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The US Consumer Financial Protection Bureau (CFPB) has warned that funds held on peer-to-peer (P2P) apps such as PayPal, Venmo and Cash App may not be insured, and urged consumers to transfer their savings to banks.

In a issued last week, the agency cautions that some P2P digital wallets are not as safe as banks and sometimes their rules are unclear about what happens to consumers’ money if they go down.

“Your user agreement might be confusing, murky, or even silent on exactly where your money is held or invested”, and what happens in the case of a nonbank payment app’s bankruptcy, the CFPB says.

By contrast, funds held at insured banks and credit unions are protected up to $250,000 if those institutions fail.

The advisory comes as the use of P2P payments has quadrupled in the last four years.

More than three-quarters of American adults have used at least one type of payment app, with transaction volume across all service providers reaching around $893bn last year. This is expected to grow to nearly $1.6trn by 2027, according to CFPB .

The most popular apps are PayPal, with 57 percent of US consumers using it, followed by Venmo (38 percent), Zelle (36 percent) and Cash App (26 percent).

CFPB director Rohit Chopra said his agency is “sharpening its focus” as technology companies expand into banking and payments.

But affected fintechs disagree with the agency.

According to the Financial Technology Association (FTA), whose members include Block, PayPal and Wise, these accounts “are safe and transparent” and users receive federal FDIC insurance depending on the products they use.

“FTA members provide clear and easy-to-understand terms in all their products and prioritise consumer protection every step of the way,” the association’s spokesperson told VIXIO.

For instance, PayPal offers FDIC pass-through insurance on PayPal Savings through its partnership with Synchrony Bank, as well as on other products, such as funds received through PayPal and Venmo’s Direct Deposit or remote check capture, PayPal’s spokesperson said.

Similarly, Block’s CashApp federal insurance for stored balances of Cash Card customers, while UK fintech Wise also pass-through insurance via J.P. Morgan to those customers that opt in to receive interest on their Wise USD balance.

Among the bigtech players, Apple Pay has pass-through insurance if the customer registers the account with Green Dot Bank, but there is no available information on whether funds stored in Google Pay are covered by federal insurance.

But even if these apps offer pass-through insurance, consumer advocates argue it is not enough to address all concerns, as it triggers only when the bank fails but not when the payment app does.

There are also concerns that the conditions for pass-through insurance are so complex that consumers may not know for sure whether they apply or not until a failure takes place and regulators issue a final determination.

Although payment apps typically make their revenue from transfer fees and other purchase charges, interest earned on customer funds is increasingly becoming a significant revenue source, particularly in today’s high-interest environment.

Wise’s latest quarter , for instance, show that interests earned on customer balances made up 20 percent, or £56m, of its £279.5m total income, a 29 percent increase compared with the previous quarter.

To mitigate some of the risks raised by consumer advocates, , , and rules all state that they keep customers’ money separate from the money they use to run their business.

According to a Wise spokesperson, it follows similar rules in the US as they do in Europe to “safeguard” their customers’ funds. Among others, this means they hold customer funds with the largest US banks and in assets that are deemed low risk and highly liquid.

Other fintechs, however, may invest users’ funds in riskier loans.

Unlike in Europe, there is no federal law in the US that requires P2P apps to hold customer funds in low-risk securities.

Most of the P2P digital wallets operate under a money transmitter license and state laws describe what constitutes a "permissible investment" for money transmitters.

However, many state laws allow money transmitters to invest in higher-risk loans and several others impose no restrictions at all.

This means that although P2P apps, as money transmitters, may not lend out money and could be considered safer than banks, they could still undertake riskier investments that could affect the company’s viability, in addition to other factors.