Financial institutions on Wall Street are developing digital deposit tokens to retain customer funds

Wall Street banks are deploying tokenized deposits to retain custody of corporate cash and the fee-generating services attached to it, testing a direct challenge to both traditional correspondent banking and reserve-backed stablecoins. The race reflects a fundamental shift in how financial institutions will compete for control over cross-border payments and the customer relationships that generate recurring revenue.

• DBS and Citi completed a dollar payment between Singapore and New York in minutes on Sept. 5 using tokenized deposits through SWIFT’s digital ledger.
• A consortium of 21 financial institutions plans to launch a dollar stablecoin offering in the first half of 2027, with the euro as a longer-term priority.
• Corporations routinely prefund cross-border payments days early; a $10 million transfer funded two days early at 5% annual borrowing costs approximately $2,740 in extra interest.

• Sept. 5 Date DBS and Citi completed first tokenized deposit cross-border payment
• 21 Financial institutions partnered to establish reserve-backed stablecoin business
• $2,740 Approximate cost to prefund $10M payment two days early at 5% rate
• H1 2027 Target launch date for consortium’s planned dollar stablecoin offering

Wall Street’s largest institutions are building competing payment infrastructure to lock in corporate customer relationships and the fee streams they generate. On Sept. 5, DBS Bank and Citibank’s New York office moved dollars between Singapore and the United States in minutes using tokenized deposits, digital representations of bank deposits recorded on SWIFT’s distributed ledger. The transaction marks the first concrete proof that banks can settle international payments without relying on the traditional correspondent banking system that processes most cross-border flows today. The banks have not disclosed the transaction size or confirmed that all customers can access the service, but the announcement establishes a template for the service they intend to commercialize: moving corporate money across borders and time zones, including on weekends when traditional banking infrastructure is offline.

The hidden cost of waiting for Monday morning

Corporate treasury departments routinely face timing mismatches that traditional banking cannot solve efficiently. A company with sufficient cash in Singapore to pay a supplier may lack immediate access to dollars in New York if the transfer must wait until Monday morning, forcing a choice between moving money days early or borrowing short-term in one location while holding idle balances in another. Both options consume capital that could generate returns elsewhere.

The math explains why banks see this as profitable. A corporation prefunding a $10 million cross-border payment two days early at a 5% annual borrowing rate incurs roughly $2,740 in extra interest costs for those two days alone. Across dozens of accounts and repeated payments throughout the year, these timing gaps represent substantial sums that flow through banking fees, currency conversion spreads, and short-term lending arrangements that generate recurring revenue for banks. International payment volumes continue to grow as global commerce expands, multiplying these timing inefficiencies across the banking system.

Settlement speed also interacts with netting, a mechanism where two banks owing each other separate amounts settle only the difference instead of funding both transfers. Faster settlement networks that require instantaneous funding can eliminate netting’s efficiency, forcing more total cash into circulation to complete the same obligations. Banks must weigh this potential increase in required reserves against the revenue benefits of faster payments.

Tokenized Deposits versus reserve-backed Stablecoins

Banks are pursuing two distinct digital money strategies because corporate customers demand different payment methods depending on their supplier relationships and counterparties. Tokenized deposits maintain the traditional banking relationship: the bank retains the obligation to the customer, and the token merely records that liability in a form that SWIFT’s digital ledger can process. The customer’s rights remain anchored to the bank account and the bank’s creditworthiness, with redemption and insurance eligibility determined by local banking regulations.

Reserve-backed stablecoins operate on a different principle. The issuer holds assets intended to back the token’s value and support redemption, allowing the token to move between users on supported networks while those backing reserves sit elsewhere. For a payment initiator, both appear identical: digital dollars moving through an application. The distinction becomes critical if a dispute arises or redemption is needed, because the customer must rely on the stablecoin issuer’s promises rather than the bank’s deposit insurance and regulatory protections. Regulators globally remain focused on ensuring adequate reserve backing and transparency for stablecoin issuers.

A consortium of 21 financial institutions, including Citi, announced plans on Sept. 1 to establish a separate stablecoin business offering dollar tokens in the first half of 2027, with euro issuance as a later priority. The group seeks to create a unified standard that competing banks can support while managing reserve backing collectively.

Why banks are competing on both fronts simultaneously

Citi’s simultaneous involvement in both the tokenized-deposit payment and the reserve-backed stablecoin consortium illustrates why financial institutions are building multiple competing rails rather than coalescing around a single standard. Corporate customers make payment decisions based on the specific counterparties they must pay, and different suppliers and counterparties may prefer different systems. Some business partners maintain traditional bank accounts; others already accept stablecoins on compatible networks. A bank that offers only one payment method risks losing the customer to a competitor who can accommodate multiple channels.

Banks also recognize that reserve-backed stablecoins, while separated from the bank’s balance sheet, generate income streams through the assets backing the tokens. Customers who convert deposits into stablecoins must park their money somewhere; if a customer converts dollars into stablecoin tokens and the issuer holds those dollars in a reserve account at a competing bank, that customer’s balance has departed. The real competition is over which institution maintains the direct customer relationship and which bank holds the reserve balances that underpin the digital currency. Payment volume and speed advantages create competitive pressure even as individual banks cooperate on standard-setting.

Tokenized deposits preserve the bank’s traditional deposit base and create additional incentive for customers to maintain balances because faster settlement reduces their prefunding costs. This structural advantage may explain why established banks favor both mechanisms rather than endorsing a single approach.

The integration challenge remains unresolved

Neither tokenized deposits nor stablecoins eliminate the full complexity of cross-border payments. Dollars can reach a recipient on Saturday evening while conversion into the recipient’s local currency waits until Monday because foreign exchange markets and local payment systems operate on different schedules. Even when a conversion service operates around the clock, its pricing may be substantially worse than on a business day when competing market participants are active.

Technical interoperability presents a parallel obstacle. If a tokenized deposit issued by one bank cannot be received by another bank’s payment systems, the recipient must convert it into another form of money, creating friction that undermines the speed advantage. Stablecoins face the same bottleneck: they move easily between wallets and services that already support them, but connecting to traditional bank accounts requires a partner institution willing to accept the token and manage the conversion. Building these integration layers represents the next challenge for both approaches.

The success of tokenized deposits and stablecoins depends ultimately on whether money becomes spendable in the location where the customer needs it and whether a responsible institution can resolve failures when transfers do not complete. Banks have already committed to both the Sept. 5 DBS tokenized-deposit test and the consortium’s planned 2027 stablecoin launch; the practical competitive test will emerge when these services become available to ordinary corporate customers and banks must demonstrate cost, speed, and reliability advantages over existing correspondent banking networks. The outcome will shape how trillions in corporate cross-border payments flow for the next decade.

BlockWest is a news publication. Nothing here is investment advice. Read our disclaimer and editorial policy.