UK Banks Complete First Interbank Transactions Using Tokenized Deposits

Britain’s biggest banks have completed interbank transactions using tokenized deposits, marking a further step toward using blockchain infrastructure to move commercial bank money between financial institutions.

Lloyds, NatWest and Barclays completed two mortgage transactions using tokenized deposits as part of the Great British Tokenised Deposit project run by UK Finance, Reuters reported on September 24. A separate group of banks including HSBC also tested a person-to-person transaction simulating an online marketplace purchase.

The trials move tokenized deposits beyond individual-bank experiments and into transactions involving multiple financial institutions, addressing one of the main challenges facing bank-led blockchain systems: enabling digital bank money to move between institutions.

Banks Test Tokenized Deposits Across Payments and Mortgages

The Great British Tokenised Deposit project was designed around three use cases: person-to-person payments through online marketplaces, remortgaging, and digital asset settlement.

In the simulated marketplace transaction, programmable deposits allowed funds to be reserved in a buyer’s account and released to the seller once the goods were confirmed as received. No real goods changed hands during the test.

The mortgage transactions used a similar programmable approach. Funds were locked and automatically released once the relevant property transaction was completed, according to Reuters.

UK Finance said tokenized sterling deposits are digital representations of traditional commercial bank money. The project is intended to combine the regulatory protections associated with conventional deposits with blockchain-based functionality such as programmability, faster settlement and potential fraud controls.

The initiative currently includes Barclays, HSBC, Lloyds Banking Group, Monzo, NatWest, Nationwide and Santander, alongside technology and professional-services partners.

Tokenized Deposits Bring Bank Money Onchain

Tokenized deposits differ from stablecoins in how the underlying money is structured.

A tokenized deposit represents an existing deposit held with a commercial bank, with the bank remaining the issuer and counterparty. Stablecoins, by contrast, are generally privately issued digital tokens designed to maintain a stable value against a reference asset such as a fiat currency.

Reuters reported that the Bank of England has favored banks experimenting with tokenized deposits rather than relying solely on privately issued stablecoins. The distinction reflects a broader debate over how digital money should operate within the banking system and how blockchain-based payments should connect to existing regulated financial institutions.

The issue is becoming more relevant as banks in multiple jurisdictions explore shared infrastructure for moving tokenized deposits between institutions.

Unlock Blockchain previously reported on Canada’s Big Six Banks exploring a shared tokenized deposit system, with the initial phase focused on interbank transfers rather than a consumer-facing digital currency. The Canadian initiative adds another major banking market to the development of shared infrastructure for tokenized bank money.

UK Project Moves Toward Production

The UK project is now preparing to move beyond its pilot phase.

UK Finance plans to establish a company and develop a rulebook and governance framework to support the infrastructure in full production, Reuters reported.

Participating banks also plan to issue three digital bonds in the first quarter of 2027. The bonds are expected to be tradable and settled using tokenized deposits, linking the digital money infrastructure to tokenized capital-market assets.

The development follows other institutional experiments with tokenized deposits.

Earlier this month, Citi and DBS completed a weekend cross-border tokenized deposit transfer through Swift’s blockchain-based Digital Ledger, settling the transaction between Singapore and the US in minutes rather than through conventional banking windows.

The UK project is therefore part of a broader move toward using tokenized deposits as payment and settlement infrastructure rather than treating blockchain-based bank money as a standalone pilot.

From Tokenization Pilots to Shared Banking Infrastructure

The latest UK transactions also highlight a change in the focus of institutional blockchain projects.

Banks have spent years testing how deposits, securities and other financial assets can be represented on distributed ledgers. The challenge is increasingly shifting toward interoperability: how tokenized assets and bank money can move between institutions using common infrastructure and rules.

Canada’s Big Six are exploring this model at the interbank level, while major US banks are also developing tokenized deposit networks. Swift is separately testing infrastructure designed to connect banks and support tokenized deposit payments.

The UK project adds live interbank transactions to that development, while its planned governance framework and 2027 digital bond issuance could provide the next test of whether tokenized deposits can move from controlled pilots into broader financial-market infrastructure.