[kmoser]

> Here, you have entities storing unsecured funds and doing god knows what with it.

Your first mistake is assuming that when you transfer, say, USD $500 into your Paypal (or Venmo or...) account, your Paypal account now holds USD $500. Rather, you are effectively exchanging USD $500 for Paypal bucks. When you transfer your Paypal bucks back out to a bank account, you are effectively purchasing fiat currency with your Paypal bucks.

That Paypal shows your balance in USD (or whatever currency you use) is misleading; it's similar to a mutual fund balance which shows the current value of your shares in USD. You don't actually own USD $500; you own 500 Paypal bucks which have a current theoretical value of USD $500, and are thus not subject to banking regulations.

I'm not saying this is good, or that it should be this way, but rather that's effectively how it works.

Now, can somebody tell me why banking regulations don't apply to my airline miles? After all, I've earned them and they are theoretically worth USD, so shouldn't they be protected?

[acdha]

If that were true, PayPal would be able to generate an easy profit by saying “PayPal bucks” are worth $0.80. They have the ethics to do that but they don’t because they do in fact keep their books in real currency and if you transfer $100 USD they have a legal obligation to give you that amount.

What it’s not is an FDIC insured bank, so if they make a huge mistake you’ll be one of millions of people making claims against whatever assets they have left.

[schoen]

> PayPal would be able to generate an easy profit by saying “PayPal bucks” are worth $0.80.

Though that would be extremely harmful to their ongoing business because it would make funds transfers have a phenomenally high overhead.

[jjav]

> if you transfer $100 USD they have a legal obligation to give you that amount

I don't think they have any legal obligation, given the large number of times they have decided to simply keep people's money and never return it for no discernible reason.

Sure, most of the time for most people you can get the money out just fine, but no guarantees with paypal (venmo, etc).

[acdha]

They wouldn’t need the terms of services clauses they’ve cited in those cases if they could just say “we have no obligation to give you the same amount as we received”.

[Alupis]

They already do this, just not for "friends & family". That's part of the hook to get so many people to sign up and use it, making it a huge value-add for businesses.

Any sort of business transaction pays fees, making $1 equal roughly $0.97.

[arcticbull]

Absolutely not, the balance is net of transaction fees and the fees are removed and segregated.

[Alupis]

This is a distinction without a difference.

The business sells a product for $100, and receives $97 for it...

[arcticbull]

You should review the money transmitter rules under which PayPal is regulated. They’re not the same as banks, they have a much narrower charter; but they are required to safeguard those dollars and that is what is represented in your account. There’s generally a small set of permitted investments that are intended to as closely as possible track dollars.

It doesn’t have a similar characteristic to a mutual fund balance, it’s closer to a money market fund.

[toast0]

> Now, can somebody tell me why banking regulations don't apply to my airline miles? After all, I've earned them and they are theoretically worth USD, so shouldn't they be protected?

Are airline miles theoretically worth USD? Afaik, they exchange for flights on a X points = Y class flight basis, not on a dollar basis. Yes, you can usually buy more miles for USD, but price to buy isn't price to sell.

[butlerm]

FDIC member banks are subject to regular and special assessments by law to pay for deposit insurance up to the legal limit for their depositors. Much like insurance premiums. I do not imagine that your airline pays for airline mile insurance on your behalf to anyone.

[toast0]

Sure, because they can devalue the miles. Welcome to our newest mileage program where now you need 2x the miles to get anything good.

[hurril]

This is true but it is also a distinction without meaningful difference. Transferring money from your account in Bank A to one i Bank B poses the same "problem." It's not Bank A bux to Bank B bux, it's $currency. But what actually happened is that an "excel sheet" in Bank A went from +$XXX,XX to +$(XXX,XX - 500) and the other's $(YYY,YY + 500); part of one bank's liability (their debt to you) was transferred onto another bank. Now Bank B owes you (at least) USD $500. Whether or not they see fit to make you whole that amount is akin to whether or not PayPal would.

Kicker: if it can't or doesn't want to pay you, that's a you problem.

[rasz]

Not in EU where Paypal was forced to become a bank.

[butlerm]

> Your first mistake is assuming that ... your...account now holds USD $500.

Same mistake with making an uninsured deposit at any bank. A deposit at a modern bank is just a possibly insured low or no interest loan to the bank. It does not mean that the bank actually has sufficient assets to back it up or can liquidate them in time. It is bank money exchangeable for U.S. currency, but not U.S. currency. A large number of mostly business depositors at three sizable banks almost found that out the hard way in the past few months. If the FDIC did not stretch the law those businesses might be getting cents on the dollar months if not years down the road.