UK banks accelerate on the tokenization of deposits: a new scenario for digital payments

The main banks of the United Kingdom are taking a decisive step towards the future of digital payments by launching a pilot project for the introduction of tokenized deposits. This initiative, involving giants like HSBC, NatWest, and Lloyds, represents a concrete response to the call from the Governor of the Bank of England, Andrew Bailey, who has urged the sector to focus on this technology rather than the more debated stablecoins.

Tokenization involves creating digital representations of traditional assets, such as deposits, stocks, and bonds, which are recorded on a blockchain. Proponents of this innovation argue that it can make transactions faster, cheaper, and more secure, paving the way for a new era for the financial system.

A pilot project to revolutionize payments

According to the announcement by the industrial group UK Finance, the pilot project involves the use of tokenized deposits to make payments on online marketplaces. In addition to the already mentioned HSBC, NatWest, and Lloyds, other prominent institutions such as Barclays, Nationwide, and Santander are also participating. The program, which will run until mid-2026, also includes the experimentation of applications in the remortgaging process and the regulation of digital assets.

The Bank of England’s Perspective

The push towards tokenization comes after Andrew Bailey, in an interview given in July, expressed skepticism towards stablecoin. While stating he is “not against” these cryptocurrencies pegged to fiat currencies, Bailey emphasized that he does not understand their real necessity, believing that the tokenization of deposits offers greater added value. According to the Governor, stablecoin risk draining liquidity from the banking system, potentially jeopardizing financial stability.

Currently, the British Financial Conduct Authority does not plan to finalize specific regulation on stablecoins before the end of 2026. However, the Bank of England (BoE) has already given the green light to banks to experiment with tokenized deposits in compliance with existing regulations.

The Advantages of Tokenization According to Operators

A senior British banking executive highlighted how tokenized deposits do not yet enjoy the same “brand image” as stablecoins, but still represent a significant technological upgrade. The CEO of Citi also stated in a public declaration in July that tokenized deposits could have an even more significant impact than stablecoins themselves.

According to Manish Kohli, global head of payment solutions at HSBC, the true potential of tokenization had not yet been fully expressed due to the lack of interoperability between financial institutions. However, the new pilot project aims to overcome this obstacle, allowing for greater integration among the different players in the system.

Focus on International Transactions

Although the pilot project is currently focused on domestic use cases, Kohli highlighted that tokenization technology shows its greatest potential in cross-border transactions. “It is precisely in this area that we are seeing the greatest demand from customers,” he stated to Reuters.

Innovation and Security: The Vision of UK Finance

Jana Mackintosh, general director for payments and innovation at UK Finance, explained that tokenization allows banks to innovate while keeping payments within the regulated banking system. This way, technological development is encouraged without compromising the security and stability of the entire sector.

The International Context: Stablecoin and Regulation

While the United Kingdom focuses on the tokenization of deposits, significant movements are also being recorded in Europe. A group of European credit institutions recently announced their intention to launch a euro-denominated stablecoin. This trend reflects the growing global interest in new forms of digital currency, but also the concerns of authorities about potential risks to financial stability.

Bailey, in his statements, warned banks against the issuance of stablecoin, reiterating that these instruments could divert resources from the traditional banking system. Meanwhile, the Bank of England continues to promote the experimentation of tokenized deposits as a safer and more integrated alternative.

Future Prospects: Towards a New Era of Payments

The British pilot project represents a crucial testing ground for assessing the effectiveness and security of tokenized deposits. If the results are positive, this technology could revolutionize not only domestic payments but especially international ones, meeting the demands for speed, efficiency, and transparency required by the global market.

The banks involved, together with regulatory authorities, are thus charting the course towards a more modern and resilient financial system, where the tokenization of assets could become the new normal. In this scenario, the United Kingdom once again confirms itself at the forefront of banking innovation, ready to seize the opportunities offered by blockchain and new digital technologies.