Most of the money transfer services that have popped up in Silicon Valley over the last several years don’t directly offer any federal-level insurance, and Google Wallet—until today—was a pretty good example. But now, according to a report from Yahoo Finance, Google is adding FDIC insurance to the money you keep in your Wallet Balance by storing your funds in various FDIC-insured banking institutions…
The current Google Wallet Terms of Service reads:
With respect to the Processing Service, GPC processes Payment Transactions through the Processing Service as an agent of and on behalf of Sellers. Funds held by GPC or its service providers (including any bank service providers) in connection with the processing of Payment Transactions are not deposit obligations of Buyer and are not insured for the benefit of Buyer by the Federal Deposit Insurance Corporation or any other governmental agency.
While the current Terms of Service clearly reads that funds held by GPC (or Google Payment Corp.) are not insured by the FDIC, a Google spokesperson reportedly confirmed that this policy has changed. It’s not clear when the policy changed nor when the Terms of Service will be updated, but if for some reason you need to store large amounts of money in your Google Wallet Balance, you should probably be protected if something were to happen to Google.
This is a change that sets Google Wallet apart from its competitors, namely PayPal. Like Google Wallet, PayPal is categorized as a “non-banking institution” and isn’t legally required to FDIC-protect your funds. In fact, PayPal’s current user agreement reads: “If you do hold a Balance, that Balance represents an unsecured claim against PayPal and is not insured by the FDIC.” Essentially, in PayPal’s case, you’re lending them money for free—and it’s completely unsecured.
Notably, FDIC insurance for these bank-like services isn’t much of a worry to most people. It’s nice to see that Wallet is going to outright protect users’ funds, but these trendy new money services—especially those like Square Cash—are typically only intended for moving money from one FDIC-protected institution to another. And that’s how most people use them. That might change going forward, though. I could definitely see people wanting to use Google Wallet as a modern bank like Simple (if they know their funds are secure).