Google CEO Eric Schmidt confirmed that Google is developing an online payment system.

"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," Schmidt told Reuters.

In an e-mailed statement, Schmidt told internetnews.com, "We are building products in the area to solve new problems in ecommerce."

The confirmation followed speculation by news media that the search goliath was close to launching something that might be called Google Wallet.

Schmidt denied to Reuters that the proposed service would compete with PayPal, eBay's payment service.

Instead, it's likely that Google is moving toward enabling payments for content, including books, news articles, video and other digital media.

Google has applied for a patent on a method of searching for media that would execute a permission protocol before search results were delivered. The protocol would allow the publisher to authorize Google to display more than snippets of the text. The protocol also could track page views and enable either a share of ad revenue with the publisher or delivery of the document on a pay-per-view basis.

In U.S. Patent Application No. 20040122811, filed by Google co-founder Larry Page, he says very directly that one idea is to permit "subscription-like access" to the electronic content.

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According to the application, this system could be used not only for magazine articles but for providing paid access to CDs, DVDs and audio books.

Meanwhile, Google's FAQ for those who want to upload their video content for its next-generation video search specifically says that content owners will be able to charge for access. "Your video will be made available for users to search, preview, purchase, and play. As the content owner, you decide whether you'd like to give away your video for free or charge a price that you set for it. If you do charge a price, Google will take a small revenue share to cover some of our costs," the FAQ reads.

In his e-mail, Schmidt said that the payment services Google is working on are a "natural evolution of Google's existing online products and advertising programs." Reading between the lines, he could mean that the existing advertising platform will become the engine for Google Wallet.

Actually handling the payments would not be difficult for the company. Google's self-service advertising system lets advertisers sign on using a credit card; it allows them to make very small buys and deducts money from the account as it's used to pay for clicks. The system could be opened to consumers who deposited money into the Google Wallet from credit card accounts to be used for digital purchases.

Sort of like PayPal.