It will be interesting to see what happens. Google has been a leader in international internet relations by bringing programs and services to more countries and languages quicker and stronger than probably anyone else.
I do recall the CEO being quoted as saying it/they wouldn't be competing with paypal.
Here is what ebay's CEO had to say:
"Think about the infrastructure that we've built up over those six years in terms of customer support, fraud mitigation, the ability to really understand and comply with all the laws that have gone into place since 9/11. This is a highly regulated space now, and something we've developed a real expertise in. So we feel pretty good about our competitive position and the fact we that we have critical mass here. But we actually don't mind competition; it makes us better.''"
I hope she doesn't mean to suggest google can't "understand and comply with all the laws". Seems fairly silly to me. Paypal has a huge advantage in certain areas (unless Google gives away free cars) - I don't see them taking away the auction payment business from eBay.
Of course it is rumored that Google is working on their own classified/auctions system. Perhaps that was what froogle was about from the begining - integrate the products at the top of the SERPs - and throw in the auctions later.
I can't see people jumping ship from ebay to google unless they put people at the top of the SERPs for that kind of stuff.
But Google has said "We do not intend to offer a person-to-person, stored-value payments system". Ok - well this could mean:
it will be person to person, but not stored value
it will be stored value, but not person to person
So I don't have a clue, but I think they would probably not try to attack ebay/paypal head on from the start. They'd have to offer something unique. My guess is it will be from the international side of things, but this is just a guess.
If they could convert people's adsense accounts into spendable visa/amex/MC $$$ - I think they'd have some customers. How much that would mean - I don't know, but they would already have data on the people - and it certainly is a market in the international arena that needs to be served.