You are aware of the fact that the money in your Savings Bank Account at your respective banks have got insurance. Even if the money got looted away you will get the money without any penny less from the insurance company. But things are different when you are dealing with online wallets. They may be having your money in their hands. Since they belong to the class of Non-Banking entities money balances in their wallets are not at all insured. This means that if they went bankrupt or lost their balance cash in some other way, the customer is no way going to get his money balance back.
How does it work?
Google Wallet came out with a solution for this. They decided to insure the cash balances of their customers in Google Wallet with Federal Deposit Insurance Corporation (FDIC). This became possible by the way that Google decided to keep the balances of customer’s funds with banks having FDIC cover. By doing so Google ensures safety for the cash balances of their wallet users. By giving FDIC insurance protection Google also wanted to ensure their customers that even if they go bankrupt their customers need not go to court to get their cash balances back.
But till date the Google Wallet’s agreement with the user does not guarantee for FDIC insurance for the money balance in Wallet. Yahoo Finance reported that Google’s Official spokesman confirmed it by a statement. He told Yahoo Finance that this is done by keeping the balance with numerous banking institutions with reputation and also having FDIC protection. Inspite of this he refused to provide any further details. He also refused to announce the date by which this new provision will be get updated in the user agreement for Google Wallet.
Effect of this on other Online Wallets
This might create a blow to other online wallet service providers such as PayPal, Venmo etc. They didn’t get their wallet balances insured by FDIC. The officials of these companies even refused to reveal the information about what they actually do with unused user funds in each account. Basically transferring funds via PayPal is really riskless. Since it involves a bank in between the payment process, funds that are not transferred get credited back in respective accounts and even if they get transferred, they get credited to concerned party’s account.
So you may end up asking when they cause risks of loss of money for the user. Imagine you have used PayPal to buy certain commodity and paid for it. After certain days, before delivery you just cancelled the order. The money will be credited to your PayPal instead of going back to your bank account. This money get sometimes stuck in online wallet until you direct it to your respective bank accounts. Since these funds are not covered by FDIC, if the company went bankrupt, you may have to approach court to get back your money.
Google really has come with an aim to aid and serve their customers with this move. By providing insurance they not only provided insurance cover against loss of fund but also provided an assurance to their customers they will get cash balances in wallet even if the company gets bankrupted. With this provision for protection of Google Wallet, they ensure their customers a class of protection equivalent to that provided by banks for their customers.