A joint assessment by the Financial Conduct Authority (FCA) and Payment Systems Regulator (PSR) on the usage and impact of digital wallets has revealed that while they can provide “significant benefits” to consumers, there are also competition “concerns”.
Given the rapid growth in the use of digital wallets in recent years – with the proportion of card transactions using a digital wallet up from from 8% in 2019, to 29% in 2023 – the FCA and PSR sought views on the benefits and risks from businesses and representative groups.
Respondents’ feedback indicated that digital wallets represent “a significant opportunity” for consumers.
The majority of stakeholders highlighted that wallet users benefit from a “more seamless and efficient consumer journey, including enhanced authentication security measures and greater financial accessibility for underserved or excluded groups”.
The FCA and PSR reported that multiple stakeholders also raised potential competition, consumer protection and operational resilience concerns, however, with innovation in the supply of digital wallets and the effectiveness of the current regulatory framework surrounding digital wallets, among those that came to light.
Concerns were flagged about competition between digital wallets and competition between payment systems within digital wallets.
The regulators have informed the Competition and Markets Authority (CMA) of the competition concerns raised by their joint assessment, in order to “avoid regulatory duplication”.
The CMA is currently investigating the two largest digital wallet providers – Apple Pay and Google Pay – in relation to their mobile ecosystems, under the Digital Markets Competition and Consumers (DMCC) Act 2024.
In response to the CMA’s Invitation to Comment on its investigations, the FCA and PSR wrote: “While we have not drawn specific conclusions at this stage, we are clear that the competition issues and opportunities raised do require further consideration and investigation.
“We have carefully considered using the FCA and/or PSR’s powers to investigate these concerns. However, we believe the CMA, through its powers under the DMCC Act, is best positioned to investigate and if appropriate, impose conduct requirements.”
The FCA and PSR said they will continue to “embrace” digital improvements that benefit consumers, which includes progressing work on Open Banking and contactless payments to “boost competition and enhance the UK’s growth and competitiveness”.
The regulatory bodies launched their joint call for information on Big Tech and digital wallets in July last year and closed their call in September.
Further reading: FCA to deliver VRP, Open Finance in 2025 to ‘support growth’ in the UK
