71% of UK Banks Believe Tokenization Will Lead to Faster Settlements in Finance

Financial institutions in the UK have recognized faster settlement times as the primary advantage of tokenization, with 71% anticipating that this technology will transform the financial services landscape.

Lloyds Banking Group, in a release dated October 2, noted that its tenth annual Financial Institutions Sentiment Survey queried 100 senior decision-makers from major banks, insurers, financial sponsors, and asset and wealth managers in the UK.

Tokenization could unlock capital tied in settlements

Among the respondents, the speed of payments was prioritized over collateral and liquidity management, which garnered 41% of the votes, according to the survey findings. Lloyds emphasized that a robust digital infrastructure could minimize the time and resources required to transfer money and assets, freeing up capital that is currently tied up during transaction closures.

In Lloyds’ definition, tokenization digitizes assets like cash, bonds, and funds on blockchain technology. Furthermore, the bank highlighted that this technology can facilitate automated transactions when specific conditions are met, thereby diminishing the operational workload associated with financial tasks.

Rob Hale, co-head of global markets at Lloyds, remarked that the next phase involves transforming disparate applications into an “infrastructure that functions at scale,” underpinned by “the interoperability and common standards necessary to bridge digital and traditional markets.”

Alongside the developments in tokenization, the survey indicated that there is a growing interest in emerging technologies overall. Lloyds reported that 77% of respondents now see investment in new technologies as a priority for growth, up from 41% in 2025, while 64% plan to ramp up capital expenditures in the coming year.

UK banks have experimented with deposits across various institutions

Lloyds previously engaged in a transaction with Archax and the Canton Network, where tokenized deposits were utilized for purchasing a tokenized UK government bond. This was described by the bank as the first public transaction on the UK’s blockchain utilizing tokenized deposits.

More recently, crypto.news reported on September 24 about UK Finance’s interbank tests involving tokenized deposits that included two remortgage transactions with Lloyds, NatWest, and Barclays. As stated by UK Finance, these tests explored whether digital representations of sterling deposits could be transferred between different banks.

During the remortgage transactions, UK Finance indicated that funds were secured while the property transactions were in progress and were automatically released at completion. Another test involving three banks, including HSBC, simulated a purchase in an online marketplace.

In this marketplace simulation, funds were held in the buyer’s bank account until confirmation of the goods’ arrival was received, according to the report. No physical goods changed hands during this exercise.

The initiative from UK Finance includes participation from Barclays, HSBC, Lloyds, NatWest, Nationwide, and Santander, with backing from Quant, EY, and Linklaters. The group aims to create a company, a rulebook, and a governance framework while the involved banks plan to initiate three digital bond offerings in the first quarter of 2027 that can settle through tokenized deposits.

Lloyds has utilized USDC for settling obligations with Visa

In an October 1 report regarding Lloyds’ Visa settlement trial, the bank revealed it settled $750,000 in live payment obligations using USDC during a seven-day pilot program.

According to Lloyds, these obligations were booked via its Corporate Markets branch in Jersey, converted into USDC acquired through Archax, and sent to Visa in the U.S. The funds arrived at Visa in under an hour, including during off-hours and weekends.

The bank operated its own Canton node while Visa facilitated settlement on a separate public blockchain, as stated in the report. This arrangement aimed to evaluate transfers across different blockchain environments without necessitating both institutions to operate on the same network.

Peter Left, Lloyds’ head of digital assets, noted that these live payments provided an opportunity for the bank to assess capabilities in a real transactional context. Lloyds mentioned that quicker settlements could improve reliability on arrival times and reduce idle liquidity while awaiting payment finalization during weekends and holidays.

The UK’s plans include digital gilts and cooperation with the U.S.

On May 18, the Bank of England proposed gradual extensions to RTGS and CHAPS settlement hours aiming for near-24/7 availability, contingent upon consultation and industry readiness.

A report from July 13 on the UK’s tokenization strategies detailed a government-backed initiative forecasting that adoption could generate an additional £33 billion (approximately $44 billion) to annual economic output by 2035.

The strategy’s estimates rely on various factors including adoption rates, regulation, and the UK’s ability to capture a share of the global tokenized asset market. The task force comprises 54 firms and nine action groups addressing issues such as settlement, collateral, legal standards, and market access.

The plan outlines an end-to-end tokenized repo transaction by spring 2027 and an inaugural digital government bond issuance by early 2027, as per the strategy. Repo transactions pertain to securities pledged for short-term borrowing.

For American institutions, the transatlantic collaboration includes proposed testing and regulatory alignment. An August 12 report on U.S.-UK tokenized finance recommendations advocated for establishing a private-sector group to operate for one year to examine cross-border transactions and share technical and regulatory insights with authorities.

Under July’s recommendations, the SEC, CFTC, Financial Conduct Authority, and the Bank of England are to explore common approaches to settlement finality, regulatory treatment, and market infrastructure. The task force also suggested investigating whether stablecoins and tokenized money-market funds could be accepted as margin collateral by central counterparties, with any authorization necessitating separate approvals from the relevant agencies.