UK Payment Fee Reforms and Their Impact on Financial Firms: Regulatory Power and Market Disruption in the Fintech and Card Payment Sectors

The UK's 2025 payment fee reforms represent a seismic shift in the regulatory landscape, reshaping the competitive dynamics of the fintech and card payment sectors. These reforms, driven by the Prudential Regulation Authority (PRA), Financial Conduct Authority (FCA), and Payment Systems Regulator (PSR), aim to enhance transparency, combat fraud, and modernize payment infrastructure. However, their implementation has triggered significant market disruption, particularly for smaller fintechs and payment service providers (PSPs), while also creating opportunities for innovation. This analysis examines the regulatory drivers, sector-specific impacts, and investment implications of these reforms.

Regulatory Framework and Key Reforms

The UK's 2025/26 regulatory agenda is anchored in three pillars: fee transparency, fraud mitigation, and operational resilience. The PRA's proposed fee rates for 2025/26, designed to meet a Total Funding Requirement of £342.5 million, include cost allocations for the Future Banking Data project and revised model maintenance fees. Concurrently, the PSR has introduced Information Transparency and Complexity requirements, compelling card schemes like Mastercard and Visa to provide clearer pricing information for acquirers. These measures aim to address systemic issues such as opaque fee structures and insufficient competition in the card payment market.

The FCA's safeguarding reforms further underscore the regulatory focus on consumer protection. Interim rules now mandate daily reconciliations, enhanced reporting, and formal audit standards for payment institutions (PIs) and electronic money institutions (EMIs). These changes, while critical for reducing safeguarding shortfalls, have raised compliance costs for firms, particularly smaller players operating in low-margin environments.

Market Disruption and Sector-Specific Impacts

The fintech and card payment sectors have experienced profound disruptions as firms adapt to these reforms. For fintechs, the regulatory burden has intensified, with compliance costs disproportionately affecting smaller firms. According to a report by the Payments Association, 29% of fintech leaders identified safeguarding as the most pressing regulatory challenge, followed by payments fraud at 25%. The FCA's safeguarding rules, which require robust liquidity management and daily reconciliation, have forced many firms to overhaul their operational models.

For instance, some fintechs have exited the market entirely, with 138 firms withdrawing FCA licenses in 2023 alone-a sixfold increase compared to pre-2022 levels.

Card payment providers face similar pressures. The PSR's mandatory reimbursement scheme for authorized push payment (APP) fraud, effective October 2024, has increased costs for acquirers and processors. By October 2025, £112 million had been reimbursed to victims under the scheme, but awareness among consumers remains low, with 71% unaware of its existence. This gap highlights the need for better consumer education, even as firms grapple with the financial and operational implications of fraud mitigation.