Google CEO Eric Schmidt has acknowledged that his company's Google Payment Corp. subsidiary is engineering an electronic payment system, but shrugged off speculation that it would be competing with eBay's PayPal. Rumors of a planned service peaked over the weekend and sent eBay shares falling early Monday.

"We do not intend to offer a person-to-person, stored-value payments system," Schmidt said in a statement read to reporters. "The payment services we are working on are a natural evolution of Google's existing online products and advertising programs, which today connect millions of consumers and advertisers."

The service would likely integrate with Google's existing payments for advertising on its searches, and with a new Google Video service that will allow consumers to purchase video clips offered by third parties directly through Google. Analysts have suggested payments could also be integrated into Google's Froogle shopping comparison search.

PayPal, on the other hand, offers users the ability to send money to one another while acting as an intermediary. Money is temporarily held in PayPal's account, like a bank, and the company takes a percentage of all transactions. The service has proven a boon to eBay since the auction giant acquired PayPal in March 2002.

Although he refused to provide specifics, Schmidt did hint that Google had innovative plans for the payment service, wherever it may be used. "We believe that e-commerce can be improved and we are working on ways to improve the user experience," he said.