It's been known for a while that Google Inc. was preparing an online payment system similar to eBay's PayPal. Google has been recruiting retailers to test GBuy, offering them free payment processing for the duration of the testing period. According to the report on the WSJ, there will be a GBuy icon next to AdWords, merchants' paid search ads. GBuy will also offer consumers to store their credit card information on Google as well as mail-in rebate incentives.

It is unclear yet if eBay has devised a strategy as to how to handle / compete with GBuy, even though PayPal's contribution to overall eBay's recent earnings was close to a quarter of the revenues.

While Google could use its brand to lure users to try GBuy and process payments mostly on its domain, it is possible eBay could accept GBuy as an alternative payment method, for a price, of course.

PayPal has dominated the online payment market (and quite profitably too) until now.  While this move by Google may be benefit consumers as competition always does, it could on the other hand spell troubles for eBay as evidenced by this morning's investors' reaction.