The Financial Conduct Authority (FCA) and the Payment Systems Regulator *(PSR) have published a joint statement following their Call for Input, which was circulated last July, addressing the opportunities and risks involved in the mammoth take up of digital wallet use. Interest from the regulators has been sparked by this growth, with usage up from 8% in 2018 to 29% in 2023. The purpose of the statement is to ensure the views of the regulators are considered by the Competitions and Markets Authority (CMA), under its investigatory powers derived from the Digital Markets, Competition and Consumer Act, (which has been in force since 1 January 2025). The statement recognises the need to support these technologies, given the pace of change in consumer use and to support the Government’s wider agenda on growth and competition in the financial services industry.
The statement provides commentary on the drawbacks, particularly in relation to consumer harm and operational resilience.
Concerns have also been raised about Apple and Google’s market domination, pointing to the advantage their position in the mobile market brings them with digital wallets being pre-installed on devices.
Additionally, competition between payment systems is outlined as a concern, highlighting the dominance of card payments over other less mature payment methods such as A2A, stablecoins and central bank digital currencies.
Another area of concern is the impact on consumer rights and the potential for harm to the resilience of the financial system. The growing dependence on digital wallets (in favour of more traditional card payments), is thought to bring with it a risk of harm to consumers.
And finally, there is the argument around the regulatory perimeter, highlighting the balance needed between bringing digital wallets within the FCA’s remit (which could help to resolve the issues set out above) and stifling growth and innovation. Currently, not all digital wallet providers need to be regulated by the FCA, depending on the type of service provided.
Of the actions outlined in the statement, the FCA and the PSR are keen to work with other stakeholders to address the issues raised. To achieve this, it will work closely with the CMA on its ongoing investigations into the dominance of Apple and Google (through its Strategic Market Status investigations) and to determine whether regulatory intervention is needed. It will engage with HM Treasury to address concerns about the impact on the financial system and consumer protection issues due to changes to the regulatory perimeter.
Additionally, the regulators have in mind that digital wallets are set to become a key player in the management of cryptocurrencies and other digital assets. There is some debate as to whether cards will remain the main players in the market or whether they will be the key to broadening access to alternative payment methods. The best-case scenario would be the widening of access for consumers to all payment types, so they can choose the method that best suits their needs on a per transaction basis, but there is work to do before we reach this point. Whether or not all digital wallets ultimately fall within the FCA’s remit will depend on the risks identified and whether there is a need to promote higher standards for consumers. The statement concludes that fraud risk requires further investigation before any decisions can be made on the treatment of digital wallets, with the regulators stating that they will undertake further research and data collection “to gain a clearer understanding of the benefits and risks associated with emerging digital wallet features”.
For new entrants to the digital wallet arena and crypto market businesses, these developments will be worth keeping an eye on as growth continues and the regulators attempt to keep pace with the rate of change.
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If you have any specific questions or would like to talk to our digital payments experts about any aspect to your business, please get in touch with Sarah Drew or Rachel Hillier.
