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Doug Merrill, CEO, ZestCashDouglas Merrill helped launch Google into the online-payments business with Google Checkout. Now he’s looking to help people afford to shop online — or anywhere, for that matter — with a new short-term lending startup called ZestCash, whose site is going live today.

His cofounder, and ZestCash’s chief risk officer, is Shawn Budde, a veteran of Sears, Capital One, and Citibank.

“The payday loan business is fundamentally abusive,” said Merrill. “You pay $60 and you have $300 for 14 days. If you annualize that, it’s a lot of money. The average payday loan borrower rolls that over six times — they’ve gone through six two-week cycles of not being able to pay the principal. They’ve paid $420 to borrow $300 for four months, and they still owe the principal.”

Estimates of the size of the market vary. About 12 million people take out payday loans every year, according to the Center for Responsible Lending, though ZestCash thinks the actual number may be 30 million.

“There are more payday loan storefronts than there are Starbucks and McDonald’s,” said Merrill.

ZestCash’s loans, available in amounts up to $500, are currently only available in Utah, which Merrill argues is an “easier and safer” market for ZestCash to test its product in. Users set their own payment terms in terms of length of loan, though ZestCash charges a set loan-origination fee of $15 per $50 lent and annual interest fees of 120 percent. In the example of a $300 loan, a ZestCash borrower would pay $90 upfront and roughly $60 every two weeks over four months, at which point they’d have actually paid off the loan.

“We’re going to use Google-style data analytics to make sure you don’t take a loan you can’t afford,” said Merrill. “We’re going to apply all the technology we learned at Google to loan underwriting, which no one’s ever done before.”

Many in the Valley have been wondering what Merrill would do next after a high-profile if ill-fated attempt to save the music industry from itself as president of EMI’s digital unit. (He left EMI in 2009, a year after joining the music conglomerate, after it reorganized to eliminate the unit he ran.)

Merrill’s LinkedIn profile says he began work on ZestCash in May 2009, while Budde apparently signed on in April 2010. Several former Googlers, including Kasia Chmielinski and Sonya Boralv Merrill, are also involved. The company, based in Hollywood, Calif., has 7 employees and also uses some contractors.

ZestCash has raised a seed round from GRP Partners, Flybridge Capital Partners, and Merrill. Brian McLoughlin of GRP and Jeff Bussgang of Flybridge are advising ZestCash in conjunction with their firms’ investments.

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