Digital wallet payments have surpassed physical card transactions in UK retail stores for the first time, according to new data from UK Finance's annual payments report. Apple Pay and Google Pay together accounted for 44% of all in-store contactless transactions in the final quarter of 2025, with retailer-branded wallets such as Tesco Pay and Costa Club adding a further 8%. The shift represents a structural change in consumer behaviour that has accelerated sharply since the pandemic, when contactless adoption surged and many consumers began leaving physical cards at home entirely.

The trend has significant implications for the payments value chain. Card issuers face declining physical card usage, which reduces the visibility of their brand at the point of sale and weakens customer loyalty. Meanwhile, Apple and Google's position as gatekeepers of the in-store digital wallet experience has drawn scrutiny from regulators and card networks alike. Mastercard's UK head of digital payments, James Anderson, said the company was investing in tokenisation technology and biometric authentication to ensure that card credentials remained the preferred funding source within digital wallets, even as the physical card itself becomes less relevant.

The European Commission's intervention on Apple Pay's NFC access, which forced the company to open its iPhone tap-to-pay functionality to third-party wallet providers, is expected to reach the UK market through a parallel FCA review currently underway. Banks including Barclays and Lloyds have indicated they would launch their own NFC-enabled wallet experiences if Apple were required to provide access on equivalent terms. Consumer groups have broadly welcomed the shift to digital wallets, citing convenience and enhanced security features, but have urged regulators to ensure that the transition does not disadvantage older consumers or those without compatible smartphones.