The payments landscape is highly dynamic, with rapid market innovation, tech developments, and shifting user behaviour. Our head of strategy, analysis and engagement, Dan Moore, looks at the changes in more detail – from consumer, merchant and industry perspectives.
A lot has changed in the payments ecosystem in recent years. Along with tech advances and shifts in consumer behaviour, we are operating in an increasingly interconnected and complex environment.
Keeping the payments landscape under review helps ensure that regulation focuses on the right areas. In this blog we consider how different users of payment systems are experiencing change and continuity. It expands on the developments we shared in our strategy update, which we published in January 2025.
The government has been clear that there’s an important role in ensuring payment systems are competitive, innovative and safe, and recently announced its intention to consolidate the PSR with the Financial Conduct Authority (FCA).
As we deliver on our important ongoing commitments to deliver change, we will continue to engage with parties across the ecosystem. In understanding the consumer, merchant, and industry perspectives, we can make sure we are focused on the right things, and support the next era of payments regulation.
The consumer perspective: more digital payments than ever, but cash remains important
Understanding the consumer experience is central to any view of the current payments landscape. One of the most notable trends is the growth of digital wallets.
It’s likely that more than half of UK adults now use digital wallets.1 The proportion of card transactions using a digital wallet rose from 8% in 2019 to 29% in 2023, with a higher proportion at in-store terminals.2
This is a major development – and we have been considering the opportunities and potential issues it presents, engaging in a joint project with FCA. We recently published what we have heard so far, and our next steps.
Overall, cards remain the most prevalent form of retail payment method. They are clearly well established, popular and play a big role in everyday transactions. In September 2024 alone, consumers made 2.2 billion debit and credit card transactions in the UK, 4.5% more than in September 2023.3 In this period, 65% of all credit card and 77% of all debit card transactions were contactless.4
Looking beyond cards, Faster Payments volumes rose by 14% in the 12 months up to and including September 2024, bringing the total volume to 4.9 billion per year – not far behind the 6.8 billion Bacs payments made over the same period.5
It’s likely that online banking and banking apps will spur on this trend. There are now over 11.7 million active users of open banking-enabled products in the UK, and over 22.1 million open banking payments made monthly, providing consumers and businesses with a simple, secure way to move, manage, and make more of their money.6
The spectrum of user experience is wide. Cash is still used in many transactions (and cheques to a lesser extent). Cash remains the second most popular retail payment method in the UK, after cards, which suggests that digital payments still don’t meet everyone’s needs.
Cash use has steadily declined, but recent data shows it has stabilised. In fact, the latest data from UK Finance shows an uptick, which could be because some consumers feel it gives them greater control of their spending.
Some consumers may also not fully trust digital payments. Fraud continues to pose a major threat and cause serious harm to businesses and consumers. Prevention is improving – in the first half of 2024, over £710 million of unauthorised fraud was prevented compared with £650 million in the same period in 2023.7
But fraudsters still stole over £570 million (through unauthorised and authorised fraud) during that period, as their methods become more sophisticated, and they harness new technology.8
Our new rules on authorised push payment (APP) fraud reimbursement have been effectively implemented and are already benefiting customers. We will continue to work closely with the FCA as it becomes the lead regulator on fraud, recognising its seriousness, its devastating impact on victims, and the damage it can do to people’s trust in payments. In doing so, we will continue to support a whole-system approach – recognising the important role that social media and telecommunications can play in closing down vulnerabilities that fraudsters exploit.
The merchant perspective: understanding merchant needs and sustaining SMEs
Ensuring that payment systems meet the needs of merchants and their business models is important for a healthy and growing economy. SMEs in particular are at the heart of the economy: in 2023 they represented over 99% of the UK business population, accounting for 61% of UK employment.9
For merchants, the current payments landscape presents both challenges and opportunities. Many have felt the impact of cost-of-living challenges, through higher business expenditure and changes in consumer spending habits. While card payments often work well and play an important role in our economy, merchants have raised concerns about the cost of accepting them. We have looked into these as part of our market reviews into cards.
But more and more smaller merchants have started accepting cards, as payment service providers have continued to expand. Card acceptance is now the norm for many microbusinesses.
Overall, from our engagement, we’ve found that merchants want payment services that offer choice, value for money, and are trusted by consumers. Although they’re concerned about the costs of payments, they value well-functioning and convenient payments. Merchants want to meet customer preferences and in general make their experience as seamless as possible.
Industry developments: innovation and competition
We’re seeing an expansion in number and types of industry players getting involved in payments. Tech giants like Apple and Google continue to cement their role, particularly by providing digital wallets and other new innovative services.
Across the board, industry participants are developing new products and services based on advancements in payments technology.
New retail account-to-account payment services, facilitated by premium application programming interfaces (APIs) are being developed, although aren’t yet widespread.
Meanwhile, digital authentication services have the potential to play a greater role in payments, including through biometrics. They can provide secure and efficient ways to authenticate users, help prevent fraud and enable seamless transactions, eliminating manual data entry.
AI is also increasingly relevant to payments. Industry has been using AI in payments for some time, particularly in fraud detection, but also to provide other benefits such as efficiency. We recognise that automated decision-making brings new risks, although innovators are proactively seeking solutions to these.
Alongside these developments, new digital assets and new payment systems are emerging. These include the Regulated Liabilities Network – an industry-led innovation initiative – and the current work being undertaken on a potential digital pound.
We are very interested in these innovations, and others, and will continue to engage closely with them as part of our enhanced focus on innovation, offering our support where we can.
So, what does this all mean?
We are already considering many of the developments discussed – our work with the FCA on digital wallets; our continued focus on APP fraud; our work with the FCA on open banking, and our market reviews on card fees. Our review of the payments landscape has helped highlight areas for focus, which we are committed to driving forward as we continue to deliver.
Our horizon-scanning work – on which we collaborate closely with other regulators – which tells us how industry is changing and is integral to how we work as we seek thriving, innovative payments systems which meet the needs of people and businesses and support economic growth.
We’re interested in your perspective on the key changes and developments in the landscape, and how they have affected you or your business – as well as what you are seeing as the key trends for the future. Share your thoughts with us at psrstrategy@psr.org.uk. We’d love to hear from you!
Hover over each document title for link to new window.
- FCA Financial Lives 2022 Survey slide 30 - 14% of UK adults stated that they had used a digital wallet in the previous 12 months in 2017, 28% in 2020 and 47% in 2022, so we have inferred that more than half of UK adults now use digital wallets.
- FS25/1: Big tech and digital wallets - PSR and FCA Feedback Statement
- UK Finance Card Spending Update September 2024
- UK Finance Card Spending Update September 2024
- Pay.UK payment statistics September 2024
- OBL celebrates seventh anniversary of PSD2 and the creation of open banking - Open Banking
- UK Finance, Half year fraud update 2023
- UK Finance Half Year Fraud Report 2024
- House of Commons Library - Business statistics