5 Things to Know as Banks Connect Tokenized Deposits

Tokenized deposits have reached the point where banks can begin finding out what works and what needs work.

Seven banks in the United Kingdom participated in the first live customer transactions using tokenized sterling deposits, including two remortgage completions and a consumer marketplace purchase, according to a Thursday (Sept. 24) press release. The transactions were executed on the shared Great British Tokenised Deposit (GBTD) platform developed by Quant.

The same day, in the United States, The Clearing House said it selected Quant for its On-Chain Money Initiative, PYMNTS reported. The planned network will allow financial institutions to clear and settle tokenized deposits and connect them to existing fiat payment systems, with availability expected for participating institutions in the first half of 2027.

Moving that money among banks creates a different set of challenges along the path toward scaling tokenized deposits.

1. Bank Tokens Have to Become Interchangeable

A dollar in a checking account does not become less useful because its recipient uses another bank. Tokenized deposits eventually need the same practical quality.

The U.K. transactions showed that participating banks can move tokenized deposits between institutions. The Clearing House is pursuing the same objective in the U.S., where its network would allow tokenized commercial bank money to move among participating banks while the corresponding funds settle between them.

For corporate customers with several banking relationships, tokenizing cash provides limited benefit if the result is a collection of digital balances confined to individual institutions.

The test for interoperability is one where customers can treat tokenized deposits as bank money rather than as proprietary bank products.

2. Tokenized Deposits Need a Job That Existing Payments Cannot Do

Banks already have ACH, wires and instant payments. Another way to move a deposit needs a reason to make the move at all.

Conditional transactions offer one such reason. Tokenization may also prove useful when payment and another transaction need to occur together, reducing the gap between the movement of an asset and the movement of money.

Banks will still have to decide when customers should use each option. The PYMNTS Intelligence report “From Adoption to Execution: How FIs Are Turning Real-Time Payments Into Competitive Advantage” found in August that 35% of financial institutions are adding centralized third-party payment hubs, while 32% are adding rail-specific tools to existing systems.

As payment choices multiply, banks may get more value from choosing the appropriate method for a transaction than from presenting customers with another payment option.

3. Programmability Turns Payment Conditions Into Bank Policy

The U.K. transactions showed programmability’s impacts. For the remortgages, funds remained in customer accounts until completion conditions were satisfied. In the consumer marketplace transaction, money was locked in the buyer’s account and released when the goods were exchanged.

Automating that release creates decisions that banks will have to address. Who defines the condition? What proves it has been satisfied? Who can stop an instruction? What happens when the parties disagree? Banks therefore need rules for conditional payments alongside the code that executes them.

4. Continuous Settlement Changes Liquidity Management

Money that can move around the clock has to be funded around the clock. The PYMNTS Intelligence report identified liquidity requirements, treasury integration, staffing and 24/7 operations among financial institutions’ implementation challenges with instant payments.

Tokenized deposits could extend those demands into large corporate transactions and transactions involving tokenized assets.

The Clearing House CEO David Watson told PYMNTS CEO Karen Webster last month that its planned system is designed so a corporate treasurer can move a tokenized deposit between banks with one instruction, with corresponding fiat funds settling at the same time.

For banks, that convenience requires liquidity to be available when the instruction arrives, including outside conventional banking hours.

5. Settlement Speed Does Not Guarantee Faster Accounting

A token can reach another bank quickly while the transaction still must reach general ledgers, reconciliation systems, compliance records and corporate accounting software.

Existing payment modernization shows where delays can migrate. The PYMNTS Intelligence report “From Adoption to Execution: How FIs Are Turning Real-Time Payments Into Competitive Advantage” found in August that 53% of financial institutions identified manual-intensive internal processes as a primary modernization obstacle and 52% cited legacy technology. For corporate customers, faster settlement is of lesser value if treasury staff still must identify transactions manually, match them with invoices or wait for records to reach an ERP system.

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