Google and PayPal in price war

Google Inc. said Wednesday that it would offer merchants free online payment services until Dec. 31, ratcheting up competition with EBay Inc.

Businesses using Google Checkout will receive free processing for all sales, the Mountain View, Calif.-based company said. PayPal, EBay’s online payment services division, said this week that it would offer as much as $100 million in holiday rebates and free shipping.

Google Chief Executive Eric Schmidt plans to use Checkout, a service released in June that lets users buy items from multiple stores using a single account, to generate commissions and encourage more merchants to buy ads.

The PayPal payment unit was EBay’s fastest-growing business in the third quarter. PayPal’s revenue climbed 41% to $350 million, outpacing a gain of 22% in auction revenue to $1.02 billion.

Google Checkout charges a 2% commission and a 20-cent fee per purchase. PayPal, which EBay acquired in 2002, charges a 30-cent rate, plus transaction fees of 1.9% to 2.9%, depending on the total value of payments processed each month.

In EBay’s promotion announced this week, customers receive as much as $20 in cash-back rebates from PayPal when they make online purchases on EBay.com and certain merchant websites in North America. The rebates run from Nov. 23 through May 15.

Shares of Google rose $2.43 to $475. Shares of San Jose-based EBay rose 27 cents to $32.82.