UK banks complete first interbank tokenized deposits transactions

Seven of the UK’s biggest banks have pulled off something the country’s financial system has never managed before: moving tokenized deposits UK banks issue across separate institutions, rather than keeping the digital cash locked inside a single lender’s own systems. Barclays, HSBC, Lloyds Banking Group, Monzo, Nationwide, NatWest and Santander took part in the tests, which were delivered through UK Finance’s Great British Tokenised Deposit initiative on a shared platform built by the distributed ledger technology firm Quant.

Key takeaways

• Seven UK banks — Barclays, HSBC, Lloyds Banking Group, Monzo, Nationwide, NatWest and Santander — participated in the Great British Tokenised Deposit initiative on a platform built by Quant.
• UK Finance confirmed interbank transactions covering two real-world use cases: remortgage payments involving Lloyds, NatWest and Barclays, and a simulated online marketplace payment involving HSBC.
• The Bank of England and Financial Conduct Authority are preparing the UK financial system for tokenization and longer settlement hours, while weighing stablecoins as an option for institutional settlement.
• UK Finance intends to establish both a company and a governance structure to support the initiative, and plans call for three digital bonds to be issued and settled through tokenized deposits by early 2027.
• Tokenized deposits remain a liability of the issuing bank, unlike stablecoins, and retain the legal protections of conventional deposits.

Major UK Banks Complete First Tokenized Deposit Transactions

The headline result is simple: money that exists as a digital token on a shared ledger can now move between customers of different banks in the UK, not just within one institution’s walls. That distinction matters because most earlier blockchain pilots in banking stayed contained inside a single lender’s own infrastructure, which limited their real-world usefulness for anything involving two separate customers at two separate banks.

Participating Banks and Platform Provider

Barclays, HSBC, Lloyds Banking Group, Monzo, Nationwide, NatWest and Santander all took part in the Great British Tokenised Deposit initiative using a shared platform built by Quant, a distributed ledger technology service provider. UK Finance’s Great British Tokenised Deposit initiative drew support from Quant alongside professional services firm EY and law firm Linklaters, according to reporting from crypto.news.

Scope and Use Cases of Transactions

The interbank tests covered two distinct scenarios. Lloyds Banking Group, NatWest and Barclays carried out two remortgage transactions using tokenized deposits, with funds locked during the property process and released automatically once the transaction was completed. Separately, a group of banks that included HSBC tested a person-to-person payment tied to a simulated online marketplace purchase, where programmable deposits kept money reserved in the buyer’s account until the agreed conditions were met and released it to the seller only after confirmation that goods had been received. No physical goods actually changed hands, since the transaction was simulated.

Looking ahead, the group will next test the settlement of digital assets using tokenized customer money, extending the pilot beyond payments and into securities.

Regulatory Support and Framework Development

UK regulators are actively building the rails for a financial system where tokenized money and longer settlement windows become normal, rather than treating this pilot as an isolated experiment. The tests come as the Bank of England and Financial Conduct Authority prepare the UK’s financial system for tokenization and longer settlement hours, signaling that this is meant to scale rather than stay confined to a handful of banks.

Preparations by Bank of England and FCA

The two regulators have been developing rules and infrastructure for tokenized securities alongside the banking sector’s payment experiments. According to their May statement, companies were seeking greater clarity on prudential treatment, tokenized collateral and settlement instruments as banks move distributed ledger initiatives closer to real-world use. Sixteen firms were separately reported to be preparing services through the Bank of England and FCA’s Digital Securities Sandbox.

Regulators’ Position on Tokenized Markets and Stablecoins

Regulators want to support tokenized markets while considering stablecoins for institutional settlement, rather than treating the two as competing systems. Bank of England Deputy Governor Sarah Breeden has said the central bank wants a setup where traditional deposits, tokenized bank deposits, regulated stablecoins and potentially a retail digital currency can all operate alongside one another. The central bank has since adjusted its stablecoin framework, dropping proposed limits on individual holdings in favor of an initial £40 billion issuance limit per systemic token, with issuers allowed to hold up to 70% of reserves in short-term government debt and the remaining 30% in non-interest-bearing Bank of England deposits.

This matters for anyone tracking where UK money is heading next: regulators appear less interested in picking a single winner between tokenized deposits and stablecoins, and more focused on making sure both can coexist inside a supervised system without destabilizing bank funding.

Benefits and Nature of Tokenized Deposits

A tokenized deposit is not a new form of money in the way a stablecoin is — it’s the same money you already have in a bank account, represented digitally. Tokenized deposits are digital records of money already held in a bank account, and unlike stablecoins, they remain a liability of the issuing bank and retain the legal protections attached to conventional deposits.

Definition and Liability of Tokenized Deposits

That liability structure is the key technical difference separating tokenized deposits from crypto-native stablecoins, which are typically issued by private companies against reserves and create a separate claim on the issuer rather than the bank itself. Because tokenized deposits sit inside the existing commercial banking system, they carry the same regulatory and supervisory framework as ordinary bank money.

Practical Benefits for Customers and Businesses

Tokenized deposits could benefit businesses and customers alike by accelerating settlement times, enhancing cash-flow oversight, and offering payment methods that are simpler, clearer and safer. UK Finance’s managing director for Payments and Innovation, Jana Mackintosh, said the programmable-deposit setup used in the marketplace test showed how this approach could lower fraud risk in online transactions.

Insights from Industry Leaders

Officials involved in the project were direct about what the tests demonstrate. “These live transactions show how tokenized deposits can deliver practical, real-world benefits, contingent payments that give customers greater control over their money,” said Lucy Rigby, economic secretary to the Treasury. Gilbert Verdian, founder and CEO of Quant, framed the milestone in broader terms: “Tokenized deposits have the potential to play a key role in the evolution of digital money and payments in the U.K. and beyond.”

What Comes Next

UK Finance now plans to set up a company and build a rulebook and governance framework as the Great British Tokenised Deposit project moves past its pilot phase. By the first quarter of 2027, the banks involved are anticipated to launch three digital bonds tradable and settleable via tokenized deposits, extending the pilot’s scope beyond mortgages and person-to-person payments into securities settlement. That timeline lines up with the UK government’s separate plans for its Digital Gilt Instrument, with the first digital sovereign bond transaction also expected around the end of the first quarter of 2027.

Interest in the UK’s approach is reportedly spreading beyond its own banks. According to Mackintosh, other jurisdictions have been in discussions with UK Finance over the past year about how to catch up with the model, including counterparts in Europe. Similar work is underway in the United States, where The Clearing House announced its own interbank tokenized deposit project in June. Lloyds, for its part, has already tested tokenized deposits elsewhere, including live cross-currency transactions through the Bank for International Settlements-led Project Agorá and an earlier issuance of tokenized sterling deposits on the Canton Network used to purchase a tokenized UK government bond.

FAQ

What are tokenized deposits?

Tokenized deposits are digital records of money already held in a bank account but remain liabilities of the issuing bank, carrying the same conventional deposit protections as ordinary bank money.

Which banks participated in the first tokenized deposit transactions in the UK?

Barclays, HSBC, Lloyds Banking Group, Monzo, Nationwide, NatWest and Santander all participated in the Great British Tokenised Deposit initiative.

What benefits do tokenized deposits offer?

They can speed up settlement, improve cash-flow management, and provide more convenient, transparent and secure payment methods for both businesses and customers.

How are UK regulators approaching tokenized deposits and digital money?

The Bank of England and Financial Conduct Authority support tokenized markets while evaluating stablecoins for institutional settlement, and are preparing the financial system for tokenization and longer settlement hours.

Article produced with the assistance of artificial intelligence and reviewed by the editorial team.