FCA Opens Competition Probe Into PayPal, Visa and Mastercard

The probe centres on how the three firms interact commercially when a consumer pays through PayPal and a Visa or Mastercard card sits behind that transaction. For UK merchants, the investigation matters because those behind-the-scenes arrangements help determine the fees deducted from every sale.

What the FCA is investigating

The FCA is examining whether agreements or practices between PayPal, Visa and Mastercard restrict competition in the market for digital-wallet payments, according to the regulator's announcement. The focus is on the funding and usage of PayPal's wallet, specifically the terms under which Visa and Mastercard cards can be loaded into or used through the wallet, and the economic arrangements that accompany those terms.

The investigation is one of the first high-profile exercises of the FCA's formal competition powers in the payments sector, authority it acquired under the Financial Services and Markets Act 2023. Before that legislation, competition enforcement in payments largely fell to the Competition and Markets Authority or the Payment Systems Regulator. The FCA's decision to act signals that it views digital-wallet economics as squarely within its remit.

PayPal processed an estimated $1.5 trillion in total payment volume globally in 2025, according to company disclosures. Visa and Mastercard together handle the vast majority of UK card transactions. The three firms therefore exert collective influence over how digital-wallet payments are priced and routed.

How digital-wallet fees flow to merchants

When a customer checks out using PayPal, the merchant typically pays PayPal a processing fee. That fee bundles together several underlying costs: the interchange fee paid to the card-issuing bank, the scheme fee charged by Visa or Mastercard for use of their network, and PayPal's own margin.

For most UK SMEs, card-acquiring and digital-wallet fees represent roughly 1 to 3 per cent of transaction value, according to the FCA's 2024 market study into card payments. The same study flagged concerns about the transparency and competitiveness of these charges, noting that merchants often struggle to identify exactly how much of their total fee goes to each party in the chain.

The opacity matters because it limits merchants' ability to negotiate or to switch providers. If the terms between PayPal and the card networks are set in ways that restrict how transactions are routed or funded, merchants may end up paying more than they would in a genuinely competitive market, without clear visibility into why.

The role of card-network rules

Visa and Mastercard set rules governing how their cards can be used inside third-party wallets. These rules can dictate, for example, whether a wallet provider must route a transaction over the card network even when a cheaper alternative exists, such as a direct bank transfer. They can also influence whether the wallet provider is permitted to steer consumers towards lower-cost funding methods. The FCA's investigation appears to be probing whether such rules, as applied to PayPal, amount to anti-competitive behaviour.

What could change for UK businesses

The investigation is at an early stage, and no findings have been published. However, several outcomes are plausible based on the scope of the probe and the FCA's stated concerns.

Lower or restructured fees. If the FCA concludes that existing arrangements inflate costs, it could require changes to interchange or scheme-fee structures for wallet-funded transactions. Even a reduction of a few basis points per transaction would be material for high-volume merchants.

Greater routing flexibility. The regulator could mandate that wallet providers and merchants have more freedom to choose how a transaction is funded, for instance by allowing PayPal to default to bank-account funding rather than a Visa or Mastercard card. That would introduce price competition at the funding layer.

Improved transparency. The FCA may require clearer disclosure of fee components, making it easier for merchants to compare the true cost of accepting PayPal against other checkout methods. The 2024 market study already recommended better transparency; enforcement action could accelerate that shift.

Wider wallet competition. If the probe loosens the grip that Visa and Mastercard have over wallet economics, it could lower barriers for rival wallets or alternative payment methods, giving merchants a broader set of options at checkout.

None of these outcomes is guaranteed. The investigation could also conclude that current arrangements are lawful and pro-competitive. Merchants should not assume fee reductions are imminent.

What operators should do now

The FCA's probe will likely take months, possibly longer, to reach a conclusion. In the interim, there are practical steps for finance directors and operators who manage payment acceptance.

Audit current costs. Businesses that accept PayPal should isolate the effective fee rate on wallet transactions and compare it against card-present, card-not-present, and alternative payment methods. The FCA's 2024 market study provides benchmarks that can inform this analysis.

Review contract terms. Merchant agreements with payment service providers often contain clauses on routing, surcharging, and acceptance obligations. Understanding these terms now will make it easier to act if the regulatory landscape shifts.

Track the investigation. The FCA is expected to publish updates as the probe progresses. Operators should monitor these disclosures, particularly any interim findings or proposed remedies, to assess the timeline and likely impact on their cost base.

Consider diversifying payment options. Merchants that rely heavily on a single wallet or card network are more exposed to fee changes. Offering open-banking payment initiation, direct debit, or account-to-account transfers can reduce dependency and, in some cases, lower per-transaction costs.

The investigation does not require merchants to change anything immediately. But it does put the economics of digital-wallet payments under a level of regulatory scrutiny that has not existed before in the UK. Businesses that understand their own cost structures will be best placed to respond, whatever the outcome.