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In response to Competition and Markets Authority (CMA) investigations into Apple and Google, the UK regulators have released a joint feedback statement assessing the growing use of digital wallets and their impact on consumers and businesses.
The report from the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) factors in feedback from stakeholders such as Amazon, Klarna, PayPal and Visa, and highlights the increasing reliance on digital wallets for payments.
The proportion of card transactions made via these platforms increased from 8 percent in 2019 to 29 percent in 2023, according to the regulators.
The proportion of consumers relying on pass-through digital wallets for most of their card transactions is also growing.
Approximately 20 percent of card users use a digital wallet for more than 50 percent of their card transactions, and around 10 percent use one for more than 75 percent of their transactions.
“Respondents’ feedback indicates that digital wallets represent a significant opportunity for consumers,” the regulators suggested in a letter to the CMA.
“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.”
However, concerns were also raised about competition within the digital wallet market, with calls for improved access to encourage innovation and allow new providers to enter the space.
In their letter to the CMA, the FCA and the PSR expressed particular concerns about competition between digital wallet providers and competition within payment systems operating within these wallets.
“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,” the letter says.
In response to the competition concerns raised, the FCA and the PSR have signalled their willingness to collaborate with the CMA and other regulators to guarantee fairness in the digital payments landscape.
The authorities have also said that they will engage with the Treasury as part of an ongoing review of the Payment Services and Electronic Money Regulations to ensure the regulatory framework remains fit for purpose.
NFC issues
The feedback statement also notes Apple’s historic restriction on near field communication (NFC) chip access in iOS devices, pointing out that reduced competition concerns have been raised.
With iOS 18.1, Apple has opened access to the NFC chip and secure element (SE) for third-party wallets, but it remains unclear how many developers have reached agreements to use this functionality.
According to the regulators, stakeholders argue that alternative payment technologies, such as QR codes, do not offer the same security and reliability as NFC.
They also note that merchants have invested heavily in NFC-compatible terminals, making a transition to other systems costly.
In addition, Apple’s restrictions may have discouraged competition by preventing economies of scale, limiting innovation in digital wallets.
Respondents stated that greater competition could have seen digital wallets expand beyond payments to offer financial insights, integrated banking services and identity verification features.
Another major issue uncovered is Apple’s card issuer fees, which Google Pay does not charge.
With no alternative NFC wallets on iOS, card issuers have little choice but to pay Apple’s fees, reducing their ability to invest in competing solutions.
Although Apple’s decision to allow NFC access in the UK could foster competition, stakeholders noted that access comes at a cost.
This contrasts with the situation in the EU, where Apple provides NFC access for free since commitments made to the European Commission last year.
Operational resilience and security
Operational resilience is another topic that came up with stakeholders, the regulators said.
An operational failure in digital wallets could temporarily block user access to funds, disrupting both in-store and online transactions.
Although consumers could mitigate this by switching wallets or using physical cards, growing reliance on digital wallets may increase the risk of significant harm over time.
Pass-through wallets such as Google Pay and Apple Pay enhance security through strong customer authentication (SCA), such as biometrics and PINs.
However, card issuers remain responsible for SCA compliance and fraud reimbursement through current payments law and, although digital wallets are generally secure, their increasing popularity exposes them to emerging fraud tactics such as social engineering and phishing.
Respondents to the call for evidence warned that victims may suffer financial losses, emotional distress and credit damage, especially if reimbursement is delayed, adding that fraud risks may grow as wallets integrate identity-related features.
The FCA and the PSR pointed out that these concerns create a liability gap, noting that although wallet providers control authentication, card issuers bear responsibility for unauthorised transactions, potentially reducing wallet providers’ incentives to invest in fraud prevention.
Some stakeholders suggested shifting partial liability to wallet providers, although evidence of its effectiveness is limited.
Next steps
Going forward, the FCA and the PSR will collaborate with the CMA in its investigation of digital wallets under the Digital Markets Competition and Consumers (DMCC) Act.
The CMA’s focus includes potential barriers within mobile ecosystems, such as Apple and Google restricting third-party wallet access.
The CMA launched its investigations in January, with a decision due by October 22, 2025, and the FCA and the PSR said they will contribute to ensure effective competition and innovation.
Meanwhile, the FCA will review consumer protection and operational resilience risks under the Payment Services and Electronic Money Regulations.
It has not ruled out redefining liability between wallet providers and card issuers, something the European Commission’s Payment Services Regulation (PSR) also suggests.
Further research will also assess fraud risks, and the FCA has said that it will engage with HM Treasury to explore regulatory perimeter changes.
“We will continue to embrace digital improvements that benefit consumers. This includes progressing work on open banking and contactless payments to boost competition and enhance the UK’s growth and competitiveness,” the regulators said.
“These efforts align with the National Payments Vision of a modern, resilient and innovative payments landscape that supports the evolving needs of consumers and businesses.”
