The wallet paradox: Why digital wallets are strengthening card rails
Digital wallets are capturing the customer relationship while reinforcing card rails, as A2A payments emerge as the more credible route to disruption.
18 August 2026
by Payments Intelligence
The growth in digital wallets has been well documented, but the subsequent impact on payment rails has received comparatively little attention.
For context: digital wallets are now the second most common payment method for both everyday, in-person purchases and online purchases in the UK, according to The Payment Association’s Consumer Behaviour Report 2026. Use is higher among younger people, suggesting market penetration will continue to rise with time.
At least 80% of UK digital wallet spending is still funded by cards, meaning wallet growth is largely reinforcing existing card rails rather than replacing them.
Cards accounted for an estimated 78% of UK online spending in 2025 once card-funded wallet payments are included, virtually unchanged from 77% in 2016.
Consumer-to-merchant account-to-account payments represented just 6% of UK online spending in 2025, despite rapid growth in open banking payments overall.
Open banking payments in 2025, up 57% year on year, though growth remains concentrated away from card replacement.
Digital wallets may sit predominantly on card rails, but their growth is changing how consumers choose to pay. The data below shows how payment preferences vary by age, providing an indication of how wallet adoption could develop as younger consumers become a larger share of the market.
This popularity has consequences for the infrastructure they sit on top of: the card, the network, the bank. When a consumer taps their phone to pay, the underlying rail becomes less visible, and the wallet increasingly shapes which funding source the consumer selects. This raises the question of the extent to which digital wallet adoption erodes the influence of traditional payment rails and hands power to wallet providers as the orchestration layer between consumers, merchants, and networks.
Framing this as “wallets gaining power” or “rails losing power” would be an oversimplification. There are three separate factors at play: routing; fund-source selection; the consumer relationship (and the data that comes with it). As distinct components, influence can shift on one of these factors without moving on the others.
The dominant wallets in the UK are pass-through wallets. Apple Pay and Google Pay do not hold a balance or intermediate the transaction, but tokenise a card credential and pass the payment to the network that credential belongs to. This is a different mechanism from a staged wallet, which holds a funded balance and settles in two legs. The distinction matters because it determines where the transaction terminates and therefore the influence on the rails. A pass-through wallet’s routing still ends on a card network, so the major card networks are not bypassed when a consumer pays by wallet.
The data supports the notion that wallets are entrenching card networks. According to figures provided by Worldpay (now part of Global Payments), direct card use accounted for 46% of the value of UK online spending in 2025, with digital wallets adding a further 40%. The majority of that wallet spending is card-based: Worldpay estimates that at least 80% of UK digital wallet spend is on cards, so once wallet-based card payments are included, cards accounted for an estimated 78% of online value in 2025. This has been flat for a decade, with the equivalent estimate for 2016 standing at 77%. The stability of that figure is a statement about routing, not about ownership, given that, for half of those transactions, the rail remains consistent beneath a consumer experience that has completely changed.
For in-person purchases, cards have increased their market share, accounting for an estimated 85% of UK point-of-sale spending in 2025, up from 77% in 2018. Worldpay attributes this to the reduction in cash use.
Digital wallets have therefore decoupled the payment interface from the underlying rail, allowing wallet adoption to rise without reducing card use.
Whilst the rails are not losing payment volume, digital wallets are displacing them in terms of visibility and ownership of the customer. In some advanced European markets, Apple Pay is estimated to account for around 35% of non-cash point-of-sale transactions, generating €300 million – €500 million in Apple Pay fees, according to Oliver Wyman.
Along with these fees, there are additional advantages to controlling the consumer interface. For example, dictating which cards a consumer can add to their wallet, which one appears as default, and how prominently alternatives appear. The default position is especially significant as the friction involved in changing it or selecting another card serves as a nudge to whichever card is presented first. Whereas an issuer would have competed for the ‘top-of-wallet’ position through brand or rewards alone, they increasingly have to compete on wallet terms.
For merchants, wallets now mediate checkout, set acceptance terms, and control access to the near-field communication (NFC) hardware required for contactless payments. The wallet inserts itself between merchant and network as the layer both must transact through, capturing a position in the flow that neither the acquirer nor the scheme can easily dislodge.
Digital wallets also reduce the issuer’s visibility into the payment. By tokenising the card credential, the wallet obscures payment data from the issuer. This means the loss of the payment context, spending occasion, and granular data trail that once anchored loyalty programmes and fraud models.
Positioned between the consumer, merchant, and network, the wallet becomes well placed to serve as an orchestration layer. Though pass-through wallets do not choose the rail, if card economics were to shift, or regulation like the Digital Markets Act’s (DMA) NFC opening lowers the barrier to A2A-in-wallet, the wallet is the party best positioned to redirect volume toward whichever rail suits it.
If there is a threat to legacy card rail volumes, it’s from account-to-account payments (A2A). In the UK this means open banking (increasingly branded Pay by Bank) settling over Faster Payments: transactions that bypass the card networks entirely and are generally merchant- or PISP-led at checkout, not wallet-led.
Open Banking Limited reported 351 million open banking payments in 2025, up 57% year on year, with sweeping VRPs nearly doubling. Both Amazon and eBay added Pay by Bank at UK checkout in February, suggesting volumes will keep climbing.
But the headline figures do not map to consumer-to-merchant (C2M) payments. Those 351 million payments include bill payment, tax, savings top-ups, and me-to-me sweeping. As of March 2025, open banking accounted for roughly 7.9% of Faster Payments, and VRPs for about 13% of open banking payments. C2M adoption has plateaued, making up 6% of online spending in 2025 and has been broadly flat over the past decade, according to Worldpay.
A2A is growing where it substitutes for a bank transfer but stalls where it would substitute for a card. For merchants, wallets suit low-value, high-frequency retail while A2A suits high-value transactions carrying heavy interchange. Even there, the obstacle is that customers are largely unaware of scheme fees and believe a card gives them stronger protection through Section 75 of the Consumer Credit Act.
Both the card rail and digital wallet markets are dominated by a few major multinational corporations. As a result, the way these industries are regulated will significantly influence how digital wallets and A2A affect rail volumes.
UK regulation is currently aimed at payments infrastructure. Commercial VRP is being progressed under the new UK Payments Initiative as part of the National Payments Vision, and open banking is moving onto a long-term regulatory framework, both aimed at making A2A viable as an alternative rail. More broadly, HM Treasury confirmed in April 2026 that the PSR will be abolished and its functions absorbed into the FCA. This is relevant in that it raises the question as to whether the pro-competition impetus that drove open banking survives the loss of a dedicated payments regulator.
Away from payment rails, the CMA opened a call for evidence on NFC access through iOS in June 2026, under the strategic market status it had designated to Apple eight months prior. The CMA wanted to understand the technical method by which access should be provided and the price. The call for evidence closed on 21 July, with a decision on whether to impose a conduct requirement expected later this year.
In May 2026, the FCA opened an investigation into Mastercard, Visa, and PayPal under the Competition Act 1998, examining suspected anti-competitive conduct linked to the funding and usage of PayPal’s digital wallet. The case remains open, and the regulator stresses it has reached no findings.
The two developments address different areas: the FCA probe focuses on the economics of how a wallet is funded; the CMA call for evidence addresses the interface through which it reaches the point of sale.
The EU’s regulatory approach will provide an interesting case study. Under the DMA, Apple’s 2024 commitments require it to open NFC “tap-and-go” access to third-party wallets across the EEA, free of charge, using host card emulation, and to let users set a rival wallet as their default. Alongside it, Payment Service Directive 3 (PSD3), the accompanying Payment Services Regulation (PSR), and the mandating of SEPA Instant are building the A2A rail’s regulatory foundations across the bloc.
In conjunction, these developments could enable A2A as a tap-to-pay option, authorising directly against the bank account rather than tokenising a card first. Before this, an A2A provider could only reach the tap-to-pay interface on an iPhone by issuing a card, which was then routed over the conventional rails. Android already permitted host card emulation, but as the iPhone has a ~39% market share in Europe, this may have been enough to blunt the commercial case for building A2A tap-to-pay on Android alone. The DMA enables bank account payment at the point of sale without the card wrapper.
These regulatory developments will determine whether and how A2A can reach the point of sale through the wallet.
In the EU, a third-party wallet could in principle present A2A as a first option for tap-to-pay, making the wallet a possible venue for rail substitution rather than a moat around cards.
However, the DMA only removes the interface barrier; it does not deliver A2A-in-wallets. Whether A2A actually surfaces as a default tap option depends on wallet providers and PISPs building it and consumers choosing it. The perceived loss of Section 75 protection and the strength of the consumer offer do not disappear because the interface has opened.
Returning to the three factors outlined at the start: digital wallets are only shifting power on the elements they touch. Wallets take the interface and influence which funding source a consumer reaches for; they do not take the routing or settlement, where the card networks remain entrenched, arguably more so because of digital wallets. The issuer keeps interchange and bears the credential but it has lost the data that used to travel with them.
The threat to card-rail volumes, to the extent one exists, is not the wallet but A2A. For a wallet to control routing, the funding source inside it would have to move off cards, and this would be determined by market forces and regulation, rather than the wallet itself. The same Google Pay that tokenises a card in the UK runs on UPI in India and Pix in Brazil. The wallet reinforces whatever the market has built beneath it, and in the UK, that is still cards.
The DMA’s NFC opening removes the interface barrier that has kept A2A off the tap-to-pay moment in the EU; the UK has no equivalent in force. Instant-payment rails are maturing on both sides. And a retail CBDC, should the digital pound or digital euro arrive, would reshape the rail layer itself rather than the interface sitting on top of it. None of these makes the wallet the router today.
Wero—the pan-European wallet launched by a consortium of banks under the European Payments Initiative (EPI)—is instructive here. The mobile payment system runs on SEPA Instant with no card in the funding path and has ~56 million activated wallets across Germany, France, Belgium, and Luxembourg. The EPI was originally intended as a card scheme to rival the major networks. The infrastructure and coordination demands led to a pivot towards an A2A wallet riding rails the European Central Bank had already built. Wero is therefore the same phenomenon as Google Pay on UPI or Pix, arrived at deliberately rather than inherited: a wallet becomes rail-substituting only when the funding source beneath it is engineered to be something other than a card.
Digital wallets are capturing the customer relationship while reinforcing card rails, as A2A payments emerge as the more credible route to disruption.
TPA’s H2 2026 Merchant Regulation Roadmap explains the UK, EU and US regulatory developments shaping cost of acceptance, checkout and liability for merchants over the coming years.
TPA’s Q3 UK Payments Regulation Roadmap explains the key UK and international regulatory developments affecting payment firms over the coming years.
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