Digital wallet providers: How the joint FCA and PSR report will impact you 

The Financial Conduct Authority (FCA) and Payment Systems Regulator (PSR) have published their joint report on digital wallets, outlining potential risks, competition concerns, and future regulatory considerations. The report is part of a broader assessment of the role of Big Tech in UK financial services, reflecting an increase in regulatory scrutiny on digital payment solutions. 

Key findings and regulatory context 

The FCA and PSR report on digital wallet usage and impact examines the rapid expansion of digital wallets, focusing on areas where increased regulation may be necessary in the future. Key points include:  

• Market dominance and competition risks: The report highlights concern over the concentration of digital wallet providers, particularly regarding the influence of major technology firms in the UK payments sector, such as Apple (Apple Pay) and Google (Google Pay). The regulators assess whether dominant providers stifle competition by restricting access to payment networks or limiting consumer choice. 

• Consumer protection and financial crime risks: The FCA and PSR are evaluating whether digital wallet providers adequately safeguard consumer funds and whether existing protections under the Payment Services Regulations 2017 (PSRs 2017) are sufficient. 

• Future regulatory considerations: While no immediate rule changes have been introduced, the FCA and PSR are considering whether additional regulations are required to address emerging risks. This includes the potential inclusion of digital wallet providers within the FCA’s regulatory perimeter as part of the upcoming review of the Payment Services and Electronic Money Regulations by HM Treasury. 

Opportunities in Digital Wallets 

Beyond regulatory concerns, the report highlights key opportunities, stating that digital wallets drive new payment solutions and increase financial accessibility. This includes expanding non-card payment options, particularly for retail transactions, and presenting opportunities for partnerships between fintechs, traditional banks, and regulators to enhance competition and efficiency. 

Implications for providers of digital wallet solutions 

Although the report does not impose new compliance requirements, it signals areas where providers may need to strengthen their regulatory approach. Digital wallet providers should: 

• Monitor potential regulatory changes: The FCA and PSR’s findings indicate that stricter oversight may be introduced, particularly concerning market dominance and consumer protection. 

• Assess risk management frameworks: Providers should review their internal compliance and risk management policies to ensure alignment with existing FCA and PSR expectations. 

• Engage with regulatory developments: The government’s broader review of payment regulations could lead to more stringent requirements for digital wallet providers. Staying informed and engaging with consultations will help providers anticipate regulatory changes and adapt their compliance strategies accordingly. 

Our Financial Services Partner, John Pauley, commented: 

With regulators closely examining the role of digital wallets in the UK market, providers should proactively assess their compliance frameworks. Engaging with regulatory developments now can help businesses stay ahead of potential changes and maintain a competitive edge.

How we can help you 

Our financial services solicitors specialise in helping digital wallet providers navigate their regulatory obligations. From FCA registration to compliance with digital wallet, e-money, and payment services regulations, we offer guidance to help you understand and meet the requirements set out by the FCA and PSR. We can also assist with reviewing your consumer agreements and risk management policies and ensuring your business is aligned with the latest regulatory changes.