The Financial Conduct Authority has drawn a line in the sand. On 6 May 2026, the regulator confirmed it is formally investigating Mastercard, PayPal and Visa under the Competition Act 1998, with Mastercard and Visa facing additional scrutiny under Chapter II for suspected abuse of a dominant position. This is not a routine compliance review. It is a structural assault on the hidden architecture that determines how billions of pounds flow through the UK economy.
The FCA has made no findings of wrongdoing yet, and it stressed that it is still gathering evidence. But the very fact that the investigation exists tells us something uncomfortable: the regulator believes there is a credible case that competition has been distorted at the point where consumers make the most important financial decision of any transaction. Which payment rail to use.
The 2016 Deal That Changed Everything
To understand what the FCA is looking at, you have to go back to July 2016. That was when PayPal and Visa announced a strategic partnership that was publicly framed as a victory for consumer choice. The press release was laden with the usual corporate fluff about seamlessness and security. But buried inside the agreement were provisions that should have set off alarm bells.
Under the terms of that deal, PayPal agreed to present Visa cards as a clear and equal payment option during enrollment and subsequent payments, with an easy ability for consumers to set Visa as their preferred method. So far, so neutral. But then came the kicker. PayPal also agreed that it would not encourage Visa cardholders to link to a bank account via ACH. In plain English, PayPal was contractually forbidden from telling Visa users that they could save money or avoid card fees by linking their bank account directly.
The agreement also gave PayPal economic incentives, including volume-based rewards from Visa and long-term fee certainty. This meant that the more transactions PayPal routed through Visa cards, the better the financial terms became. That is not a neutral routing layer. That is a steering mechanism disguised as a partnership.
The Illusion of Choice
Consumers see a PayPal button and assume they are making a free choice about how to pay. They are not. The architecture of that decision is engineered long before the user clicks a single box.
Digital wallets are not passive interfaces. They are decision engines. They determine which payment options appear first, which ones are set as defaults, which ones require extra clicks or additional authentication, and which ones are actively promoted or hidden. If a wallet receives financial incentives tied to card volume, and if it has agreed not to steer customers toward cheaper bank-account funding, then the consumer is being nudged whether they realise it or not.
The FCA’s investigation under Chapter I of the Competition Act is focused on whether the agreements between PayPal, Mastercard and Visa amount to anti-competitive arrangements that prevent, restrict or distort competition in the UK. The Chapter II investigation targeting Mastercard and Visa separately is even more serious. That provision concerns abuse of a dominant position. The FCA has not concluded that dominance was abused, but the fact that the regulator is even asking the question suggests it sees the card schemes’ market power as a potential threat to competition.
The Data That Cannot Be Ignored
The scale of what is at stake is staggering. According to a joint report from the FCA and the Payment Systems Regulator, the proportion of UK card transactions conducted using a digital wallet rose from 8 percent in 2019 to 29 percent in 2023. That is nearly one in three card transactions now passing through a wallet interface. More than half of UK adults are estimated to use digital wallets. These are not niche products. They are the frontline of the retail payments system.
The dominance of the card schemes themselves is equally stark. A 2025 report by the Payment Systems Regulator found that approximately 95 percent of UK card transactions are processed through systems owned by Mastercard and Visa. That is not a competitive market. That is a duopoly with a combined market share that would be the envy of any monopolist.
The geopolitical dimension only sharpens the concern. UK bank bosses are currently meeting to discuss establishing a national alternative to Visa and Mastercard, driven by fears that Donald Trump could disrupt US-owned payment systems. The Russian example looms large. When sanctions forced Visa and Mastercard to suspend services in Russia, roughly 60 percent of payments were disrupted, leaving millions unable to access funds. The UK’s reliance on these two American companies is now being framed as a national security vulnerability.
The corporate responses have been carefully measured. Mastercard confirmed it received an information notice from the FCA requesting details of its contractual relationship with PayPal, adding that it works to ensure it meets the highest standards of competition law and will cooperate fully. Visa acknowledged the inquiry into contractual provisions regarding the PayPal digital wallet and said it is cooperating. PayPal declined further comment because the investigation is pending.
These are standard statements, but they reveal nothing. The real action is happening in the document review. The FCA will be examining scheme rulebooks, no-steering provisions, exclusivity terms and wallet integration agreements to determine whether the contractual architecture is tilted in favour of the incumbents.
The Uncomfortable Question
Here is the question the FCA is asking, and it is one that should make every payments executive nervous. If a consumer wants to pay using a bank account or an open-banking service rather than a credit card, does the wallet make that easy, frictionless and obvious? Or does it bury that option behind extra clicks, slower processing and vague warnings about security?
If the answer is the latter, and if that design is driven by contractual agreements with Visa and Mastercard that include financial incentives to favour card payments, then the regulator may conclude that competition has been rigged. Not by explicit collusion, necessarily, but by the slow, silent accumulation of contractual clauses that turn a supposed choice into a foregone conclusion.
The investigation is still in its early stages. The FCA may or may not issue a statement of objections. But the message is already clear: the era of treating digital wallets as neutral intermediaries is over. The regulator is now looking under the hood, and what it finds may reshape the entire payments landscape.
