HSBC is betting on tokenised deposits as the core payment mechanism for blockchain-based finance, as banks position themselves for wider institutional adoption of digital assets.
The UK-headquartered lender is expanding its push into tokenised deposits as the bank attempts to position itself as a “bridge” between traditional finance and digital assets.
Tokenised deposits are HSBC’s “instrument of choice” for blockchain payments, said Manish Kohli, the bank’s head of global payments solutions.
“Our intervention strategy of choice is tokenised deposits. That’s where we believe that as a global bank — and knowing what a lot of our customers have articulated to us as the needs that they have — tokenised deposits are a very strong capability,” he said.
“We are making big bets and we are investing very heavily in this space,” he added.
HSBC’s tokenised deposit service is active in Hong Kong, Singapore, the UK and Luxembourg, and last month expanded to the US. It currently operates in seven currencies, with the bank planning to continue developing the service.
Tokenised deposits offer 24/7 movement of money, are “bank insured” and able to earn interest as a commercial deposit, Kohli said, offering a clear advantage over stablecoins.
“It has the ability of being totally compliant with regulations because we do all the sanction screening [and] payment transparency along the way,” Kohli said.
“A lot of our customers are curious because they solve for real problems.”
HSBC’s stance comes as banks across the globe weigh tokenised deposits against stablecoins, which are increasingly being embraced by mainstream financial institutions.
Though firmly betting on tokenised deposits, HSBC remains open to central bank digital currencies in the mix, too, he said, highlighting the increasing use of China’s e-CNY by many of the bank’s clients.
“We have live expertise in how to support central bank digital currencies in a commercial production environment,” said Kohli.
“We are happy to take that expertise to any other government that wants to launch a central bank digital currency.”
The bank was also awarded one of two stablecoin licences in Hong Kong in April, with plans for a retail launch in the territory in the second half of the year.
Despite the rise of different digital asset classes, there will be no sudden “switch” that sees traditional finance shut off and decentralised finance replace it, Kohli said, expecting both “to coexist for some time”.
“I feel that the role of banks like us is to act as a bridge between the two,” he said, highlighting the bank’s “distributed ledger technology settlement utility” which connects digital asset options to traditional finance instruments.
This article has been updated since publication to clarify Manish Kohli’s comments