Barclays, Lloyds and NatWest complete tokenized deposit transactions

Britain’s largest banks have completed what UK Finance described as the world’s first interbank transactions using tokenized deposits, testing blockchain based commercial bank money across mortgage and person to person payments.

According to UK Finance, Lloyds Banking Group, NatWest and Barclays carried out two remortgage transactions using tokenized deposits, while a separate group of three banks that included HSBC tested a person to person payment linked to a simulated online marketplace purchase.

The transactions form part of UK Finance’s Great British Tokenised Deposit initiative, which was launched to test whether digital representations of sterling bank deposits can move between different financial institutions. Previous bank projects had largely operated within individual systems, limiting their use for transactions involving customers at separate banks.

UK banks test tokenized deposits across separate institutions

Tokenized deposits represent conventional commercial bank deposits on a blockchain or another distributed ledger. The money remains a liability of the bank that issued it and retains the legal status and regulatory protections attached to an ordinary deposit.

Banks have spent years experimenting with blockchain systems for deposits, bonds, stocks and other financial assets, but separate infrastructure developed by individual institutions created problems when assets needed to move between them.

UK Finance designed the current pilot around interoperability between banks, with Barclays, HSBC, Lloyds Banking Group, NatWest, Nationwide and Santander participating. Quant, EY and Linklaters have supported the initiative.

The latest transactions put that model into practice through two different use cases.

For the online marketplace test, programmable deposits allowed money to remain reserved in a buyer’s bank account until the agreed conditions of the transaction were met. Funds were released to the seller only after confirmation that the goods had been received.

No physical goods changed hands because the transaction was simulated.

Jana Mackintosh, UK Finance’s managing director for Payments and Innovation, said the setup showed how programmable deposits could lower fraud risks in online transactions.

A similar mechanism was used for the two remortgage transactions. Funds were locked during the property process and released automatically when the transaction was completed.

The mortgage use case had been built into the project from its earlier stages, alongside person to person marketplace payments and settlement of digital assets. UK Finance previously said tokenized deposits could improve payment speed and fraud protection while retaining the protections associated with conventional bank deposits.

Tokenized deposits keep money inside the banking system

The tests come as UK regulators work through how different forms of digital money should operate alongside conventional bank deposits.

Tokenized deposits differ from stablecoins because they represent money held within the commercial banking system. Stablecoins are generally issued by private companies against reserves and create a separate claim on the issuer.

An April crypto.news report examining the difference between tokenized deposits and stablecoins noted that tokenized deposits retain their status as bank liabilities, with the regulatory and supervisory framework attached to commercial bank money.

The Bank of England has encouraged banks to experiment with tokenized deposits, while its framework for digital money leaves room for regulated stablecoins as another form of payment.

Deputy Governor Sarah Breeden said in May that the central bank wants a system in which traditional deposits, tokenized bank deposits, regulated stablecoins and potentially a retail central bank digital currency can operate alongside each other.

The Bank expects financial institutions to continue developing tokenized deposits and has been working on infrastructure that would allow the deposits to be used for payments between banks instead of remaining limited to customers of the same institution.

At the time, UK regulators were examining how tokenized securities, settlement systems and collateral could fit into regulated markets, with 16 firms preparing services through the Bank of England and Financial Conduct Authority Digital Securities Sandbox.

The central bank has since changed parts of its approach to stablecoins. Its final policy dropped proposed limits on individual stablecoin holdings and replaced them with an initial £40 billion issuance limit per systemic token.

Under the revised framework, issuers can hold up to 70% of reserves in short term government debt, while the remaining 30% must be held in non interest bearing Bank of England deposits. The central bank had previously proposed individual holding limits partly because officials were concerned that large flows from commercial bank deposits into stablecoins could affect bank funding and credit provision.

Digital bonds are next for the tokenized deposit project

UK Finance now plans to establish a company and develop a rulebook and governance framework as the Great British Tokenised Deposit project moves beyond its pilot phase.

Participating banks plan to issue three digital bonds in the first quarter of 2027 that can be traded and settled using tokenized deposits, Mackintosh told Reuters.

The planned transactions would add a securities settlement use case to the mortgage and person to person payments already tested.

A regulated digital cash leg has been one of the issues facing the UK’s tokenized bond market. The government is separately preparing its Digital Gilt Instrument, or DIGIT, with the first transaction expected by the end of the first quarter of 2027.

The first digital sovereign bond is expected to be issued through HSBC’s Orion distributed ledger platform inside the Bank of England and FCA Digital Securities Sandbox. The UK government has said further digital gilt sales could follow depending on the results of the first issuance.

A separate review of the DIGIT project identified onchain cash settlement as a remaining infrastructure issue, with regulators considering tokenized deposits, regulated stablecoins and central bank money as possible settlement assets.

Lloyds has already tested tokenized deposits in other settings. In August, the bank said it had completed three live transactions through the Bank for International Settlements led Project Agorá, covering sterling, euros and Swiss francs. One test linked foreign exchange conversion, payment and settlement into a single cross currency transaction flow.

Earlier in 2026, Lloyds issued tokenized sterling deposits on the Canton Network and used them to purchase a tokenized UK government bond from Archax, which the bank described as the first UK use of tokenized deposits on a public blockchain.

UK Finance says other markets are studying the project

Interest in the UK model has spread beyond the participating banks, according to Mackintosh.

“In the last 12 months, other jurisdictions have been speaking to us in earnest about what we’ve done, trying to understand how they can now catch up,” she said, citing discussions with counterparts in Europe.

Work on similar interbank infrastructure is underway in the United States. The Clearing House, a banking association and payments company, announced an interbank tokenized deposit project in June.

UK regulators are meanwhile developing rules and infrastructure for tokenized securities alongside the banking sector’s payment experiments. The Bank of England and FCA said in May that firms had asked for more certainty around prudential treatment, tokenized collateral and settlement instruments as financial institutions move distributed ledger projects toward live markets.