Adds context in paragraphs 1-3, background in paragraphs 11-14

By Kirstin Ridley and Phoebe Seers

LONDON, May 6 (Reuters) - PayPal PYPL.O, Mastercard MA.N and Visa V.N are being investigated for alleged anti-competitive conduct linked to the funding and usage of PayPal's digital wallet, in a rare move by the Financial Conduct Authority.

The FCA, which infrequently uses its powers to enforce competition law among financial services firms, said on Wednesday that it had reached no conclusions about whether UK competition law had been broken.

The announcement came after PayPal issued a filing stating it had received notices in March of investigations and related requests for information from the FCA about its contractual agreements with the two card giants.

COOPERATING WITH THE FCA

All three payment companies said they were cooperating with the regulator.

Mastercard confirmed that it had received an information notice from the FCA requesting details of its contractual relationship with PayPal.

"Mastercard works to ensure we meet the highest standards of competition law and will be cooperating fully and transparently with the FCA," a spokesperson said.

A Visa representative said it had been informed by the FCA of an inquiry into "contractual provisions regarding the PayPal digital wallet" and it was cooperating with the FCA.

"As this is a pending investigation, we cannot comment further at this time," a PayPal spokesperson said.

Digital wallet usage has surged in Britain. The FCA and Payment Systems Regulator, which is tasked with ensuring an accessible, reliable and fair payment system, said last year that the proportion of card transactions using a digital wallet had jumped to 29% from 8% in 2023.

The watchdogs said in a joint statement issued in February 2025 that they had heard calls for better competition among digital wallet providers that would allow new players to enter the market to bolster innovation.

The investigation follows last year's report by the FCA and Payment Systems Regulator on digital wallets, which raised competition concerns that were shared with Britain's antitrust watchdog, the Competition and Markets Authority, to avoid duplication.

The CMA launched an inquiry into Apple AAPL.O and Google's GOOGL.O mobile ecosystems, including their digital wallets, in January 2025.

The CMA said in February it had secured commitments from the tech giants, the two largest digital wallet providers, to improve fairness in their app store processes and enhance interoperability.

The CMA did not immediately respond to a request for comment about the FCA investigation.