Rumours have been rife over the past month about a potential deal between Google and PayPal that would see the latter powering the payment system on the Android Market. Last week an announcement about the deal went up on the PayPal blog, which was then immediately removed. Either way, we can be confident that an official announcement will follow soon.

This is an intriguing move given that Google already operates its own service which in many ways is directly competitive with PayPal – namely Google Checkout. However, users have complained about the current checkout system (especially if you are not a Google Checkout user), and until recently it only accepted paid apps in a very limited number of countries.

So Google still lacks a payment service that is rich enough in features to offer an alternative to PayPal as this news shows. But what will be really interesting to see is whether this development spells the end for Google’s advance into the payments space, or if it will continue to further expand its payment capabilities as part of its cloud services, alongside Google Checkout, Google Maps etc. Continuing down this path would give it the opportunity to offer a public-API style service that Web 2.0 developers would be able to use within their apps. 

While more choice for the end user is clearly a good move from a customer service point of view, the ideal scenario would be public API access to the global payment networks like Visa, MasterCard and SWIFT. Only a truly ‘open’ solution has the power to bring the concept of payments-in-the-cloud into the mainstream.