UK Finance, together with a consortium of Britain’s largest banks, recently launched a new pilot project to test the first live transactions of tokenised sterling deposits in the UK. FStech’s senior reporter Silvia Iacovcich asks experts what they think will be the main challenges for both banks and consumers as the project progresses.

UK Finance and six major British banks, including Barclays, HSBC, and Lloyds Banking Group, have launched a new pilot to test tokenised sterling deposits (GBTD) in the first live transactions of this kind in the UK.

Tokenised deposits are a digital representation of traditional commercial bank money in sterling, enabling programmable payments and automated settlements.

The pilot project, which is also being carried out in partnership with NatWest, Nationwide and Santander, will explore three use cases: person-to-person payments via online marketplaces, mortgage refinancing, and digital asset settlement, assessing whether tokenised deposits can be scaled securely for wider adoption in the coming years.

The initiative, which will run until mid-2026, aims to assess whether tokenised deposits can be safely rolled out for wider adoption in the UK banking sector. If successful, it could eventually lead to its full adoption by British banks.

But these digital deposits bring risks as well as opportunities, from cybersecurity and operational complexity for banks, to privacy concerns and limited consumer understanding.
The UK now has the opportunity to weigh up the pros and cons, with financial services experts displaying mixed opinions on how successful they anticipate the initiative will be.

Oscar Ashly, chief executive of regulated CFD broker M4Markets, believes that the project is one of the most significant developments in modern banking infrastructure.

He tells FStech: “It represents a bridge between traditional finance and the digital economy, not a replacement for existing money, but an evolution of how value moves, settles, and interacts with technology.”

Gunnar Már Gunnarsson, co-founder and technical director of FinTech Paystrax, agrees that it marks a significant step forward in understanding how tokenisation can strengthen trust and efficiency in payments, with its ability to provide transparency for both consumers and institutions.

“We have already seen how tokenisation transformed card security by replacing sensitive payment data with encrypted identifiers,” he notes. “Extending this approach to bank deposits could create a safer, faster and more transparent system for consumers and institutions alike.”

Gunnarsson highlights the potential of programmable money to automate and secure processes such as peer-to-peer transfers, mortgage refinancing, and digital asset settlement, reducing reconciliation delays and operational risk.

Simon Deane-Johns, financial services partner at Keystone Law, whose clients include payment and electronic money service providers, takes a more cautious stance, highlighting the technical challenges underlying the project.

“Each deposit would be cryptographically recorded as a token in a ledger, enabling the automatic scheduling and settlement of transactions,” he explains.

For this reason, he warns that projects of this scale are complex and costly.

But he adds that the initiative is essential for the ecosystem to understand how best to expand and become fully operational for the right cost.

“The pilot project aims to verify whether the perceived benefits – security, reliability and efficiency - can be achieved in a cost-effective manner,” he notes.

The challenges

Asly says that operational complexity will be the first major obstacle for financial institutions.
“Integrating tokenised systems into legacy infrastructure requires coordination across institutions, regulators, and technology,” he explains. “In many cases, the challenge is compounded by limited understanding among both institutions and regulators.”

Nick Fernando, co-founder and director of British software company Aqua Global, agrees, pointing out that legacy systems continue to pose a serious risk to interoperability.

According to the company, which provides message automation for banks, the coming months will be crucial for testing interoperability in real conditions, determining whether old and new systems can operate in parallel.

“Decades of legacy systems can’t be overhauled overnight,” he explains. “If tokenised and legacy systems fail to communicate, that creates blind spots, friction, or even failed transactions.”

As banks face a range of existing challenges, from payment delays and cross-border reconciliation headaches to slow investigation processes, tokenised deposits could add further complexity. Fernando warns that with this multitude of challenges, banks could be “running before they learn to walk”.

He believes that the project can only succeed if real-time visibility for every transaction is achieved. The FinTech director says that this depends on seamless data exchange between tokenised payment systems and existing systems such as SWIFT and BACS.

“Most legacy systems weren’t designed for this level of data exchange,” he adds.

With this in mind, the adoption of modern, flexible platforms capable of automating the reconciliation of both traditional and tokenised payments will be necessary.

Michael Foote, founder at insurance comparison website Quote Goat agrees.

“Interoperability between digital and traditional systems must be seamless, backed by robust monitoring to limit cyber threats,” he explains.

For Richard Baker, founder and chief executive officer at UK FinTech Tokenovate, collaboration and frameworks across the financial landscape will be key to the pilot’s success.

"For tokenised money to reach everyday use, it needs to be trusted, secure and seamlessly integrated into existing payment rails,” he says. “That’s where clear standards, shared infrastructure and collaboration across the ecosystem become essential.”

He points to frameworks such as the Common Domain Model (CDM) and open API architectures as fundamental to creating a reliable and scalable infrastructure for the digital economy of the future.

What changes for consumers?

For consumers, Asly sees tokenised deposits as a chance for access to faster, cheaper, and more flexible payments.

“Imagine programmable payments that release funds automatically when a condition is met, for example, completing a mortgage transfer or confirming delivery on an online marketplace,” he explains. “That level of precision and efficiency is transformative, and it could remove many of the frictions and delays that people still experience when moving money today.”

Some consumers, particularly freelancers, are already using stablecoins to gain similar benefits.

Eran Karaso, chief operating officer of Ruul, a merchant-of-record platform for freelancers, says many users choose stablecoin payments for their speed, cost efficiency, and transparency.

“Freelancers want same-day settlement across borders, lower fees and less cash-flow anxiety,” he explains.

Ruul, which processes payments for over 100,000 independents in 190 countries, has seen rapid growth in stablecoin payout requests, especially from high-remittance cost regions.
Karaso believes that the pilot's P2P marketplace use case directly addresses these workflows, covering escrow, conditional releases, and split payments.

But stablecoin users could face friction when converting to fiat currency, he adds, explaining that regulatory clarity also varies.

“GBTD could eliminate both of these issues if the user experience hides the complexity,” he says.

According to him, the user experience should display balances in pounds sterling, enable one-tap transfers, and make it simpler than today's banking experience.

“Freelancers, for example, will adopt new rails only if they feel easier than the old ones,” adds Karaso.

Consumer trust

Consumer education will remain crucial as tokenised deposits develop, with Már Gunnarsson of Paystrax emphasising that knowledge must evolve alongside innovation.

“Many consumers remain wary of new digital payment systems,” he notes, adding that to succeed, banks must clearly communicate how tokenisation protects data and strengthens resilience.

“If trust is the foundation of money exchanging hands, tokenised deposits may well be the infrastructure that keeps it standing,” he adds.

Asly agrees, warning that privacy and data protection will be central concerns for consumers.
“Programmable payments offer convenience but raise questions around surveillance and control,” he says.

Arjeh van Oijen, head of product management at payments technology company Icon Solutions, believes that one of the most important considerations for consumers is privacy and confidentiality when data is exchanged between parties. This can vary significantly depending on the configuration.

“For instance, payment-related data could be exchanged separately from the transaction to transfer the tokenised asset; this makes it possible to exchange the payment data via the Swift network while using the DLT network for the settlement,” he explains.

However, in configurations, payment data can be embedded in the DLT transaction itself. In such cases, the data can be encrypted so that parties cannot access it without authorisation.

“But because DLT transactions are permanently stored on the network, combined with technological advances such as quantum computing, data that cannot be decrypted today may be accessible in the future,” warns van Oijen.

In light of these potential obstacles, Quote Goat’s Foote reiterates that public trust will be crucial to the initiative's success.

“Consumers will need reassurance on privacy and clear explanations of how tokenisation works,” he says. “Education and intuitive banking interfaces will determine how quickly the public embraces the shift.”

Tokenised sterling deposits represent a natural step in the modernisation of financial infrastructure. But their success will depend on education, interoperability and the industry's ability to balance innovation with consumer protection.

The pilot project provides a pivotal opportunity to explore how digital innovation can coexist with traditional systems while maintaining public trust and regulatory integrity.

If these elements are aligned, it could mark the beginning of a more connected and intelligent era for everyday banking.

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