Google Inc. (GOOG) is expected to unveil on Wednesday an online payment system called GBuy, which analysts say will allow merchants to accept payment for services and could become a broad-based alternative to eBay's (EBAY) PayPal, the dominant system.

Analyst Danny Sullivan, editor of SearchEngineWatch.com, said he expected Google to make the announcement on Wednesday and to target online merchants rather than consumer-to-consumer payments, which is PayPal's traditional strength.

Google is targeting sites that may not be able to take credit cards, which is a common problem in international markets, he said.

"It may be something that large businesses internationally who do not really have a way to handle online payments from customers might want to use," Sullivan said.

Shares of eBay fell almost 5 percent to $28.25 on Tuesday on media and analyst reports of GBuy and lingering worries that growth at eBay is slowing.

Google's shares fell $1.90 to $402.3.

"We highlight that Google has yet to launch its own e-commerce and payment efforts, which represent major competitive challenges to eBay's historical dominance," Deutsche Bank analyst Jeetil Patel said in client a note.

GOOGLE PAYMENTS

RBC Capital analyst Jordan Rohan had predicted that Google would introduce the system — formerly code-named Google Wallet — as early as this week.

"GBuy is focused on consumer-to-merchant transactions, but there is no reason why it eventually could not be expanded to consumer-to-consumer," he wrote in a June 9 note to clients.

Google executives confirmed they are developing an online payment system but say it is not meant to compete directly with PayPal, which gives consumers ways instantly to wire money from bank accounts or credit cards via e-mail to merchants or other consumers.

"Billing and payments have historically been a part of Google's advertising programs and online services," Megan Lamb, a company spokeswoman, said in a statement that acknowledged existing activities but declined to confirm its further plans.

"We offer users the ability to buy items on Google Base and at the Google Store as well as pay for services like Google AdWords, Google Video and Google Earth," she said.

Rohan said the service will be free during a trial period, then it will begin charging a rate of 1.5 percent to 2 percent on payments, which is equal to or slightly below the rates charged by PayPal.

GBuy may become part of a plan to create a single user identification/password system to simplify how Google authenticates users as they move from service to service, he said.

The system will appear on Google search results pages by designating a merchant accepting payments as a "trusted GBuy merchant."

Beyond the basic utility of a click-to-pay system, GBuy promises to help Google to monitor the transaction data flowing through the system, which Rohan said could allow the Web search leader to track which search results turn into paid sales.

"If harnessed, the precision of this targeting could be revolutionary," Rohan said.

Aware of the threat, PayPal has been moving aggressively to expand the number of ways customers can use its payment services. It now offers PayPal-branded credit cards tied to its online service. It expects to double the number of countries this year where it conducts services to around 100.

Dana Stadler, PayPal's vice president of North America operations, said in a recent interview that two-thirds of PayPal purchasing volume takes place through eBay sites, and one-third away from eBay on other sites that link to PayPal.

Roughly 12 percent of e-commerce transactions in the United States last year were paid for using PayPal. PayPal boasts 100 million users worldwide and is expected to handle more than $30 billion in gross payment volume over the next year, he said.

Last month, eBay announced a wide-ranging U.S. partnership with Google rival Yahoo Inc. (YHOO) to embed PayPal payment services across Yahoo's network of sites.

"PayPal is going to be deeply integrated into Yahoo," Stadler said. "This is not a lightweight partnership."