NEW YORK: Google Inc. is about to launch a test version of an online payment service possibly this week, according to media reports.

The service, called GBuy, will offer competition to the popular PayPal of eBay Inc. and other operators. Google intends to offer rebates to people making use of the service, at least initially, in order to get customers.

Sources said GBuy will focus on consumer-to-merchant payments and allow merchants, who are not able to accept credit cards, to get online payments for products and services offered. It may at a later point of time think of getting into consumer-to-consumer segment too. PayPal mostly offers consumer-to-consumer payment services, allowing consumers to wire-transfer money from bank accounts or credit cards via e-mail to merchants or other consumers.

According to sources, Google will place GBuy icon next to the text ads it displays for participating advertisers. When people click on such an ad and decide to make a purchase from that advertiser, they will have the option to complete the transaction using GBuy. The company may charge a transaction fee on the advertisers.

Google already has such a system to deal with its advertisers.

Google executives confirmed that the company is planning an online payment system, but it is not meant as a direct competition to PayPal. The company had said almost a year ago that it is working on an online payment service.

It is estimated that nearly 12 per cent of e-commerce transactions in the U.S. in 2005 were paid for through PayPal. It has 100 million users worldwide and is expected to handle $30 billion in gross payment volume. It is now considering introducing more facilities, while it has already come out with PayPal-branded credit cards. Its parent, eBay has entered into a partnership in the U.S. with Yahoo Inc. to embed PayPal payment services across Yahoo’s sites.

Shares of eBay fell almost 5 per cent to $28.25 Tuesday after reports of GBuy appeared in the media. Google’s shares fell $1.90 to $402.3.