tl;dr
The United Kingdom Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) have raised concerns about the rapid growth of digital wallets. While acknowledging benefits such as convenience and security for consumers, the report highlighted competition issues among providers. The FCA...
UK watchdog report: Digital wallets' growth benefits consumers but raises competition concerns
The United Kingdom Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) have raised concerns about the rapid growth of digital wallets. While acknowledging benefits such as convenience and security for consumers, the report highlighted competition issues among providers. The FCA and PSR plan to engage with the government to review regulations with the aim of fostering innovation and ensuring a robust payments landscape. Additionally, the Competition and Markets Authority is investigating the two largest digital wallet providers, Apple and Google, to address competition concerns.
On Wednesday, the United Kingdom Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) published a joint report assessing the impact of digital wallets, finding significant benefits to consumers, while highlighting competition concerns related to providers. The use of digital wallets has rapidly grown in recent years, with the proportion of card transactions using a digital wallet increasing significantly from 8% in 2019 to 29% in 2023. Given the growth, the FCA and PSR engaged extensively with businesses and representative groups to assess the impact of digital wallets, finding significant benefits to consumers through greater convenience, enhanced security measures, and, for some, greater financial inclusion. However, along with these positives, the report also pointed out areas of concern, particularly the need for improvements to enable competition among digital wallet providers and allow new players to enter the market.
The FCA said this could bolster innovation and expand the range of alternative payment methods on offer, giving consumers more choice. It added that it had already shared its competition concerns and findings with the Competition and Markets Authority (CMA), the country’s competition watchdog, to avoid regulatory duplication. The CMA is currently investigating the two largest digital wallet providers, Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOGL), in respect of their mobile ecosystems. In terms of future plans, the FCA and PSR said they would be engaging with the Treasury—the government’s Economic and Finance Ministry—in reviewing the Payment Services and Electronic Money Regulations, with the aim of ensuring that the regulatory framework remains robust and adaptable to future developments in the payments industry.
"We will continue to embrace digital improvements that benefit consumers," said the FCA. "This includes progressing work on open banking and contactless payments to boost competition and enhance the UK’s growth and competitiveness." These efforts align with the National Payments Vision, a policy paper published in November 2024 that set out the government’s ambitions for the U.K.’s payments sector, specifically to deliver world-leading payments and support the growth mission. The FCA and PSR echoed this sentiment, saying their re-assessment of the payment system aimed to foster a modern, resilient, and innovative payments landscape that supports the evolving needs of consumers and businesses.
Recommended for you:
Round-up of the week’s biggest blockchain news The blockchain and digital asset space flourishes in the finance sector with new stablecoin projects, tokenized bonds, and developments in... By Gavin Lucas
Nigeria amends laws to tax digital assets Nigeria amends laws to tax digital assets The SEC is pushing to amend existing tax laws to target digital assets as the gov’t targets $17b in federal... By Steve Kaaru