Several of the United Kingdom’s largest banks have successfully completed what UK Finance described as the world’s first interbank transactions using tokenized deposits. The initiative tested mortgage and online payments with the goal of demonstrating how digital bank deposits could move seamlessly between different banking institutions.
Major banks participate in tokenized deposit pilot
Lloyds Banking Group, NatWest and Barclays executed two remortgage transactions with tokenized deposits, marking a significant step in banking innovation. Meanwhile, a separate group including HSBC tested a payment linked to a simulated online marketplace purchase. These developments are part of UK Finance’s Great British Tokenised Deposit initiative, which aims to explore the use of digital versions of sterling bank deposits across multiple banks.
The pilot included participation from Barclays, HSBC, Lloyds Banking Group, NatWest, Nationwide and Santander, and was supported by technology firm Quant, consulting giant EY and law firm Linklaters.
How programmable deposits improve security and efficiency
Tokenized deposits are digital representations of traditional bank deposits, held on a blockchain or similar distributed ledger. These deposits remain liabilities of the issuing bank and retain the legal protections granted to conventional bank balances.
Earlier banking projects often involved digital assets circulating within a single institution, hampering interoperability. In contrast, the current pilot was expressly designed for interbank use, enabling the transfer of tokenized deposits between customers at different banks.
In the simulated online marketplace test, funds were held in reserve in the buyer’s account until transaction conditions were satisfied; only after goods were confirmed as received were the funds released to the seller. No physical goods moved, as this was a test environment. This approach mirrors automated settlement and conditional payments, reducing the risk of fraud in digital transactions.
Jana Mackintosh, managing director for Payments and Innovation at UK Finance, noted that programmable money structures could help address fraud in online commerce. The remortgage pilot used a similar process: money was locked during the property transaction and released automatically once the deal closed.
Programmable deposits tied to delivery confirmation and automated release of funds can make transactions safer and may deliver significant fraud reduction in online payments and property transfers.
Mini dictionary: UK Finance is a leading UK banking and finance industry association, representing over 300 firms and coordinating sector-wide research and pilot projects.
Tokenized deposits differ from stablecoins
Unlike stablecoins, which are typically issued by private companies and backed by reserves, tokenized deposits represent money held within the regulated commercial banking sector and carry the same depositor protections as traditional funds. This distinction remains central to regulatory discussions in the UK and beyond.
The Bank of England has encouraged banks to experiment with tokenized deposits. In May, Deputy Governor Sarah Breeden emphasized the central bank’s vision for tokenized deposits, regulated stablecoins and potentially a retail central bank digital currency to operate together in the future.
| Asset type | Issuer | Protections | Typical use |
|---|---|---|---|
| Tokenized Deposit | Commercial Bank | Bank deposit guarantee | Payments, settlements |
| Stablecoin | Private Company | Varies by issuer/regulation | Stable digital value/payment |
Recently, the Bank of England updated its stablecoin policy, replacing proposed individual ownership limits with a £40 billion initial issuance cap for each systemic token. Lloyds has participated in other pilots as well, including completion of three live transactions for Project Agorá, an initiative led by the Bank for International Settlements. These transactions involved using tokenized sterling, euros and Swiss francs. Lloyds also issued tokenized sterling deposits on the Canton Network earlier in 2026 and used them to purchase a tokenized UK government bond from digital asset exchange Archax.
Mini dictionary: The Canton Network is an interoperable blockchain platform designed for financial institutions, enabling secure transfers and atomic settlement across various applications.
Future plans for tokenized financial products
Interest in tokenized deposits has grown internationally. Mackintosh confirmed that financial institutions in Europe and the United States have shown interest in the UK’s pilot over the past year. In June, The Clearing House, a major US banking payments company, launched its own interbank tokenized deposit project.
In addition, the UK government plans to launch the first transaction for its Digital Gilt Instrument (DIGIT) by the end of the first quarter of 2027, marking another milestone in digital asset adoption.
UK Finance supports setting up a dedicated company to manage rules and governance for these initiatives. Participating banks aim to issue three digital bonds in early 2027, with the intention of using tokenized deposits for settlement and trading.
These digital bonds will take advantage of tokenized deposits for both settlement and trading, paving the way for broader adoption of digital financial market infrastructure.
