Wall Street builds tokenized deposits to secure customer balances

Imagine a scenario where a company has sufficient funds to pay a supplier, but the money is held in its Singapore account while the invoice must be settled from New York. If the transfer between these accounts must wait until Monday, having adequate overall cash does not resolve the immediate liquidity issue.

Businesses typically address this by moving funds early or maintaining excess cash in accounts where they anticipate needing it. Both strategies tie up capital that could be deployed elsewhere, and occasionally, a company may borrow in one country while its own cash is available in another.

Banks aim to streamline these transfers. On September 5, DBS and Citi’s New York office completed a dollar payment between Singapore and the US in minutes, according to DBS’s announcement. To achieve this, they utilized tokenized deposits, a method of recording bank deposits as digital tokens, via SWIFT’s digital ledger.

The announcement outlined the payment route, though the banks have not yet disclosed the transaction amount or confirmed that all customers can access the service. However, it provides a concrete example of the service they intend to market: moving corporate funds across borders when customers require it, including on weekends.

Banks are pursuing this opportunity because it is potentially highly lucrative. Companies that keep their money with a bank pay fees for currency conversion and loan arrangements. If another provider offers a more efficient way to hold and move that money, banks risk losing the fees these companies pay.

This is also why 21 different financial institutions partnered to establish a stablecoin business. Banks are developing multiple types of digital money because customers desire various payment options. In either case, the bank aims to remain the primary point of contact for customers.

Why waiting for Monday incurs costs

International money transfers require coordination among several banks, as the sender’s bank may rely on another bank’s accounts and services to reach the recipient. Each stage of the transfer depends on the involved institutions having sufficient funds available and being open to processing the transaction.

Payment instructions travel quickly, but the actual money takes longer to become available. Settlement is the completion of the financial obligation. Making this step available more frequently could allow companies to move funds closer to the moment they need to spend them.

Consider a business that deposits $10 million into an account two days early to ensure a payment goes through. Banks refer to this as prefunding. If the company borrows that money at an annual rate of 5%, carrying it for those two extra days costs approximately $2,740, before accounting for any interest earned on the account.

Hypothetical example	Amount
Money moved two days early	$10 million
Annual borrowing rate	5%
Extra borrowing cost for two days	About $2,740

Calculation: $10 million × 5% × 2 ÷ 365. This example describes no actual DBS payment or measured saving. Interest earned on the account balance would reduce the net cost.

Companies using their own cash face a similar decision regarding what that capital could earn or cost elsewhere.

Across many accounts and repeated payments, these extra balances can quickly accumulate and become extremely expensive. Faster transfers could allow them to keep less money waiting in each location.

If a company must move cash early into a special account to use a faster network, some of the same cost remains, because the money is still waiting, just in a different place.

Instant payments can also require more cash at a particular moment than systems that offset obligations.

Suppose two banks owe each other $10 million and $8 million. Under an arrangement that permits it, they could pay the $2 million difference instead of funding both payments separately. This is called netting, and it can reduce the amount of cash needed to settle what they owe.

Therefore, businesses comparing payment services need to examine the full bill, including how much money they must keep available. Speed earns its price by helping businesses utilize their cash more efficiently.

Tokenized deposits become bank dollars

Tokenized deposits maintain a safe and familiar banking relationship for most companies. The bank owes the customer the money in the account, and the token records that obligation in a form that the participating payment system can use. The customer’s rights still depend on the bank account and the product’s terms.

Reserve-backed stablecoins work differently. Their issuers hold assets intended to support the tokens’ value and redemption. Dollar tokens can then move between users on supported networks while the backing assets are held elsewhere.

For someone making a payment, both essentially look like dollars moving through an app. The difference is key when they want to know who owes them money and how to get it back.

Form of money	Who owes the customer	Where it can be used
Ordinary bank deposit	The account bank	Through the payment services the bank supports
Tokenized bank deposit	The bank, under the deposit’s terms	Within the participating system and its supported connections
Reserve-backed stablecoin	The issuer, under the token’s redemption terms	Through compatible wallets and services, subject to restrictions

Deposit insurance, eligibility, and redemption rights depend on the jurisdiction and the particular product.

The BIS comparison of deposits and stablecoins explains another difference. Banks can settle their obligations to one another in central bank money, supporting transfers at face value. Stablecoins traded between holders can trade at market prices that depart from their intended dollar value.

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Banks found a way to copy stablecoins without losing the money that funds their loans

Banks have reasons to offer both. Deposits help fund their businesses, and customers using bank accounts for everyday payments may also purchase other services. Stablecoin issuers can earn income on the assets backing their tokens, though running the service and paying partners consume part of that income.

The September 1 announcement by the 21 institutions sets out a planned dollar offering in the first half of 2027. Other G7 currencies are a longer-term ambition, with the euro a priority. Establishing the new company is subject to closing conditions, and the announcement does not disclose how members would divide future income.

These institutions already have customers who trust them with large payments. Those customers have supplied identification and business records and know whom to contact when something goes wrong. Buying another service through that relationship is much easier than starting with a new provider.

Money used to buy stablecoins can also return to banks through the issuer’s reserve accounts. The competition is therefore partly about which institution holds those balances, and partly about which business has the direct relationship with the customer.

Citi is involved in both the tokenized-deposit payment and the separate stablecoin group. That makes sense if companies choose their payment method based on who they need to pay. Some suppliers may prefer bank accounts; others may already accept stablecoins.

Getting there is only half the problem

Existing payment systems already offer some of what banks are promising. The European Central Bank’s TIPS service provides around-the-clock settlement for supported currencies. New token-based services will have to compete on the routes they cover and their total cost.

Cross-border payments also depend on what happens at the receiving end. Dollars can reach someone on Saturday, but conversion into their local currency may still have to wait. Even when a conversion service is open, its price may be worse than on an ordinary business day.

The same problem applies to separate bank networks. If the recipient’s bank cannot accept the sender’s token, someone has to connect the two systems. Otherwise, customers could end up managing more accounts and moving money between them to complete the payment.

Stablecoins can help where many services already accept the same token, and bank-based services can appeal to businesses that want to keep using familiar accounts. Customers will judge based on whether the money becomes spendable where they need it and whether someone can help when a transfer fails.

For banks, faster digital payments offer a way to keep customers’ money and the recurring business attached to it. Those customers will immediately feel the benefit: fewer occasions when they have enough cash to pay a bill but cannot get it into the right account.

Making that happen reliably, at a competitive price, is what would turn one successful Saturday payment into a service companies use every week.

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