The payments regulation roadmap: Q2 2025
April 14, 2025
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Your quarterly overview of the key regulatory changes impacting payments—what’s happening, what’s coming, and what actions to take
What is this article about?
The expansion and implications of digital wallets, focussing on their role in financial transactions, data management, and digital identity.
Why is it important?
Digital wallets are transforming financial interactions and identity management, impacting security, privacy, and regulatory needs.
What’s next?
Navigating challenges related to security, privacy, and regulatory compliance as digital wallets become more integrated into daily life.
The digital wallet space is undeniably one of the most important battlegrounds for the Financial Services sector globally, with payments at its epicentre and a wallet’s ability to accelerate financial inclusion and smooth the transition towards a cashless society key attractions.
Given the vast and growing applications of wallets, many traditional definitions of their scope and function already look outdated, with Juniper Research’s one of the most all-encompassing and helpful:
‘A software-based system that can act as a storage mechanism for a user’s payment, identity, loyalty, or ticketing information, enabling these credentials to be used in a digital environment.’
As the industry rightly fixates on ‘customer experience’ – the Holy Grail for success – as a driver for innovation, the next phases of the evolution of digital (or e-) wallets are rapidly coming into view. With them, as ever, come numerous unintended consequences, the greatest of which will likely centre around data, digital identity and control.
Before disappearing down this particular rabbit hole, however, a quick background check. The proliferation of smartphones, with 6-billion+plus smartphone users (Statista) worldwide, continues to underpin the positive backdrop, adding weight to Juniper’s forecasts that e-wallet user numbers will soar to 5.2 billion in 2026 from 3.4 billion in 2022. Apple Pay is, of course, the go-to for iPhone users while Google Pay is a preferred choice for the android user.
To better demonstrate the wallet’s reach, the sheer size of the transaction base is most useful. From a 2022 base of $7.5 trillion, the most sensible industry forecasts imply that about $12 trillion in transaction volumes will pass through digital wallets in 2026, a compound annual growth rate of about 12.5%.
But what matters in the e-wallet world, and what will set future winners apart – beyond the obvious scale the global giants already enjoy? Is it a case of ‘banks beware’ and a further land grab on their traditional customer base? As ever with financial services, it is important to consider regulation and ask the question: ‘Are the regulators asleep at the wheel again?
To frame the debate, it is also important to separate retail- and business-wallets, though for many small- and medium-sized businesses (where service levels remain poor and product scant) this distinction is often blurred.
Business wallet customers can often integrate payment buttons into their own websites and construct bespoke e-wallet apps with the features they choose. For the purposes of this article, the focus will fall squarely on the personal retail space.
For the retail user, loyalty and rewards programs, household spending visualisation, analysis, and budgeting tools, and crypto-capabilities are already among the many areas of functionality upon which future success will be built.
The goal is to target the increasingly itinerant Millennial and Gen Zer groups—the age groups that make up the most important components of the current user base. Travel, tickets, and ID and authentication are among the most valuable features of these generations’ digital wallets.
As with business wallets, and likely a discussion for another day, digital ID verification capability will ultimately open the door for e-wallets’ forays into healthcare and government services, state pensions and insurance claims. Perhaps the sky really is the limit for what a wallet of the future will house.
Asia is clearly leading the charge here, though the US consumer is increasingly adopting the wallet—with speed and user experience the twin drivers of this explosive growth. Instant loans and a variety of investment options are just some of the financial services features being rolled out by Fintechs, where banks really are at risk of having someone else eat their lunch.
The global leaders—WeChat Pay and Alipay, with 1.3 billion users apiece—and ApplePay—a very respectable third with a little over 500 million—will enjoy the lion’s share of this. Samsung, Google, and the banks are in the mix, but wallets will remain a hotbed of competition, innovation, and partnerships for many years to come.
Focusing on Europe as a prime example of wallet scope and risk, the shift from legacy cash economies towards digital payments continues. About 30% of retail e-commerce payments in Europe are expected to be transacted via e-wallets this year, up from 26% in 2020.
Interoperability, an overused buzzword in many instances, is becoming ever more vital to augmenting the number of payment options – think buy-now-pay-later and cryptocurrencies as two prime channels ripe for widespread integration into wallet functionality. Software must be fit for the purpose of absorbing new channels, payment rails, and growth.
For the retail user, enhancements in security protocols—biometric authentication (fingerprint, voice, and facial recognition)—are now becoming the norm. Advanced encryption technologies and the tokenisation of personal and financial data are the next legs of innovation in this race for market share.
The regulation of digital wallets in Europe, particularly through the introduction of the EU Digital Identity Wallet (EUDI Wallet), is a significant development in the region’s digital identity framework and will have far-reaching consequences.
Use cases posited by the European Commission include opening a bank account, requesting birth certificates and medical certificates, reporting a change of address or filing tax returns.
More appealing to the wanderlust millennial, the ability to store a medical prescription that can be used anywhere in Europe, prove your age, rent a car using a digital driving licence, or check in to a hotel highlights the power of such an ID, provided it works efficiently. Suddenly, the role that a digital wallet can play in its user’s life comes into view.
The commission’s graphic above discusses the help and freedom that such IDs provide the consumer and the money and time it will save businesses. Even within the EU, differences in rules and standards, applications, and protocols will ensure that this journey is not seamless.
More importantly, the Commission’s talk of the ability to control what data is shared and how our data is used vastly oversimplifies the practicalities of such a promise and understates the growing fraud risk and opportunities that digital identity brings.
The other thing to bear in mind when considering digital identity, beyond hacking, theft, and fraud, is, of course, control. As the US and Europe continually eye China and Russia in fear of hacking and disinformation, and Big Tech and social media platforms abnegate responsibility behind an army of lawyers, the creation of these treasure troves of information—digital Wallets—risks helping to open a pandora’s box of woes.
Of course, security and user control are central to the EU digital identity wallet’s design. It aims to ensure that users can control the sharing of their personal data, offers mechanisms for monitoring transactions, and provides capabilities to report privacy violations. Additionally, part of the wallet’s code will be open-source to prevent misuse and ensure transparency.
But, and it is a very big but, we have seen this all before. As a renowned historian of technology and culture, Edward Tenner rightly notes, “Technology bites back”. Every innovation must be approached with foresight to mitigate potential negative impacts.
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