UK Banks Test Tokenized Deposits for Interbank Transactions

UK banks have completed the world's first interbank transactions using tokenized deposits in a project led by UK Finance. The tests involved two remortgage transactions and a simulated online marketplace payment, with participating banks including Barclays, Lloyds, NatWest, HSBC, Nationwide, and Santander.

The tokenized deposits, which represent regular bank deposits recorded on a blockchain or similar digital ledger, remain liabilities of the issuing bank with the same legal protections as normal deposits. In the remortgage transactions, funds were locked during the property process and released automatically once the deal was complete.

UK Finance's Great British Tokenised Deposit initiative aims to test whether digital versions of sterling bank deposits can move between different banks. The central bank has encouraged banks to test tokenized deposits, with Deputy Governor Sarah Breeden saying in May that the bank wants deposits, tokenized deposits, regulated stablecoins, and possibly a retail central bank digital currency to work side by side.

The participating banks plan to issue three digital bonds settled with tokenized deposits in the first quarter of 2027. Jana Mackintosh, UK Finance's managing director for Payments and Innovation, said that the setup shows how programmable deposits can lower fraud risks in online sales.