HSBC to roll out tokenized deposit service in UAE
In a recent interview with Asian Banker, Lewis Sun, global head of digital currencies, corporate and institutional banking at HSBC, discussed the launch of HSBC’s tokenized deposit service in Singapore, USA, Hong Kong, Europe, United Kingdom and soon in the UAE as its next market.
Sun said a tokenized deposit should give clients the benefits of digital money while preserving the compliance, safety, interest-bearing and institutional characteristics of a bank deposit. He also explained how tokenized deposits can give corporate treasurers 24/7 access to commercial bank money while preserving the safety, compliance and yield characteristics of bank deposits.
Clients increasingly want 24/7 liquidity access. “If I can’t, then it is extremely important to do cash flow forecasts because any inaccurate forecasts lead to either operational disruptions or higher buffer costs.” HSBC’s answer is not to create a new form of money outside the banking system. It is to make a commercial bank deposit usable in a more digital, real-time and always-on way.
He gave an example of a European corporate client who has a weekend payout obligation. Before using the tokenised deposit service, he said the company had to pre-fund its payout account every Friday based on expected demand. If it underfunded the account, payments could fail and affect the customer experience. If it overfunded the account, it left idle liquidity in a payout account instead of deploying that cash elsewhere for yield.
The service changed the funding decision from a forecast exercise into an on-demand treasury process. “They just top up the payout account with exactly how much they need to pay out over the weekend,” Sun said. “That is a very straightforward use case, but it can deliver a huge benefit because the buffer funding cost of liquidity can be taken out completely.” For the treasurer, as Sun explained it, the value is not an abstract blockchain benefit. It is the ability to fund an operational account when demand materialises, including outside normal banking hours.
Some clients use an artificial intelligence engine to initiate payments based on actual demand, which removes the need for staff to remain available overnight or over the weekend to move funds manually. HSBC keeps the compliance architecture within the existing bank environment, with Sun noting that “there is no deviation from the back-end compliance point of view” and that screening and monitoring systems remain the same.
Sun placed tokenised deposits within a broader digital money landscape that includes central bank digital currencies (CBDCs), stablecoins and tokenised deposits. Sun explained, “Different types of digital money will apply to different use cases.”
HSBC has prioritised tokenised deposit service markets in part according to where multinational companies manage funding. The current locations are “not random”, Sun said, because they represent prominent treasury centres where clients place funding centres. He identified Singapore as an Association of Southeast Asian Nations treasury location, Hong Kong as a Greater China treasury location, and the United States, Europe and the United Kingdom as other major corporate funding locations.
The rollout reflects client demand rather than a simple country-by-country technology push. HSBC weighs payment volume, payment value and client readiness, including how quickly clients can integrate, according to Sun. Regulatory barriers, foreign exchange controls and country-specific infrastructure requirements also form part of the assessment. “The fundamental driver is pipeline clients and client demand,” he said,
HSBC piloted the tokenized deposit capability on Canton Network. “Our tokenized money capabilities should increasingly be blockchain agnostic,” Sun said. In practical terms, blockchain agnostic means HSBC wants its tokenized money to be available where clients and counterparties already operate. Sun added that HSBC would assess privacy, security and smart contract design before engaging with any new infrastructure.
The next phase will test whether tokenised deposits can move beyond individual bank platforms and become part of a shared settlement layer, according to Sun. That means a common way for regulated digital money to move between banks, clients and market infrastructures. HSBC expects to continue enhancing the service as new use cases emerge, including different blockchains, digital money tokens, workflow designs and partnerships with peer banks. Sun described the work as still being at the start of the journey and said HSBC would continue to study CBDCs, stablecoins and tokenised deposits in relation to providing real market solutions.
Tokenised deposits are unlikely to scale because they are new, or because they sit on blockchain infrastructure. They will scale only where they solve treasury and settlement problems that banks and corporates already recognise. That puts the emphasis on production use cases, common operating standards, regulatory comfort and connections into the networks where institutional clients already manage liquidity, assets and risk.
