The wallet revolution: FCA and PSR publish call for information on Big Tech and digital wallets

How did you pay for your coffee today? Because the UK Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) are interested. On 15 July 2024 they launched a joint call for information on the benefits and risks that digital wallets such as Apple Pay, Google Pay and PayPal bring to people and businesses. This regulatory attention follows the success of digital wallet offerings as Big Tech expands into the payments space, and it is likely that more than half of UK adults now use one. 

What is in the call for information?

The PSR is particularly interested in understanding how digital wallets impact consumers’ choice of payment options at checkout. It hopes to gain a better understanding of the implications of digital wallets’ growing role in payments, and the implications for competition between payment systems. This includes focus on the PSR’s strategic objective of unlocking the potential of account-to-account payments.

The FCA’s regulatory remit gives it a particular interest in how digital wallets may impact competition in the supply of financial services, and the operational resilience and systemic safety of the UK financial services sector. Both regulators have an interest in how digital wallets might impact consumer rights and protections.

These points have caught our eye:

1. ‘Digital wallets’ are a broad church, which may impact the future of this workstream. Digital wallets differ in various ways, including the types of payments they enable. Some digital wallets facilitate retail transactions (such as in-store contactless mobile payments or online payments from a laptop or desktop), others allow peer-to-peer payments, and some do both. They can also differ in the technology that they use: some digital wallets make use of a mobile device’s near-field communication (NFC) chip in the same way as contactless cards; others may use QR code or barcode technology. While these scenarios raise broader questions regarding the role of Big Tech firms in financial services and the opportunities they generate, it remains to be seen how the FCA and the PSR will group the various use cases and types of digital wallets together when conducting their analysis.
2. All eyes on ecosystems: drilling into that NFC point in a bit more detail, the regulators are seeking views on whether practices that limit access to mobile device functionality could raise barriers to entry for digital wallet providers and, if so, if they are justified by security benefits and convenience for service users. Last week, the European Commission accepted commitments from Apple to address competition concerns relating to Apple’s refusal to grant rivals access to the NFC technology on iPhones, while reserving such access to Apple Pay. With digital ecosystems having become such a hot topic, it will be interesting to see how the FCA and the PSR will analyse the relationship between digital wallets and mobile ecosystems and how they will weigh up the efficiencies and benefits accruing to consumers in this context.  
3. Expect increasing levels of regulatory cooperation: on that note, some of the issues examined by the FCA and the PSR will be relevant to the work of the Competition and Markets Authority (CMA), both in respect of the CMA’s current powers and those it will acquire under the new digital markets regime created by the Digital Markets, Competition and Consumers Act 2024. The reforms, which are expected to come into effect later this year, introduce a targeted regime aimed at increasing competition in digital markets, to be overseen by the Digital Markets Unit within the CMA (see our previous Competition & Regulatory newsletter). The FCA and the PSR have stated that they are already engaging with the CMA as it takes on these new powers, and intend to continue to liaise closely. We can expect the regulators to be very active in sharing information with each other in this space. 
4. Big Tech entry into financial services continues to raise questions about financial resilience. The FCA is currently of the view that, if digital wallet services stopped working, this would cause disruption to individual parties rather than be likely to pose a threat to the wider financial system. Nevertheless, its emphasis on the question of financial resilience in the call for information reflects its concerns that Big Tech may not be adequately captured by existing financial regulation. These are evidenced elsewhere by an incoming operational resilience regime for critical third parties to the UK financial sector.

This workstream does not exist in a vacuum. The FCA has already been keeping a watchful eye on Big Tech entry into retail financial services for some time.  

Stakeholders are invited to respond to the call for information by Friday 13 September. The FCA and the PSR intend to provide an update on their work by Q1 2025, which they expect will “inform [their] continued engagement with the CMA on digital market issues”.