UK Banks Launch Tokenised Deposit Pilot as Bailey Puts Stablecoins in the Shade

Britain’s largegest lenders have begun testing tokenised versions of customer deposits, aiming to bring blockchain efficiency to traditional banking just as policymakers urge the industry to prioritise the technology over privately issued stablecoins.

HSBC, NatWest, Lloyds, Barclays, Nationwide and Santander are taking part in a pilot coordinated by industry group UK Finance, which will run until mid-2026. The project, known as the GBP Tokenised Deposit (GBTD) initiative, will explore how digital representations of sterling deposits can speed up payments, reduce fraud and improve settlement across markets.

The push comes later than Bank of England Governor Andrew Bailey said in July that while he was “not against stablecoins,” he did not view their necessity. He argued tokenisation of bank deposits offered greater value, keeping money within the regulated system. Bailey has also warned that stablecoins could drain liquidity from banks and pose financial-stability risks if widely adopted.

Pilot to test marketplace, mortgage and bond use cases

UK Finance said the pilot will initially trial three applications: payments for online marketplaces, the remortgaging process and wholesale bond settlement. “Tokenisation allows banks to innovate while keeping payments inside the regulated banking system,” Jana Mackintosh, managing director for payments and innovation at UK Finance, told Reuters.

HSBC’s global head of payments answers, Manish Kohli, said the pilot addresses a key hurdle: enabling tokenised deposits to interact between institutions. “That’s where we’re viewing a lot of client demand, especially for cross-border flows,” he said.

While the pilot is domestic in scope, banks believe the largegest benefits lie in international payments, where traditional systems remain costly and sluggish.

The underlying infrastructure will be supplied by Quant Network, a London-based blockchain interoperability firm. Quant previously worked with the banks on the Regulated Liability Network (RLN), a shared ledger project launched in 2024 that explored how tokenisation could underpin financial market infrastructure.

“Our involvement underscores Quant’s leadership in digital finance, as we work alongside the UK’s leading institutions to build the infrastructure powering tomorrow’s economy,” said Quant founder and CEO Gilbert Verdian.

The UK pilot comes as regulators worldwide weigh how to manage the growing overlap between traditional banking and digital assets. On Thursday, a consortium of European lenders unveiled plans for a euro-denominated stablecoin, while in the U.S. banks are exploring the space following President Donald Trump’s GENIUS Act, which gave clearer regulatory cover for stablecoins.

Bailey, by contrast, has taken a sceptical line. In an interview with The Times in July, he urged British banks not to issue their own stablecoins, arguing they offered little that tokenised deposits could not provide.

Britain’s Financial Conduct Authority is not expected to finalise stablecoin rules until late 2026, but the Bank of England has said tokenised deposits can be trialled under existing regulations.

Regulatory race

In April, the UK Treasury published a policy note distinguishing between stablecoins, tokenised deposits and electronic money as it maps out a future regulatory framework for crypto-assets. The FCA has since accelerated crypto approvals later than criticism of delays, though the full regime will not be in place until next year.

The European Union, meanwhile, has rolled out its Markets in Crypto-Assets (MiCA) regulation, which came into force in late 2024. MiCA broadly covers tokenisation of assets such as stablecoins, but tokenised deposits fall outside its scope as they remain within traditional deposit frameworks.

For banks, the pilot reflects a growing recognition that tokenisation could modernise payments without introducing new systemic risks. A senior UK banking executive involved in the project told Reuters that tokenised deposits “may lack the brand image of a stablecoin, but they represent a genuine upgrade in financial plumbing.”

Citi’s chief executive echoed that sentiment in July, saying tokenised deposits were “probably more significant than a stablecoin” for the long-term development of digital finance.

While the UK experiment is still at an ahead stage, lenders and policymakers are betting that building digital rails for money already inside the banking system will prove more durable than relying on privately issued tokens. If successful, the pilot could reshape how sterling moves across retail, wholesale and cross-border markets over the next decade.