UK Digital Payment Market

4.1 OVERVIEW The UK's Digital Payments sector is undergoing one of its major changes, driven by a mixture of behavioural changes, regulatory ambition, and the speed of technology adoption. The UK has been steadily transitioning to a predominately digital-first economy, with cards, mobile wallets, and account-to-account transfers underpinning consumer and business payments. According to UK Finance, cards now account for nearly two-thirds of all payments in the UK, and contactless payments are now standard in retail, transport, and hospitality. Mobile wallets are increasing across all demographics - particularly in younger consumers - indicating that the UK represents one of Europe's more developed tap-to-pay economies. Cash use is structurally declining and below 10% for the first time ever, nevertheless, policy makers are highly committed to ensuring cash access across the nation - creating a tension between innovation and safe inclusion. Simultaneously, interbank digital payments are starting to trend upwards, with faster payments now supporting payroll and bill payments, peer-to-peer and low/medium payments to the same scale historically. One key part of the disruption to the market is open banking. Open-rate payments, with tens of millions of active consumers, and the growing participation of merchants carry potential low lower-cost, friction-free account-to-account (A2A) commerce. Variable recurring payments (VRPs) will add momentum in subscriptions, utilities, and automated management, with a disruption to decades of card-based use cases. Equally important, regulation is changing the market. HM Treasury, the FCA, and the Payments Systems Regulator are creating a more competitive, interoperable, and secure environment with their different tools to support staying Safe, including Strong Customer Authentication (SCA) fraud-reimbursement frameworks, and the New Payments Architecture (NPA) will offer a new infrastructure to deliver the next decade of instant, real-time, API-driven payment solutions. FIGURE 1 UK DIGITAL PAYMENT MARKET: MARKET GROWTH FACTOR ANALYSIS (2022-2032) Source: MRFR Analysis Copyright © 2024 Market Research Future 39 4.2 DRIVERS 4.2.1 ACCELERATING CONTACTLESS, MOBILE WALLET, AND DIGITAL COM MERCE ADOPTION The UK's shift towards a digital-first payment ecosystem is rooted in the rapid adoption of contactless cards, mobile wallets, and friction-free online shopping. The UK's total payments for 2023 was recorded by UK Finance at 48.1 billion, which included 18.3 billion contactless payments, one of the quickest adoption pathways in Europe. Overall, 94% of adults in the UK made at least one contactless payment in 2023, with contactless payments covering more than 60% of all card payments made; these figures reflect the extent of behaviours taking hold. Mobile wallets are accelerating even faster—34% of adults in the UK are now monthly mobile contactless payment users, with 42% of people registered, against just 30% reported in 2022. This growth is reflective of demographic momentum, with Gen Z and Millennials represented by the most intensive usage, breaking through 70% in many cohorts. Government intervention with Strong Customer Authentication (SCA) has introduced another significant sense of trust for larger values in digital commerce payments with biometrics introduced as a method. E-commerce metrics are also continuing to grow in the post-lockdown resurgence; the Office for National Statistics (ONS) observed retail businesses' online sales consistently represented 25%–27% of all UK retail turnover in 2023–2024, more than double what was observed before 2019. It is this structural change that demonstrates that digital checkout and tap-to-pay payments and wallet-based solutions have gone from being a novelty to an everyday habit. The strategic takeaway is that the UK is moving from “contactless convenient” to deeply entrenched “mobile first” where speed, biometrics, and embedded payments are influencing consumer choice. For payment providers, gateways, and merchants, the opportunity is rooted in deeper smartphone-native integration, loyalty-wallet fusion, and adopting faster omnichannel acceptance models to align with the countries’ decreased cash behaviours. 4.2.2 OPEN BANKING, A2A PAYMENTS, AND THE RISE OF API -DRIVEN FINANCIAL INFRASTRUCTURE Open banking is considered to be the biggest disruption in the payments evolution in the UK, taking the ecosystem from being card- dependent to API enabled account-to-account (A2A) based models. Open Banking Limited has indicated there were 15.16 million active open-banking users on record in July 2025, or almost one in three adults in the UK. this is a huge increase given the 7 million users noted in 2022. At the same time, the number of transactions is also growing quickly; record payments were at an unprecedented 2.04 billion open-banking transactions in July 2025, showing that open-banking payments are showing early signs of commercial marketplace maturation. The Financial Conduct Authority FCA noted in its ‘Open Banking and Open Finance Review’ that there are growth rates for small and medium enterprises, where 18% of SMEs report using open-bank for payments, cash-flow tools and digital finance management. Also, Pay.UK indicates that in the UK’s real-time rail, Faster Payments processed over 3.4 billion payments completed in the first half of 2024 alone that showcases the real-time capabilities they offer for A2A led retail payments. Variable Recurring Payments (VRP) are now getting regulatory encouragement and the Payment Systems Regulator (PSR) has encouraged wider VRP enablement capabilities for banks, creating opportunities for automated, consent based payments subcriptions, utilities and financial management payment capabilities. As the UK Government's National Payments Vision (2025) says, open banking has a role to play in increasing competion, lower costs to merchan

4.2.1 ACCELERATING CONTACTLESS, MOBILE WALLET, AND DIGITAL COM MERCE ADOPTION The UK's shift towards a digital-first payment ecosystem is rooted in the rapid adoption of contactless cards, mobile wallets, and friction-free online shopping. The UK's total payments for 2023 was recorded by UK Finance at 48.1 billion, which included 18.3 billion contactless payments, one of the quickest adoption pathways in Europe. Overall, 94% of adults in the UK made at least one contactless payment in 2023, with contactless payments covering more than 60% of all card payments made; these figures reflect the extent of behaviours taking hold. Mobile wallets are accelerating even faster—34% of adults in the UK are now monthly mobile contactless payment users, with 42% of people registered, against just 30% reported in 2022. This growth is reflective of demographic momentum, with Gen Z and Millennials represented by the most intensive usage, breaking through 70% in many cohorts. Government intervention with Strong Customer Authentication (SCA) has introduced another significant sense of trust for larger values in digital commerce payments with biometrics introduced as a method. E-commerce metrics are also continuing to grow in the post-lockdown resurgence; the Office for National Statistics (ONS) observed retail businesses' online sales consistently represented 25%–27% of all UK retail turnover in 2023–2024, more than double what was observed before 2019. It is this structural change that demonstrates that digital checkout and tap-to-pay payments and wallet-based solutions have gone from being a novelty to an everyday habit. The strategic takeaway is that the UK is moving from “contactless convenient” to deeply entrenched “mobile first” where speed, biometrics, and embedded payments are influencing consumer choice. For payment providers, gateways, and merchants, the opportunity is rooted in deeper smartphone-native integration, loyalty-wallet fusion, and adopting faster omnichannel acceptance models to align with the countries’ decreased cash behaviours. 4.2.2 OPEN BANKING, A2A PAYMENTS, AND THE RISE OF API -DRIVEN FINANCIAL INFRASTRUCTURE Open banking is considered to be the biggest disruption in the payments evolution in the UK, taking the ecosystem from being card- dependent to API enabled account-to-account (A2A) based models. Open Banking Limited has indicated there were 15.16 million active open-banking users on record in July 2025, or almost one in three adults in the UK. this is a huge increase given the 7 million users noted in 2022. At the same time, the number of transactions is also growing quickly; record payments were at an unprecedented 2.04 billion open-banking transactions in July 2025, showing that open-banking payments are showing early signs of commercial marketplace maturation. The Financial Conduct Authority FCA noted in its ‘Open Banking and Open Finance Review’ that there are growth rates for small and medium enterprises, where 18% of SMEs report using open-bank for payments, cash-flow tools and digital finance management. Also, Pay.UK indicates that in the UK’s real-time rail, Faster Payments processed over 3.4 billion payments completed in the first half of 2024 alone that showcases the real-time capabilities they offer for A2A led retail payments. Variable Recurring Payments (VRP) are now getting regulatory encouragement and the Payment Systems Regulator (PSR) has encouraged wider VRP enablement capabilities for banks, creating opportunities for automated, consent based payments subcriptions, utilities and financial management payment capabilities. As the UK Government's National Payments Vision (2025) says, open banking has a role to play in increasing competion, lower costs to merchants and innovation across payment and financial data services. The big takeaway is A2A payment adoption gives merchants the opportunity to sidestep card schemes for some payment flows. This is especially true with repetitive payments, high-frequency low-value spends, and ecommerce and checkout payments. For consulting, fintech, and merchants there is an opportunity to design payment flows that are API-native with the provision for payments to be accepted in a more cost-efficient and effective manner in leveraging to go consumer consented account based data sharing for benefits; e.g. lending smarter, risk models and embedded finance propositions. Copyright © 2024 Market Research Future 40 4.2.3 REGULATORY MOMENTUM, REAL -TIME SETTLEMENT, AND NEXT -GENERATION INFRASTRUCTURE Regulation and infrastructure aren't merely passive backdrops—they are active accelerators influencing the next decade of digital payments in the UK. The 2025 Progress Report on the Digital Pound from the Bank of England and HM Treasury is an important milestone toward a potential retail Central Bank Digital Currency (CBDC). The digital pound will be designed as digital cash— interoperable with bank deposits— and would enable programmable, secure payments that enable automation, micro-transactions, and sophisticated settlement logic. At the same time, the UK’s real-time payment architecture is being upgraded, with Pay.UK’s New Payments Architecture (NPA) allowing for the largest changes to our payment system since Faster Payments went live in 2008. Faster Payments is already seeing tremendous scale: in Q3 2024, as reported by Pay.UK, there were over 1.3 trillion pounds in value moved across Faster Payments, showing off over 1.3 billion transactions in the same quarter, up 15.8 percent year-on-year. This scale reflects the clear ambition towards a real-time settlement system preference in the UK. At the same time, regulators are tightening controls around fraud: the introduction of mandatory APP (Authorised Push Payment) fraud reimbursement rules for banks has resulted in banks quickly deploying increasingly sophisticated analytics and behavioral biometrics. The PSR and FCA are calling for competition

4.4.1 RAPID EXPANSION OF A2A RETAIL PAYMENTS, VARIABLE RECURRING PAYMENTS (VRP), AND MERCHANT COST OPTIMISATION The UK is at a turning point where account-to-account (A2A) payments will extend beyond niche use cases into a mainstream alternative to card rails. The trigger of this has been phenomenal growth in open-banking payment initiation. Open Banking Ltd states that open-banking payment volumes increased by 102% year-on-year in 2024, with volume reaching more than 14.45 million payments in December 2024 alone, a record. Additionally, Pay.UK highlights that real-time payments made via Faster Payments exceeded 4.5 billion annual payments in 2023, which also shows that the conditions are all set for A2A commerce. For merchants, A2A presents a very compelling opportunity to optimise cost of payment acceptance. UK Finance reports that the cost of card-interchange and merchant service charges for UK retailers have increased by up to 600% from 2015-2023, generating considerable commercial pressure to switch to cheaper forms of payment acceptance. A2A payment methods are designed to work independently of card rails, effectively reducing cost-per-transaction by 30-70%, depending on the merchant model. As subscription- based business models increase, and Variable Recurring Payments (VRP) are made mandatory for sweeping use cases (and may soon involve commercial VRP), the use case for A2A may be expanded as well. VRP enables automated and consent-based recurring payments, instant payments and revocable affordability of payments for increased cost-efficiency. Consumer readiness is on the upswing as well. The FCA’s 2 24 Consumer Survey indicated that 28% of UK adults were open to using bank-to-bank payments for day-to-day purchases, some indication of improving trust in non-card payment experiences. Copyright © 2024 Market Research Future 44 The opportunity is obvious; the UK is on track to become Europe’s largest A2A retail payments market. Merchants, PSPs, fintech challengers or banks who take an early presence in A2A, A2A checkout integration, VRP-enabled subscriptions or instant settlement will be able to access significant competitive and cost advantages. As regulatory support grows for A2A, it is likely to bring disruption to e-commerce, utilities, mobility and financial services. 4.4.2 EMBEDDED FINANCE, S UPER -APPS, AND INDUSTRY -LEVEL DIGITAL M ONETISATION MODELS Embedded finance is fast emerging as one of the most attractive growth opportunities in the UK, as a result of either API-driven infrastructure, supported by open banking and digital identity frameworks, maturing. The Bank of England observes that over 75% of adults in the UK regularly use mobile banking apps on their smart phones and this will provide the fertile ground for frictionless in-app payment experiences. Simultaneously, the Department for Business and Trade points out that around 98% of SMEs in the UK have been online for some time, and over 60% of these businesses have employed at least one digital financial tool, indicating the greater digital readiness of merchants and businesses. These factors are helping to accelerate the emergence of embedded payments, where transactions take place within industry platforms – mobility apps, insurance applications, hospitality management systems, healthcare portals, B2B procurement tools, etc. – without the need to redirect to third party gateways. Innovate Finance estimates that embedded finance in the UK will generate more than £32 billion in revenue opportunities by 2030, with integrated payments, embedded lending, and billing automation driving this growth. Super-app behaviours are also emerging in the UK consumer ecosystems. Transport for London (TfL) alone recorded 2.7 billion digital transactions recorded in 2023 for public transport, indicating just one example of many to come for a demand for payment- integrated mobility infrastructure. Similarly, retail and hospitality are mimicking in these advancements – Fewer than 55% of UK consumers stated they prefer what they termed as “one-app experiences” for ordering, payment, loyalty, brand, and rewards in the most recent FCA Digital Consumption report conducted in 2024. The opportunity is in payments, data, and service delivery converging into single interfaces to account for these experiences. Embedded finance enables businesses to monetize payments, lower friction costs, accumulate behavioral observations, or lifetime value. For banks and fintechs, it will provide routes into becoming invisible infrastructure providers that achieve successful ecosystems under-app. Copyright © 2024 Market Research Future 45

4.3.1 RISING FRAUD, CYBERS ECURITY THREATS, AND APP REIMBURSEMENT BURDENS The increasing incidence of fraud is rapidly emerging as one of the key structural constraints in the UK digital payments system, affecting banks' cost structures (both the pay-in and pay-out side), consumer trust and regulatory expectations all at the same time. The Payment Systems Regulator (PSR) has recorded that Authorised Push Payment (APP) fraud is the fastest-growing category of fraud and that APP fraud losses surpass £485m in 2023 as recorded in UK Finance evidence. A major restraint is that digital payments, particularly instant payments, compress verification time; attackers now have more options to attack consumers across difficult-to-verify areas such as phishing, social engineering, impersonation and mule accounts. In addition, and relevant to this evolution of fraud is the PSR's new reimbursement regime, which will take effect across the UK in 2024-2025, requiring banks to refund victims up to £415,000, further increasing liability on payment providers and leading to significant ongoing conversations in the industry regarding implementation, risk-sharing and feasibility for operational purposes. This evolution is placing even greater imperative on financial institutions for investment in fraud analytics systems, behavioural biometric identification systems, and AI-based transaction monitoring systems. While this trend toward diligence may yield positive outcomes in the medium- and long-term, there is a substantial immediate cost borne by banks and marketplaces that will fall most heavily on the smaller banks and fintechs with less capital reserves, and less sophisticated fraud monitoring systems that can match those developed by the incumbent banks. Operational issues will also be felt, as any dispute resolution, verification of a legitimate claim, or detection of an attempt to defraud banks from reimbursing a fraudulent transaction, now raises the stakes for back-office resources to be deployed in ongoing verification and compliance to meet consumer protection regulations. The digital channels - mobile banking, social media, and messaging apps - represent new forms of fraud; in fact, the National Crime Agency has indicated that over 70% of APP fraud originates outside of the bank (e.g. social media account refunding), which creates a challenge around the onus of shared accountability on cross industry fraud. Even with Strong Customer Authentication (SCA) lowering the fraud rates of card-not-present products, criminals rapidly pivoted to using impersonation. The cumulative strain is apparent: as the breadth and depth of fraud evolve, and require stricter reimbursement protocols, there are tensions around the economics of real-time, account-to-account (A2A), and open-banking payments; reducing friction in payments is not congruent with protecting the consumer from fraud, nor merchants from increased liability or expectations of compliance, nor friction for merchants onboarding techniques. This environment could also have an effect of inhibiting innovations in the digital payments infrastructure further while the industry waits for the payment providers to establish standardized fraud prevention tools and resources, and share intelligence on scale, and build a collaborative ecosystem on fraud protection. 4.3.2 FINANCIAL EXCLUSION RISKS AND UNEVEN DIGITAL READINESS ACROSS DEMOGRAPHICS & REGIONS While the UK is relatively advanced in terms of digital payments, it still has a sizeable and sensitive issue of financial exclusion that inhibits full market digital adoption. According to the Financial Conduct Authority (FCA), 1.2 million UK adults remain unbanked and underbanked, and according to the Financial Inclusion Commission over 7 million people experience issues with respect to digital literacy. The disparate demographic levels create a structural barrier; as long as large segments of the population cannot access the internet reliably, have difficulties using smartphones or are simply unsure about their confidence to use mobile banking, digital payments will not be able to scale uniformly. The push towards a digital first economy in the UK, which is extraordinarily ambitious, Copyright © 2024 Market Research Future 42 though well-intentioned, risks unintentionally sidelining vulnerable populations, in particular the elderly, people living in remote areas, lower-income households and persons with disabilities. Geographical differences in the countryside also create barriers to victims. Ofcom data indicates that 6% of the UK’s rural premises do not have reliable 4G or fibre coverage, which puts the reliability of mobile banking or digital wallet payments at risk. Meanwhile, cash remains a functional necessity for many communities which the Bank of England’s Access to Cash Review identified cash is a necessity for 5 - 6 million people, rather than just comfortably. Furthermore, as banks continue to close branches, almost 5,000 since 2015, concerns about accessing ATMs, cash deposits, and interacting with financial services simply increase. Digital exclusion also affects merchant adoption, or businesses that merchants run. Micro-businesses, local shops, and rural traders who simply do not have high-quality connectivity, affordable POS, or knowledge of compliance or onboarding already create problems. In addition to some of these barriers, the operating costs of expenditure with card acceptance and awaiting settlement create legitimate friction that slows down the migratory pattern away from cash. The restraint is systemic as digital readiness gaps create an imbalanced adoption curve, decrease A2A and mobile payment scalability, and slow national-level digital inclusion. The digital payment space moving forward will remain resident by persistent socio-economic divide unless the UK uniquely strengthens digital literacy programs, expands telecom infrastructure outside of