(Updated with comments from Google CEO Eric Schmidt)

Forrester analyst Charlene Li offers one of the most detailed guesses we’ve seen yet at how the rumored Google Wallet payment system might work.

We were curious what eBay is thinking about the rumors, so we asked CEO Meg Whitman during an interview today, since a Google Wallet would presumably be a direct competitor to eBay’s PayPal. Here’s what she said:

“We do a lot of business with Google and we typically don’t comment on rumors. What I can tell you is that PayPal has been around since 1999. We’ve got 70 million acocunts. Talk about the ability to manage a new payment service. Think about the infrastructure that we’ve built up over those six years in terms of customer support, fraud mitigation, the ability to really understand and comply with all the laws that have gone into place since 9/11. This is a highly regulated space now, and something we’ve developed a real expertise in. So we feel pretty good about our competitive position and the fact we that we have critical mass here. But we actually don’t mind competition; it makes us better.”

Meanwhile, Google is having CEO Eric Schmidt call media outlets today to quash speculation that “Google Wallet” might mimic PayPal. “We do not intend to offer a person-to-person, stored-value payments system,” Schmidt told the Associated Press in a story that just moved on the wires. Schmidt declined to offer further details, but said, “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.”

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