Digital wallets are booming, but regulatory authorities are still "catching up"

Article: Reporter - Sarah Barnett ( Sarah Barnett )

Consumers can complete everything from buying coffee to entering a concert with a simple tap on their smartphones; meanwhile, wallet apps are continuously adding new features, such as lending, investing, cryptocurrencies, digital credentials, and virtual cards. Regulators, on the other hand, are stuck in old rules, chasing after new applications.

From “Beam Transfers” to a Billion-User Financial Life on Mobile

As early as 1999—eight years before the first-generation iPhone was released—a Silicon Valley startup called Confinity packaged PayPal.com into a “killer app,” claiming users only needed an email address to transfer money.

Even more astonishing is that it started with a more peculiar concept: transferring funds via infrared “beam.” Confinity famously demonstrated this at a breakfast shop called Buck’s in Woodside, California: using a Palm Pilot device to “beam transfer” $3 million—an event later recounted during a speech by co-founders Max Levchin and Peter Thiel at Stanford.

Fast forward 25 years, the “email transfer” experiment has evolved into a global digital wallet industry, embedded in billions of phones—many users even find plastic cards as outdated as landline phones.

Wallets Now Do Everything — This Is the Key

Today’s digital wallets are no longer just payment tools. They can also store:

• Digital driver’s licenses and passports
• Tickets and passes
• Cryptocurrencies
• Stocks and trading tools
• Lending and payroll deposits
• Virtual credit/debit cards and reward points

Fintech players like PayPal and Block (the parent company of Cash App) are continuously adding features to compete for the next wave of users.

Who Is Leading in the US

A third-quarter survey by Statista shows that over the past 12 months, the most used payment services among US users are:

• PayPal — 32%
• Cash App — 25%
• Apple — 20%
• Google — 14%
• Venmo — 14%
• Samsung — 3%

Statista states that among respondents in the third quarter, 77% had used at least one of the top three wallets (PayPal, Cash App, Apple); the survey was based on online samples of about 60,000 US adults aged 18–64.

The Federal Reserve’s annual payments study also shows rapid growth in mobile payments: consumers last year used their phones for an average of 11 times per month, up from just 4 times in 2018. The 18–24 age group completed 45% of all payments via mobile; households earning less than $25,000 annually and those over 55 rely more on cash.

Globally, Juniper Research estimates there are currently about 4.5 billion digital wallet users, projected to grow to 6 billion by 2029.

Data Challenge: Big Tech Companies Don’t Like Disclosing User Numbers

In the US, it’s difficult to precisely measure the scale of digital wallet usage because Apple and Google do not publish user numbers and often include wallet services within broader business categories.

Block is more transparent: Cash App disclosed it had 58 million active users as of September 2025.

CFPB Once Tried to Wield a Bigger “Regulatory Stick”—Then It Was Taken Away

As digital wallets expand into more “bank-like” domains, the Biden administration’s Consumer Financial Protection Bureau (CFPB) has pushed for more direct regulation.

Lacey Aaker, a former CFPB policy analyst now working at Consumer Reports, believes the issue is simple: to ordinary users, digital wallets look like banks but may not have the same protections—most people don’t read the fine print about deposit insurance or which transfers are protected under federal rules.

In November 2023, the CFPB proposed a rule titled “Defining Larger Participants of a Market for General-Use Digital Consumer Payment Applications.” Its core idea was to include the largest non-bank payment apps under CFPB oversight, including routine examinations similar to those for banks.

According to reports cited in this article, the final CFPB rule (later overturned) would have covered 7 non-bank entities processing at least 50 million consumer transactions annually—accounting for about 98% of the 13.5 billion consumer payment transactions.

The rule did not publicly name companies in the text. However, when Congress moved to overturn it, these names surfaced: the Congressional Review Act (CRA) resolution mentioned Google, Apple, Samsung, PayPal (and Venmo), Block (Cash App), and Meta (Facebook).

The rule was set to take effect in January 2025, but tech companies filed lawsuits to block it, and legislators began efforts to repeal it. After Congress passed related resolutions, President Trump signed in May, reversing the CFPB’s regulatory approach.

Jonathan Pompan, a Washington-based attorney at Venable LLP, described the CFPB’s approach as trying to apply old consumer credit laws to modern payments, and said Congress “pulled the plug.”

Regulatory Reality Check: Digital Wallets Are Regulated—Just Not “Consistently”

Even though the CFPB’s “Larger Participants” rule was overturned, digital wallets remain under a dense web of legal regulation.

According to experts cited in this article, the main regulatory areas include:

• State-level money transmitter licensing (and enforcement authority)
• Federal consumer protection requirements related to Electronic Fund Transfer Rules (Reg E / EFTA) (applicable depending on product and transaction types)
• Enforcement by CFPB, FTC, and other agencies against UDAP/UDAAP (Unfair, Deceptive, Abusive Acts or Practices)
• Within scope, the Department of the Treasury / FinCEN requirements for anti-money laundering compliance
• When wallet funds are processed through depository institutions, regulatory constraints imposed by partner banks

Laura Huntley, a managing director at FTI Consulting and former banking regulator lawyer, states plainly: digital wallets are under regulation and will continue to be—just within what she calls an “intense and chaotic” framework. A spokesperson from the Financial Technology Association also emphasized that wallet companies, through state licenses and banking partnerships, are highly regulated.

CFPB Itself Has Also Made News

The article notes that the future of CFPB faces scrutiny, including disputes over its funding mechanism, and reports that its enforcement work has shifted to the Department of Justice, with potential layoffs.

Huntley and others also point out that if federal enforcement weakens further, a possible outcome is that state attorneys general will “step in” to become the new primary market regulators.

Why the US Differs from Markets Like India and Brazil

Statista analyst Raynor de Best believes the US has not built a payment system around digital wallets from scratch because Americans have long extensively used credit/debit cards.

In many emerging markets, mobile payment infrastructure and regulation have grown almost simultaneously; in the US, it’s a mature card payment system layered with attempts to regulate wallets within a complex federal/state dual structure.

Trust Is Everything

Consultants cited in this article say that compliant wallet platforms have a strong motivation to protect users: once trust is lost, the platform’s growth foundation is also lost.

Google states it maintains communication with regulators and supports a consistent regulatory framework that protects consumers while fostering innovation.

Owen Jennings, head of business at Block, says that recent expansions of Cash App—including cryptocurrencies and broader lending—reflect current user lifestyles but also raise the “trust threshold”: as apps become full-fledged financial platforms, risks and responsibilities increase accordingly.

Impact on MSBs

For MSBs and payment providers, the real risk isn’t “lack of regulation” but confusion, inconsistent regulation, and expanding product features.

• Disclosure and user expectations: Users may assume their balances are insured like deposits or that dispute resolution is the same as with bank accounts—but protections may differ across functions.
• Reg E operations: When wallets combine transfers, cards, storage, and third-party channels, error handling and unauthorized transaction management become complex.
• State licensing pressure: “Puzzle-piece regulation” persists—expanding into new features may trigger new state and federal compliance obligations.
• Dependence on partner banks: If your model relies on bank sponsorship or cooperation, the disappearance of CFPB rules doesn’t mean compliance burdens go away.
• Complaint pathways: Even without new CFPB oversight, consumer complaints and reputational damage remain highly damaging.

What to Watch Next

• If federal regulation continues to weaken, will state attorneys general enforcement accelerate?
• Which new regulators and rules will be drawn into the expanding wallet functions (credit, crypto, investing)?
• How will market trust crises—a major consumer harm event—rapidly shift political winds back toward “strict regulation”?