When Jeff Jordan learned last May that Web-search leader Google Inc. was building its own Internet-payment service, he reacted swiftly.

Mr. Jordan, who is president of eBay Inc.'s PayPal online-payments unit, immediately asked employees to unearth information about the Google service. Soon, PayPal employees were monitoring blogs, news reports and other data for information about Google's progress in payments. PayPal staffers even gleaned details about Google's plans during regular calls to customers who were eager to dish about how Google had reached out to them.

"It's a very legitimate competitive threat," says Mr. Jordan, 47 years old. "It's hard not to pay attention to what Google is doing."

While Google Chief Executive Eric Schmidt confirmed in press accounts that the company was building a payment service, Mr. Schmidt also denied it would directly compete with PayPal. Mr. Schmidt said Google didn't intend to offer a "person-to-person, stored-value payments system," which many people consider a description of PayPal's service.

Mr. Jordan says he and his team immediately "dissected the wording" of Google's statements. He says he doesn't believe Mr. Schmidt. In the past, Mr. Jordan says, Mr. Schmidt had denied Google would roll out a payments service, only to take it back later. "We took [the comments Mr. Schmidt made] as 'Thou doth protest too much,' " says Mr. Jordan.

Long the Internet's leading online-payments service, PayPal has a 24% market share of U.S. online payments, according to financial-institution consulting firm Celent LLC. PayPal, founded in 1998, boasts 96 million accounts with consumers who want to send payments online without revealing their credit-card or banking information to vendors. To use the service, customers simply set up an account with their credit-card or bank-account details, fill out a payment amount and the email address of the recipient, and send the payment via the Internet to PayPal. If the recipient doesn't have an account, he simply opens one in order to collect the payment. The service gained traction on eBay and proved to be more popular than an in-house payment system it had been using.

For eBay, which acquired the online-payment business in October 2002, PayPal has been a big asset. The unit has helped accelerate trading on eBay's auction sites in the U.S., Germany and the United Kingdom. Most recently, PayPal generated 23% of eBay's total $1.3 billion quarterly revenue. And PayPal's revenue is growing steadily: It was up 48% to $304.4 million in the fourth quarter compared with a year earlier.

But PayPal must now contend with Google. The Mountain View, Calif., Web-search giant, which has terrified Silicon Valley with its ability to quickly create new consumer products and services, is developing a rival service called GBuy. For the last nine months, Google has recruited online retailers to test GBuy, according to one person briefed on the service. GBuy will feature an icon posted alongside the paid-search ads of merchants, which Google hopes will tempt consumers to click on the ads, says this person. GBuy will also let consumers store their credit-card information on Google.

Google said that it has acknowledged publicly on many occasions that it is working on payment products. The company also said it already processes online payments for ad services, as well as fees from consumers who use features such as Google Store and Google Earth. It declined to comment on any pending products.

The Google challenge comes amid PayPal's push to win new business. In June, the San Jose, Calif., business introduced new software and tools so smaller merchants could process PayPal transactions on their own Web sites. Its sales force has been recruiting big-name merchants such as Dell Inc. and Sharper Image Corp. to accept PayPal as an option on their Web stores. Late last year, PayPal purchased VeriSign Inc.'s online-payments-technology unit for $370 million to help build ties to hundreds of new merchants.

Throughout this effort, Mr. Jordan -- who is often mentioned by colleagues and recruiters as a possible successor to eBay Chief Executive Meg Whitman -- has led the charge. A graduate of Amherst College and Stanford University's business school, he spent eight years at Walt Disney Co. At Disney, where he once worked with Ms. Whitman, he managed strategic planning for the consumer-products division and was chief financial officer for Disney Store Worldwide. Ms. Whitman recruited him to join eBay in 1999. He was appointed PayPal president in late 2004.

An avid mountain biker, Mr. Jordan begins his workday at around 5 a.m. at the eBay gym, perched atop a stationary bicycle while tapping away on his BlackBerry. If he makes it home by 7 p.m. in time to have dinner with his kids, he considers himself lucky. People who know Mr. Jordan say he is extremely competitive and detail-oriented -- so much so that he monitors message boards to gauge customer complaints, often firing off messages to employees asking for fixes.

Mr. Jordan has been marshalling his forces for a possible battle with Google. He and his team have run through competitive scenarios to assess the risks PayPal might face with a Google service, an exercise the company also runs through with other rivals.

Mr. Jordan also accelerated the development of some products to stretch PayPal's lead in online payments and increased product-development spending by as much as fourfold in some areas. Though he declined to go into details, the company is working on tools to attract new merchants to use PayPal as an option on their Web stores. These new tools will be released later this year.

Attracting new merchants is important for PayPal because it needs to expand beyond its core eBay users to keep generating more revenue. Sixty-nine percent of PayPal's fourth-quarter revenue came from eBay-related transactions. Last year, PayPal developed software that lets merchants accept payments by phone, fax or mail order and to process those through PayPal. It also helped speed the payment process so shipping and billing information is sent from PayPal to the merchant more quickly.

It has been challenging for PayPal to sign up many new online retailers, however. Sucharita Mulpuru, an analyst at Forrester Research, says some retailers are leery of associating themselves with a brand that is so closely intertwined with eBay's online-flea-market roots. In part because of that heritage, PayPal "doesn't feel like a sophisticated financial system like a Visa or MasterCard" to many retailers, says Ms. Mulpuru.

PayPal executives acknowledge they need to broaden the appeal of their service. Stephanie Tilenius, a PayPal vice president, says the company's sales force is working hard to show merchants how it can help lower their payment expenses and capitalize on its Internet-savvy consumer audience.

Still, some of PayPal's recent moves have paid off. The company generated $8.1 billion in payment volume through its system in the fourth quarter, up 45% from a year earlier. It produced $2.5 billion in payment volume in the fourth quarter, a 56% increase from a year earlier, from its merchant-services program. PayPal declined to disclose how many new merchants it has added to its service.

One new merchant PayPal recently signed up was White Mountain Insurance Group Ltd.'s Esurance Inc., an online auto insurer based in San Francisco. Before it had PayPal, Esurance accepted payments through credit cards, debit cards and electronic checks. By integrating PayPal into its Web site, it expanded its payment choices, making it "more efficient" for consumers, says John Swigart, an Esurance managing director. "Now we don't have to deal with waiting for checks in the mail, getting checks lost or waiting for invoices."

PayPal isn't Esurance's least expensive payment option or its most popular, but it is growing, Mr. Swigart adds. PayPal is "signing up hundreds of thousands of consumers a week," he says. "As they find ways to raise awareness among their customer base that PayPal is a usable and effective option for customers to use to pay for things online, I think they'll find a lot of success."

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Wall Street Journal Online Edition.

Very interesting read. Google will definitely be a tough competitor against Paypal. It will be very interesting to see the development of both company's marketing schemes as competition arises.

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Read about this in the morning. I am very happy that paypal could finally have some serious competition.

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Me too. It's about time. If Google comes out with a service that's better than paypal, I may switch. It's not good to have one company dominate.

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Herbert Spencer disagrees.