Tokenized Sterling Deposits: UK Banks Test a Safer Path for Digital Payments

UK Finance has launched a landmark pilot for tokenized sterling deposits, bringing six of the country’s largest banks into the first live trial of programmable bank money. Participating banks are Barclays, HSBC, Lloyds Banking Group, NatWest, Nationwide, and Santander. Running through mid-2026, the initiative will test whether digital deposits can streamline marketplace transactions, mortgage processes, and wholesale settlement. The project is being described as the most ambitious UK banks blockchain pilot to date. It reflects the Bank of England’s support for tokenised deposits as a safer alternative to privately issued stablecoins.

Why the Bank of England Prefers Tokenised Deposits

Governor Andrew Bailey has urged banks to focus on deposit tokenisation rather than stablecoin development. His reasoning is clear: deposits stay within the prudential banking framework, backed by the same protections as traditional accounts. Stablecoin regulation is not expected until late 2026. In the meantime, tokenized deposits remain the central bank’s preferred route for innovation in digital payments in the UK. Some policymakers even describe them as a digital pound alternative, designed to deliver many of the same benefits as a CBDC while preserving the role of commercial banks.

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Payments Innovation Meets Programmability

The trial’s first use case is online marketplaces. With tokenized sterling deposits, funds can be held in escrow and released only when goods are delivered. This reduces fraud risks and gives consumers more confidence when shopping online. A second application is remortgaging. Programmable payments can automate settlement and lower the risk of conveyancing fraud. In practice, this is about embedding remortgaging digital payments into banking infrastructure. Together, these use cases show how programmable payments UK can go beyond speed to address long-standing risks in financial services.

Tokenised Deposits vs Stablecoins

For policymakers, the distinction between tokenised deposits and stablecoins is crucial. Deposits remain liabilities of regulated banks. They are redeemable at par and integrated with deposit insurance. Stablecoins, by contrast, raise questions about backing, redemption, and systemic stability. This debate over tokenised money vs stablecoin models is shaping how regulators view the future of digital payments. Supporters argue that tokenized sterling deposits provide a way to preserve the singleness of money while keeping innovation within the banking system.

Shared Infrastructure and Industry Standards

The pilot runs on a shared ledger built by Quant. This infrastructure builds on earlier experiments with the Regulated Liability Network. It allows multiple banks to issue and settle UK Finance tokenised sterling deposits on a common platform. Privacy and governance standards are also part of the design. By using a single framework, banks hope to show that programmability can scale without fragmenting the monetary system. Quant has said the project demonstrates how Quant Network UK deposits could serve as a model for other jurisdictions. As part of this work, the infrastructure is also testing how tokenized deposits can integrate with the UK’s existing payment rails.

HSBC’s Parallel Expansion

At the same time, individual banks are moving ahead with their own solutions. HSBC tokenized deposits are already live in Hong Kong, Singapore, the UK, and Luxembourg. The service supports GBP, EUR, and USD. It lets corporate clients move liquidity instantly across borders, even outside normal cut-off hours. This suggests a path where domestic pilots and corporate treasury services can reinforce each other. Analysts also note the potential for wholesale settlement blockchain applications, especially in digital bond markets. For HSBC, extending tokenized sterling deposits to corporate clients is also a way to showcase the practical benefits of the broader UK Finance pilot.

>>> Read more: Asset Tokenization on the Blockchain: Financial Giants’ Trial

Looking Ahead to 2026

The UK Finance pilot will run until mid-2026. Success will be measured by improvements in fraud reduction, payment efficiency, and settlement speed. By the time the FCA’s stablecoin rulebook arrives, UK banks and regulators will have hard data on the viability of tokenized deposits. If the results are positive, tokenised deposits could become the foundation for smarter payments, corporate liquidity management, and digital asset settlement. This would mark a decisive step in Britain’s digital money strategy, showing how UK banks testing blockchain for payments can shape the future of finance.