The payments landscape is evolving rapidly, with growing interest in how digital money can move faster, more securely, and with greater efficiency. Tokenised deposits are emerging as one such innovation, combining traditional banking with blockchain technology – but are they really the future of payments?
In this blog, we’ll explore what tokenised deposits are, how they differ from other forms of digital money, and the use cases they enable. We will also look at recent developments in the UK and assess the opportunities and challenges that will shape their adoption.
To set the context, let’s first understand some commonly used terms in this space.
Digitisation – Converting traditional banking processes and records into digital form such as online/digital channels, mobile apps and the data store. For example, digitisation of money is electronic representation of your deposits in a centralised ledger system. Essentially, this is what we have today.
Tokenisation- Representing assets, including bank deposits, as digital tokens on a blockchain or distributed ledger but still regulated, and providing crypto security and smart contract capabilities. This gives them the benefit of instant settlement, and they can integrate easily with other initiative in this space such as DeFi.
Essentially, digitised money is a digital wrapper on fiat money but still maintained as centralised ledger, whereas tokenised deposits are tokens on blockchain network with decentralised features.
So how do tokenised deposits reduce settlement times from days to hours, minutes or even seconds? Basically, using their underlying distributed ledger technology (DLT). This removes the need for intermediaries such as correspondent banks for cross-border payments and systems like clearing houses that process during limited hours and manual reconciliation processes. Similarly for trade deals, tokenisation and smart contracts enables DvP (Delivery vs Payment) by atomic settlement meaning transfer of asset and payment occur simultaneously. This eliminates counterparty risk. Traditional systems have cycle times of around couple of days for trade deal settlement.
DLT based systems are always-on and function continuously hence it’s different from traditional fixed time-based settlement. It means liquidity can be accessed and transferred at any time across different time zones.
Tokenised deposits operate within the regulated banking system and are issued by commercial banks. So how is this different from stablecoins and CBDC?
While tokenised deposits and stablecoins are representation of fiat currency on blockchain technology, CBDC may or may not be blockchain-based. But they all differ fundamentally in terms of their issuer, regulatory status and underlying structure. Stablecoins are generally issued by private companies and are backed by assets, not actual deposits. CBDC is issued by country’s central bank and is a central bank liability and that’s why they are considered as a risk-free form of digital money. There is a lot of information available online on various types of digital currencies which can be explored further. Here my focus is to delve a bit more on tokenised deposits.
Let’s look at some recent developments in this area. Some initiatives by UK Finance on tokenised deposits bring this to life in collaboration with key banks in the UK:
The Regulated Liability Network was an experiment with tokenised deposits and assets for wholesale payment and settlement. It was a financial market infrastructure that enabled settlement of tokenised and regulated money using DLT, using a shared digital ledger operated only by regulated financial institutions, enabling them to issue, transfer, and settle tokenised liabilities in real time, with legal finality. In October 2024, UK finance released three reports marking successful outcome of RLN experimental phase.
Summary report – Contains an overview and findings from business, technical, and legal workstreams
Technical report – Contains findings on the creation of a future innovation platform, providing an API and orchestration layer that facilitates interaction with legacy and new forms of money and a tokenisation platform
Business report – Focuses on summarising the business value of the platform innovation and how this can be delivered
The conclusion of the experimental phase was a transition to practical implementation, with a focus on tokenised sterling deposits (GBTDs) and programmable payments to demonstrate real-world value.
GBTD (Great Britain Tokenised Deposit) is an initiative to test tokenised commercial bank money. The purpose is to modernise the payment and settlement system using programmable money and still retain trust and regulatory compliance, with live pilots running through 2026. GBTD aligns with government initiatives like Digital Gilt (DIGIT) and the National Payments Vision, aiming to position the UK as a leader in next-generation payments infrastructure.
As part of this initiative, participating banks in the UK have explored use cases for tokenised deposits, including:
Person-to-person (P2P) payments
Remortgage processes to reduce conveyancing fraud and enhance transparency
Digital asset settlement
Banks have piloted tokenised deposits to automate trade finance processes, replacing paper-based letters of credit with blockchain-based programmable payments. This reduces fraud risk and accelerates shipping payments. Traditionally, trade finance processes (Bills of Exchange - BoE) rely on manual, paper-based documentation, leading to inefficiencies, errors, and lack of transparency. DLT-based solutions, using digital wallets, smart contracts, and tokenised deposits, automate these processes, enhancing efficiency and security.
Lloyds Banking Group (LBG) has recently completed its first transaction using tokenised deposits on a public regulated blockchain. LBG used tokenised deposits to buy tokenised UK Gilts from Archax, which then transferred the funds back into LBG’s bank account. The objective was to demonstrate how seamlessly, quickly and securely transactions can move between blockchain and traditional banking systems.
Barclays is one of the six major banks participating in the GBTD initiative. They recently announced strategic investment in Ubyx Inc. to address interoperability challenges by demonstrating that different token types and blockchains can connect seamlessly within the regulated banking system.
HSBC is specifically leading the wholesale use case for the GBTD, focusing on creating a digital fixed-income market where bonds are issued and settled using tokenised money within the UK jurisdiction.
On 26th January 2026, HSBC successfully completed a landmark pilot with Ant International and Swift.
The trial connected Ant’s blockchain infrastructure to Swift’s network via HSBC’s tokenised deposit services. It was the first instance of using the ISO 20022 messaging standard for cross-border tokenised deposit transfers, enabling real-time treasury management between HSBC Singapore and Hong Kong without requiring separate bilateral connections between banks.
Tokenised deposits reduce the settlement time from days to a few seconds, which helps with liquidity and cashflow management for business and consumers. They can be considered to be programmable money that can integrate using smart contracts. Tokenised deposits also help in reducing operation costs as there is no manual intervention. Tokens are stored in blockchain-based systems which provide immutable records, reduce fraud risk and improves auditability. To comply with existing banking framework and stability, unlike stablecoins, tokenised deposits are issued by regulated banks and are backed by fiat deposits. Streamlined settlement and embedded compliance (AML/KYC) can reduce costs associated with legacy systems and financial crime compliance
Tokenised deposits may face challenges in regulation, interoperability, cost, legal clarity, and integration with existing systems. Tokenised deposits must comply with banking regulations, AML frameworks, and data privacy laws, which can slow adoption due to acceptance of blockchain network. Key areas to consider include:
Interoperability - Requires advanced infrastructure, integration with core banking systems, and interoperable blockchains. It is very likely, especially in the initial years, that a large number of payment service providers are not reachable via one of the DLT networks.
Cost - Only the largest institutions can currently justify the investment, making adoption uneven and slowing ecosystem development.
Regulatory - Legal treatment of DLT ledger-based claims, cross border regulatory alignment and compliance models for on chain activity could slow adoption amongst banks.
Operational & Risk Management - Liquidity management and risk controls are required to support 24x7 settlement
Tokenised deposits are often permissioned and restricted by KYC, making them less flexible compared to stablecoins in decentralised ecosystems. Blockchain’s transparency may raise concerns about financial surveillance and data privacy.
It looks like the answer to my original question “Are tokenised deposits future of payments?” is a likely yes – but there is still a long way to go. Success in retail banking will depend on achieving a fully digital, secure, scalable, and consumer-friendly payments ecosystem. Based on current progress, tokenised deposits or other forms of digital currencies may co-exist for some time with traditional payment rails until trust is built with proper governance and regulatory compliance. Hence, banks must have an infrastructure to support all the different ways to settle payments.
Icon IPF can offer orchestration within DLT-based solution architectures and can become the PSP interface with DLT/blockchain APIs (tokenisation platform). IPF customised flows can also process messages from external parties (e.g. margin call requests) that needs to be validated, checked, accounted for and risk managed.
Transactions can contain complex data structure depending on blockchain network of choice and IPF can help in seamless integration and orchestration with core banking systems, traditional payment processing and DLT token-based payments processing. Please reach out to find out more about Icon’s offering in this area.