According to the Payment Systems Regulator (PSR), the proportion of card transactions using a digital wallet increased significantly from 8% in 2019 to 29% in 2023.
But the PSR has warned that some people may become “more dependent” on digital wallets, which could leave them in difficulties if the technology fails and they don’t have a backup option.
The figures were published in a report by the PSR produced in conjunction with the Financial Conduct Authority (FCA) – the two bodies announced the launch of an investigation into digital wallets last year.
It found that, in 2023, approximately 20% of card users used a digital wallet for more than 50% of their card transactions.
Apple Pay and Google Pay are the two largest providers of digital wallets in the UK. These digital wallets allow users to make payments from a payment card, but do not hold funds themselves. They rely on converting payment card details into a ‘token’ that securely links the card’s primary account number to a virtual card on a consumer’s device.
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The risks of relying on digital wallets
The Big tech and digital wallets feedback statement published by the PSR and FCA warned there were risks related to the growing use of the technology.
The report highlighted that digital wallets “could impact the financial system’s resilience, as operational failures of digital wallets may temporarily prevent users from making payments, for both online and in-store transactions”.
Researchers noted that if consumers retain fallback options like physical cards or cash, the systemic risk is minimal. 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.
Another issue raised by the report was what happens when a mobile phone is stolen. The PSR warned that although biometrics and two-factor authentication help to tackle unauthorised transaction fraud, fraudsters continue to adapt their techniques.
One example of this is social engineering, where a fraudster manipulates a victim into sharing sensitive information, such as card details or login credentials, which the fraudster then uses to load the victim’s card into their own digital wallet. Another tactic involves phishing attacks, where cybercriminals send fraudulent emails or messages designed to steal wallet login credentials.
