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Two watchdog agencies in the United Kingdom warned that the increasing use of “digital wallets” found on tech devices could harm users and the financial system if backups like physical cards or cash are not kept.
The Financial Conduct Authority and the Payment Systems Regulator issued a report Wednesday on the rising reliance on digital wallets and how it could affect consumer protection, innovation, and competition.
It said the proportion of card payments made via digital wallets like Apple Pay and Google has jumped threefold in the last few years – going from 8% in 2019 to 29% in 2023.
The report showed that 20% of card users utilized a digital wallet for more than 50% of their card transactions, and around 10% used it for more than 75% of their transactions.
The agencies said that digital wallets pose a risk for the financial system’s resilience because “operational failures” of the software “may temporarily prevent users from making payments, for both online and in-store transactions.”
“If consumers retain fallback options like physical cards or cash, systemic risk is minimal,” it continued.
“However, this risk may increase as individuals potentially become more dependent on digital wallets, as indicated by the increasing proportion of card users that use a pass-through digital wallet to make payments,” the report said.
The report comes after the UK’s Competition and Markets Authority last month began investigating whether Apple and Google have a “strategic market status in their mobile ecosystems.”
