the same consistent interface without ever having to enter your billing details again.
2. They are laying the goundwork for an escrow service.  Once all payments flow through them they can escrow them quite easily which theoretically would reduce fraud and improve the buyer experience while generating additional revenues.
3. They are being greedy about the float.  They plan on collecting payment from buyers and then sitting on the float for a while as a way of making additional margin without raising transaction fees.
4. They plan on becoming a full fledged merchant bank and even issuing their own branded credit card at some point.  Who needs rules when you are both the card association, issuing bank and the merchant bank.  A stretch, but you never know.

Whatever the case (it may be a little of all 4), it is a very different approach from EBay and one that promises to make the buying process on Google Base very easy, but in the process also promises to expose Google to a lot more headaches than EBay.  It will be particularly interesting to see how they deal with disputes because I don't care what the legal docs say, people are still going to contact them when there's a problem and they are going to be aren't going to be happy when Google says they have no standing because of the "terms of service". (You also have to wonder what their acquiring bank is going to say.)

One more thing, if Google does get away with this I don't see why EBay won't be forced to follow suit.  The buyer experience on Google Base will just be a lot better than on EBay, similar to the "one click buying" that Amazon pioneered.

UPDATE:  Murali left a comment and pointed out that EBay has already announced that they will be offering "Ebay Express" sometime this spring.  EBay Express supposedly offers a similar universal wallet capability however as Scott (who seems to know EBay well) pointed out in a comment below Ebay will not be the merchant of record but will just create a multi-seller shopping cart with a separate Pay-Pal account for each seller.  In addition to what Scott mentioned, everything posted in EBay Express will also apparently be an EBay listing and presumably subject to all the existing EBay fees.  Also, EBay Express is not integrated into a larger search engine and it's not clear that they will let other engines index their site (which seems unlikely).  So the net is that EBay Express is pretty different from what Google is doing from a payments perspective.