Author: Reporter - Sarah Barnett
Consumers can easily handle everything from buying coffee to attending concerts with just a tap on their smartphones; meanwhile, wallet applications are continuously adding new features such as lending, investing, cryptocurrency, digital IDs, and virtual cards. Regulators are stuck in old rules, chasing after new applications.
From "Beam Transfer" to Financial Life on Billions of Phones
As early as 1999—eight years before the first generation iPhone was released—a Silicon Valley startup named Confinity packaged PayPal.com as a "killer app," claiming that users only needed an email address to transfer money.
Even more outrageous, it started with a more peculiar concept: transferring funds using infrared "beams." Confinity famously demonstrated this at a breakfast spot called Buck's in Woodside, California: they "beamed" $3 million using Palm Pilot devices—an event later recounted during a talk by co-founders Max Levchin and Peter Thiel at Stanford.
Fast forward 25 years, the experiment of "email transfers" has evolved into a global digital wallet industry, housed in billions of smartphones—many users even feel that plastic cards are as outdated as landlines.
Wallets Are Now All-Powerful—This Is 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 rewards points
Financial technology players like PayPal and Block (the parent company of Cash App) are continuously enhancing features to compete for the next wave of users.
Who's Leading in the U.S.
Statista's survey results for the third quarter show that the most used payment services by U.S. users in the past 12 months are:
PayPal—32%
Cash App—25%
Apple—20%
Google—14%
Venmo—14%
Samsung—3%
According to Statista, 77% of respondents in the third quarter used at least one of the top three wallets (PayPal, Cash App, Apple); the survey was based on an online sample of about 60,000 U.S. adults aged 18-64.
The Federal Reserve's annual payment survey also shows rapid growth in mobile payments: consumers made an average of 11 mobile payments per month last year, compared to just 4 times in 2018. The 18-24 age group completed 45% of all payments via mobile; households earning less than $25,000 and those over 55 were more reliant on cash.
Globally, Juniper Research estimates that there are currently about 4.5 billion digital wallet users, predicting growth to 6 billion by 2029.
Data Dilemma: Big Tech Companies Reluctant to Disclose User Numbers
In the U.S., accurately measuring the scale of digital wallet usage is challenging because Apple and Google do not disclose user numbers and often categorize wallet performance under broader business categories.
Block is more transparent: Cash App disclosed it had 58 million active users as of September 2025.
CFPB Once Wanted to Wield a Bigger "Regulatory Stick"—Then It Was Withdrawn
As digital wallets expanded into areas more akin to "banks," the Consumer Financial Protection Bureau (CFPB) during the Biden administration pushed for more direct regulation.
Lacey Aaker, a former CFPB policy analyst now at Consumer Reports, believes the issue is simple: to the average user, digital wallets look like banks but may not have the same protections—and most people do not read the fine print about deposit insurance or which transfers are protected by federal rules.
In November 2023, the CFPB proposed a rule titled "Defining Larger Participants of a Market for General-Use Digital Consumer Payment Applications." The core idea was to bring the largest non-bank payment applications under the CFPB's regulatory oversight, including regular inspections like those for banks.
According to reports cited in this article, the CFPB's final rule (later overturned) was originally set to cover 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 CFPB did not publicly name the companies in the rule text. However, when Congress moved to overturn the rule, these names surfaced: the Congressional Review Act (CRA) resolution mentioned Google, Apple, Samsung, PayPal (and its 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, while lawmakers began efforts to repeal it. After Congress passed the relevant resolution, President Trump signed it in May, reversing the CFPB's regulatory direction.
Jonathan Pompan, a Washington attorney at Venable, described the CFPB's approach as trying to apply old consumer credit laws to modern payments, stating that Congress "pulled the plug."
Regulatory Reality Check: Digital Wallets Are Regulated—Just "Messy"
Even though the CFPB's "larger participants" rule was overturned, digital wallets remain under a dense web of legal regulations.
According to sources cited in this article, primary regulations typically include:
State money transmitter licensing (and corresponding enforcement powers)
Federal consumer protection requirements related to Electronic Fund Transfer Rules (Reg E / EFTA) (specific applicability depends on product and transaction type)
Enforcement of UDAP/UDAAP (unfair, deceptive, or abusive acts or practices) by agencies like the CFPB and FTC
Where applicable, Treasury/ FinCEN requirements for financial crime compliance
Regulatory constraints borne by partner banks when wallet funds flow through insured deposit institutions
Laura Huntley, managing director at FTI Consulting and a former bank regulatory attorney, candidly stated: digital wallets have always been regulated and will continue to be regulated—just within what she calls a "dense and messy" framework. A spokesperson for the Financial Technology Association similarly emphasized that wallet companies are under high regulation through state licenses and banking partnerships.
CFPB Itself Has Become Part of the News
This article points out that the future of the CFPB is under scrutiny, including controversies related to its funding mechanism, as well as reports from multiple media outlets that its enforcement work has shifted to the Department of Justice, accompanied by potential layoffs.
Huntley and others also noted that if federal enforcement weakens further, a possible outcome is that state attorneys general will "fill the gap" and become the new primary market regulators.
Why the U.S. Differs from Markets Like India and Brazil
Statista analyst Raynor de Best believes that the U.S. has not built a payment system around digital wallets from scratch because Americans have long been deeply using credit and debit cards.
In many emerging markets, mobile payment infrastructure and regulation have grown almost in sync; whereas the U.S. is trying to "bolt on" wallet regulation to a complex federal/state dual structure built on a mature card payment system.
Trust Is Everything
Consultants cited in this article state that compliant wallet platforms have a strong incentive to protect users: once trust is lost, the foundation for platform growth is gone.
Google stated that it maintains communication with regulators and supports a consistent regulatory framework that protects consumers while promoting innovation.
Owen Jennings, head of business at Block, noted that Cash App's recent expansions—including digital currency and broader lending—reflect users' current lifestyles but also raise the "trust threshold": as applications become complete financial platforms, risks and responsibilities also increase.
Impact on MSBs
For MSBs and payment practitioners, the real risk is not "no regulation," but rather cognitive confusion, regulatory inconsistency, and the continuous expansion of product functionalities.
Disclosure and User Expectations: Users may assume that their balances are protected by deposit insurance or that dispute resolution is consistent with bank accounts—but the scope of protections may vary across different functionalities.
Reg E Operations: When wallets blend transfers, cards, stored value, and third-party channels, error handling and unauthorized transaction processing become complex.
State License Pressure: "Puzzle-piece regulation" is still in play—expanding business into new functionalities may trigger new state and federal compliance obligations.
Dependence on Partner Banks: If your model relies on bank sponsorship/partnership, the disappearance of CFPB rules does not mean the compliance burden disappears.
Complaint Handling Pathways: Even without new CFPB oversight layers, consumer complaints and reputational impacts can still be highly damaging.
What to Watch Next
If federal regulation continues to weaken, will state attorney general enforcement accelerate?
Which new regulators and rules will be brought into play by the expansion of wallet functionalities (lending, cryptocurrency, investment)?
Market Trust Incidents: A significant consumer harm event could quickly shift the political winds back toward "strong regulation."
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