Google's "PayPal Killer" isn't showing its teeth. Yet.

On June 29 Google Inc. (Nasdaq: GOOG) launched its anticipated online payment system, Google Checkout, which was immediately dubbed "PayPal Killer" by some. According to this Dow Jones article, since then, the service hasn't gained much traction. Or should I add, "yet"?

The problems with Google Checkout seem to include long processing time, orders that are never filled, no phone-based customer support, a few technological problems as well as a glitch with the Checkout icons which were placed on Web sites by accident.

Sellers have also been slow to adopt Checkout and according to a survey performed by Piper Jaffray & Co. of 40 large online stores, 81% of them said they wouldn't use the service. Bad news for Google, good news for eBay. The survey also found that the control issue I mentioned shortly after Checkout was launched, is an important one to retailers, both in terms of transaction process control and customer information. Looking at the fees also, Checkout isn't always cheaper than PayPal. All this explains merchants' unwillingness to convert to Checkout and why some early partners remove it altogether (as Levi Strauss & Co. had already done).

Google found out, as others have before, the difficulty of taking on PayPal. EBay Inc.'s (Nasdaq: EBAY) PayPal is eight years old and has been the leading online payment service for quite some time now. With over 100 million accounts in 50 countries, $9 billion worth of transactions processed in Q2 2006 alone and a few thousand employees, it would be hard for anyone to take it on.

However, Google has made big strides so far. Checkout has signed up about 270 retail partners in its first two months alone and is promoting the service heavily using its AdWords advertising.

I don't think Google will just roll over. It has begun to fix certain issues -- mostly those pertaining to fraudulent orders. However, sending T-shirts and other presents to dissatisfied customers isn't going to cut it. Consumers don't like people fumbling with their money and would rather use another, more reliable, service.