UK banks eye faster settlement as 71% expect tokenization to reshape finance

UK financial institutions have identified faster settlement as tokenization's biggest benefit, with 71% expecting the technology to reshape financial services.

Summary

• 60% of survey respondents named faster payments and settlement as tokenization's biggest opportunity.
• 41% cited better collateral and liquidity management, according to Lloyds' annual survey.
• UK banks have tested tokenized deposits for mortgage payments and simulated marketplace purchases.
• U.S. and UK officials have recommended joint testing of cross-border tokenized financial assets.

Lloyds Banking Group said in its Oct. 2 release, that its tenth annual Financial Institutions Sentiment Survey questioned 100 senior decision-makers at major UK banks, insurers, financial sponsors, and asset and wealth managers.

Tokenization could release capital tied up in settlement

For respondents, payment speed ranked ahead of collateral and liquidity management, which attracted 41% of responses, according to the survey. Lloyds said digital infrastructure could reduce the time and resources needed to transfer money and assets, releasing capital held up while transactions complete.

In the bank's description, tokenization represents assets such as cash, bonds and funds digitally on blockchain infrastructure. Lloyds said the technology could also automate transactions when agreed conditions are met, reducing the operational work involved in financial processes.

Rob Hale, co-head of global markets at Lloyds, said the next stage requires institutions to turn separate applications into "infrastructure that works at scale," supported by "the interoperability and common standards needed to connect digital and traditional markets."

Alongside tokenization, the survey recorded increased interest in emerging technology generally. Lloyds reported that 77% now consider investment in new technologies a growth priority, compared with 41% in 2025, while 64% plan to increase capital expenditure over the next 12 months.

UK banks have tested deposits across separate institutions

Lloyds' earlier work included a transaction with Archax and Canton Network in which tokenized deposits paid for a tokenized UK government bond. The bank described the purchase as the UK's first public blockchain transaction using tokenized deposits.

More recently, crypto.news reported on Sept. 24 that UK Finance's interbank tokenized deposit tests included two remortgage transactions involving Lloyds, NatWest and Barclays. According to UK Finance, the tests examined whether digital representations of sterling deposits could move between separate banks.

During the mortgage transactions, UK Finance said funds were locked while the property process continued and released automatically once it finished. A separate test involving three banks, including HSBC, simulated an online marketplace purchase.

For that marketplace transaction, the project reserved money in the buyer's bank account until confirmation that the goods had arrived, according to the report. No physical goods changed hands during the simulation.

UK Finance's initiative includes Barclays, HSBC, Lloyds, NatWest, Nationwide and Santander, with support from Quant, EY and Linklaters. The industry group plans to establish a company, rulebook and governance framework, while participating banks plan three digital bond issues in the first quarter of 2027 that can settle using tokenized deposits.

Lloyds has used USDC to settle obligations with Visa

In an Oct. 1 report on Lloyds' Visa settlement trial, the bank said it had settled $750,000 in live payment obligations using USDC during a seven-day pilot.

According to Lloyds, the obligations were booked through its Corporate Markets branch in Jersey, converted into USDC obtained through Archax, and transferred to Visa in the United States. Funds reached Visa in less than an hour, including during transactions outside normal banking hours and over the weekend.

The bank operated its own Canton node while Visa supported settlement on a separate public blockchain, the report said. The arrangement tested transfers across different blockchain environments rather than requiring both institutions to use the same network.

Peter Left, Lloyds' head of digital assets, said the live payments allowed the bank to examine the capabilities in a real transaction setting. Lloyds said faster settlement could improve certainty over arrival times and reduce liquidity waiting for payments to complete during weekends and holidays.

UK plans include digital gilts and U.S. cooperation

On May 18, the Bank of England proposed staged extensions to RTGS and CHAPS settlement hours toward near-24/7 availability, subject to consultation and industry readiness.

A July 13 report on the UK tokenization development plan detailed a government-backed strategy estimating that adoption could add up to £33 billion, approximately $44 billion, to annual economic output by 2035.

The strategy's projections depend on adoption, regulation and the UK securing a share of the global tokenized asset market, according to the report. Its task force includes 54 firms and nine action groups covering matters such as settlement, collateral, legal standards and market access.

The plan calls for an end-to-end tokenized repo transaction by spring 2027 and a first digital government bond by early 2027, according to the strategy. Repo transactions involve securities pledged against short-term borrowing.

For American institutions, the transatlantic work includes proposed tests and regulatory coordination. An Aug. 12 report on the U.S.--UK tokenized finance recommendations described a proposed private-sector group that would operate for one year, test cross-border transactions and share technical and regulatory practices with authorities.

Under the July recommendations, the SEC, CFTC, Financial Conduct Authority and Bank of England would examine common approaches to settlement finality, regulatory treatment and market infrastructure. The task force also recommended examining whether stablecoins and tokenized money-market funds could qualify as margin collateral at central counterparties, with any authorization requiring separate decisions by the relevant agencies.