The news: Lloyds Banking Group will acquire Curve, a London-based digital wallet.

How we got here: After the EU hit Apple with an antitrust lawsuit—forcing the Big Tech company to open its iPhone NFC technology to rivals—Curve emerged as one of the earliest adopters of its contactless infrastructure. It remains one of Apple Pay’s chief competing wallets on the iPhone in Europe.

Why this matters: Lloyds’ acquisition of Curve demonstrates that incumbent financial institutions recognize they need to compete with fintechs’ rising power and serve consumers’ hunger for frictionless payments.

• PayPal’s presence in the UK is growing. Fifty-three percent of UK adults completed a purchase using the wallet last year, per our survey. PayPal recently relaunched its wallet to UK consumers with a new loyalty program, PayPal+, which lets shoppers earn rewards in-store and online.
• Klarna has 11 million active consumers and over 675,000 participating merchants in the UK—its third largest market, per a press release. As the buy now, pay later (BNPL) expands its ambitions beyond alternative credit into its neobank operation, legacy players like Lloyds face a threat.

Even more importantly, UK consumers' favorite ecommerce payment method is digital wallets: 40% of ecommerce volume moved through wallets, per Worldpay’s Global Payments Report. Given that UK and European consumers are most likely to fund their wallets through their debit card or bank accounts, integration is critical for financial institutions in order to not lose out on volume.

Our take: Acquiring Curve is a valuable first step toward embracing digital wallet payments solutions. However, Lloyds faces a challenge of incentivizing its users to choose Curve over competitors like PayPal and Klarna, which have established rewards systems. Embedding features and perks into Curve could help create a flywheel effect to trap more volume within its ecosystem.