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How Google Checkout Lost 2/3 of Their Market Share in One Day

Posted on October 22, 2009 by Brian

At Gordian Project we use Google tools extensively.  Adwords, Analytics, Apps, Chrome, Website Optimizer, Webmaster tools, Checkout, YouTube, we use them all.  We’ve even got some nice press about our development of Google Checkout pixel tracking for affiliates and our utilization of Google Checkout combined with other Google products to improve overall marketing efforts.  We’ve had a good relationship with Google, have enjoyed several dinners with our Googlers, and have enjoyed the annual Christmas gift we receive from the Adwords team.  Unfortunately, that positive momentum has taken a severe blow.

A couple weeks ago Google Checkout’s finance team performed a review of our account and decided that a reserve would be required to “offset any refunds, chargebacks, or other claims against [our] balance.”  The notion in general was quite surprising since no other payment processor has ever set a reserve requirement on any of our accounts.  More surprising, though, are the amount of the reserve relative to our account activity, the lack of details as to how it was determined and what could be done to reduce/remove it.  This led to a fairly passionate phone conversation with a Google Checkout team member followed by a discussion with my management team as to how to proceed with Google Checkout on and

First, let’s tackle the sheer amount of the reserve.  Before sharing some numbers, for those unfamiliar, “Other Activity” is the bucket Google Checkout uses for refunds, chargebacks, claims, etc.  Each day a merchant has a starting balance, purchases, other activity, a payout, and an ending balance.  Starting Balance + Purchases – Other Activity – Payout = Ending Balance

For the Google Checkout account in question…

  • When looking at “Other Activity” the reserve requirement represents:
    • 786% of our highest “Other Activity” on a given day in 2009
    • 4,561% of our average daily “Other Activity” over the last 12 months
  • The reserve represents 670% of our average daily “Purchases” in 2009
  • At our Q3 2009 average weekday payout, and the fill rate from Google, it would take over 5 months to fill the reserve.  This would be even longer if we reduce our promotion of Google Checkout as a payment option.
  • When combined with our average “Ending Balance” Google will be holding over nine times our average daily “Purchases”.

All of you merchants out there know nine days of cash is unprecedented and ridiculous.  Particularly for an account that has been with Google Checkout since inception, without a single issue with respect to meeting our refund, chargeback, and claim obligations.  We currently offer Visa, MasterCard, Discover, AMEX, PayPal, and PayPal Pay Later along side Google Checkout.  None of these other payment methods, through which we transact significantly higher gross dollars, have required a reserve, most make funds available in a day or two, and at competitive rates.  Google Checkout stands alone in this reserve requirement.

When we challenged Google Checkout on these points they responded with:

Once the reserve is filled, no more funds will be withheld from your future disbursements. Furthermore, your ending balance is not included in the reserve. It is highlighted on the Merchant Help Center that Google initiates payouts within two business days of charging an order; therefore, Google is not effectively holding money back from you and these funds are not included in the reserve.

They’re obviously missing the point, the fact that after the reserve is filled the money that is earned is paid out in two business days is irrelevant to a merchant.  You are still holding the pool of cash.  By their logic we wouldn't care if the reserve was $1.00 or $5M as long as after it was full we received new money in two days.  Heck, make it $10M.  Yes, every dollar that goes in is paid out in two days on a last-in-first-out basis but we in essence must give tens of thousands of dollars to do business with Google Checkout.  The only way we can compare this with their competitors is to compare how many days of cash each holds at any given time, for whatever reason.  Many hold less than one, a couple hold one to two, and Google Checkout now wants to hold nine.  Additionally, our merchant accounts allow us to keep transaction fees through the month for debit at the end, which is another cash flow plus over Google Checkout.

So Google is in left field in terms of understanding the language of the merchant, and the amount of our reserve is extremely high compared to our volume of business.  So, to the second point, how did they come up with it?  Maybe that will also shed some light on how we can work to have it reduced or eliminated.  After some prodding, our Google Checkout contact responded, “For clarification purposes, the way we determine whether an account should be placed on a reserve is based on a proprietary set of rules…  However, the way we calculate the reserve placed on your account is an industry standard formula that other processors use.”  So the obvious… how, for a given account, can an industry standard formula result in a reserve requirement for Google Checkout but not for any other major payment processor in the industry?

Our subsequent request for the “industry standard formula” returned the high level variables included, without their values or the formula.  The variables included are, “your chargeback exposure, your refund exposure, and your delivery exposure.”  Given the numbers above I’m pretty confident chargebacks and refunds aren’t the culprit, which leaves delivery.  Google wants to cover the dollars that have been ordered but not shipped.  In essence, by setting a reserve that covers dollars in open orders Google is deciding we can’t have our money until the point of shipment, rather than at the point of order.  On average, Google keeps the cash for our work in process.  The point at which to charge a customer should be a decision made by the merchant, not the payment processor.  Some merchants offer only fast moving products that are always in stock and opt to charge at the point of shipment while other merchants may offer special order or hard to find products with lead times and opt to charge at the point of order, possibly to procure the special order items.  For the latter group, Google holding a reserve to cover the open dollars is a de facto trump of the business decision to collect up front.  Whether the former or latter group, it’s a business decision and shouldn’t be under the purview of the payment processor.  Most payment processors don’t even have shipment data.  They don’t need it; they simply process transactions, which yields no exposure.  Even still, lumping our total open dollars on top of our average “Other Activity” I couldn’t get anywhere near the reserve requirement Google calculated.

Ultimately, in fact, no specific changes or improvements have been recommended and the rep in our call finally agreed that our best bet is to hold our breath, cross our fingers and hope that the magic Google machine makes a better decision next time.

At the least this issue highlights Google Checkout’s lack of maturity relative to the payment processing space they have entered.  At its worst, this issue represents a seemingly arbitrary, punitive move to support Google’s interest income goals.

This has led us to strongly reconsider our approach to promoting Google Checkout as a payment option.  This year, across our sites, Google Checkout was presented as the first option in our checkout flow.  In light of these events, we have moved Google Checkout to be the last option in our checkout flow and in the first couple days noticed a drastic drop in Google’s share of our payment processor pie, to about 1/3 the previous level.  Interestingly, overall daily sales have increased noticeably.

Checkout Options

Just prior to completion of this post, Google Checkout reduced our reserve by about 29%, without sharing the new calculation.  At our new, lower sales volume through Google Checkout, this reserve, without including our average Ending Balance, is over 20 days of “Purchases” and will take over a year to fill.  Although I appreciate the reduced reserve, I’m not sure we’re making progress, or making sense.

If as the shimmer of “Google” begins to fade, and it inevitably will, this is how they begin treating customers, I’m betting on PayPal.



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