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Google has launched Google Checkout, a payment system which is also connected to Google AdWords. Google CEO Eric Schmidt said Checkout would not be directly competing with PayPal though. Checkout is a system which was developed for Google’s products AdWords, Picasa and Base in order to make it easier to potential clients to purchase services from Google, according to Schmidt.

You do not need to create a new account at Checkout, but you can use your existing free Google Account and simply add your credit card information. These information will not be visible to online retailers, because all payments will be processed by Google.

Google is also offering merchant review ratings from Checkout users. The system should be interesting to online merchants, too. Google is even going to integrate Checkout into other company’s shopping cart solutions.

Google will charge merchants 20 cents and 2% of a total transaction cost to use the service. PayPal charges up to 30 cents and 2.9% fees.

Merchants who are advertising their websites through AdWords will be credited $10 for every $1 spent on Google AdWords. For some merchants this might result in transaction costs nearly being nothing. Advertisers who accept Checkout on their website will even have a Checkout badge next to their AdWords ads so buyers know they can pay using Google’s new payment system.

Link to Google Checkout.