Digital assets and payments

The combination of market dynamics and increasing regulatory clarity will enable firms to shape their role in the future payments landscape. However, this momentum is challenged by a demanding reality: a wave of payments compliance deadlines. This will usher in a more costly operating environment, potentially constraining firms’ capacity to invest in new forms of money and payments. 

Stablecoins and tokenised deposits: what next for banks?  

Stablecoins and tokenised deposits have moved to the forefront of policy debates and industry innovation. Their appeal lies in making payments faster, cheaper and programmable. With increasing regulatory clarity, banks face strategic choices in 2026: when and how to develop and scale their capabilities in this space. Yet, hurdles and open questions persist, demanding flexibility to enable firms to adapt to future innovation and regulatory shifts. 

The stablecoins¹ market is surging. Globally, their average supply reached $273 billion by December 2025, a 47% increase from December 2024.² Increasing US regulatory clarity is an important tailwind but is not the only show in town. The EU’s stablecoins regime – part of the Markets in Cryptoassets Regulation (MiCA) – took effect in August 2024. While the UK regime has been slower to take shape, proposals are gradually emerging, with finalisation expected by end-2026.  

Tokenised deposits³ are gaining traction in parallel. These operate under existing banking regulations. By end-2024, some offerings had gone live, with others in pre-launch and pilot phases,⁴ followed by a wave of industry announcements throughout 2025.  

Both stablecoins and tokenised deposits will co-exist. Tokenised deposits, backed by bank balance sheets, suit corporates moving liquidity across subsidiaries and time zones, while receiving interest payments and managing regulatory, reputational and audit risks. They also support settlement of tokenised securities. Stablecoins on public blockchains, however, suit scalable retail and business-to-business (B2B) cross-border flows. 

Several strategic options are emerging for banks to explore, including: 

• Provide banking services to stablecoin issuers: provide custody services for stablecoin reserve assets and adjacent services like brokerage and foreign exchange – a logical entry point for many. 
• Integrate third-party stablecoins: facilitate stablecoin payments through offering stablecoin wallets and payment rails, supporting stablecoins issued by other firms. 
• Issue a stablecoin: either independently, through white-label partnerships, or via an industry consortium. 
• Issue tokenised deposits. 
  

Despite the momentum, several obstacles and open questions remain. Maintaining agility to respond to market and regulatory developments will be crucial. 

First, we expect limited uptake of stablecoins in UK and EU retail and wholesale payments this year by regulated financial services firms. Stablecoins are currently used primarily for digital assets trading, with nascent, albeit growing, use in cross-border payments and remittances [Figure 1] – and B2B payments.⁵ Most current tokenised deposits use cases are confined to closed, institution-specific ecosystems – limiting interoperability. Banks should not anticipate an immediate return on investment in 2026. Furthermore, the details of emerging regulatory approaches will influence the pace at which payments use cases evolve for both instruments. 

Source: BIS⁶

Second, stablecoin-enabled commercial models, which often rely on interest income generated from the backing assets, will face challenges from declining interest rates. This will increasingly force a shift towards payment fees to generate revenue, rather than relying on backing asset yields. 

Third, banks considering issuing a stablecoin face a legal entity conundrum. The UK's Prudential Regulation Authority mandates that banks must issue stablecoins from a separate legal entity – like the US regime.⁷ Establishing, and in some cases duplicating, governance, risk management systems, capital and liquidity provisions, raises questions about commercial viability. In contrast, EU MiCA simplifies stablecoin issuance for banks, allowing them to do so via a simpler regulatory notification. This raises important strategic choices for stablecoin and broader digital asset strategies, from evaluating group legal entity structures to location strategy and launch timing. Banks will need to keep these decisions under review, including as regulators globally clarify their domestic treatment of foreign-issued stablecoins and stablecoins in cross-border flows.  

Finally, banks face the challenge of balancing scale with systemic regulation under the UK’s framework, which divides stablecoins into two tiers. Sterling-denominated stablecoins deemed systemic and used widely for retail and corporate payments in the future will be regulated jointly by the Bank of England (BoE) and the Financial Conduct Authority (FCA). Non-systemic ones are regulated solely by the FCA. 

Stricter BoE requirements could challenge growth ambitions. For instance, issuers must hold at least 40% of the backing assets as unremunerated deposits at the BoE, forcing more reliance on payment fees to generate revenue. The BoE also proposes per-coin holding limits of £20,000 for individuals and £10 million for businesses.⁸ While these limits may be eased or removed later, they will pose challenges if the stablecoin market expands rapidly. Further policy development, planned for H1 2026, will be crucial in clarifying the details, particularly the transition from FCA to BoE oversight when a stablecoin becomes systemic. 

Ultimately, a bank’s strategic response will hinge on its business model and risk appetite. Globally active universal banks may need capabilities in both instruments. Corporate banks may focus on tokenised deposits, while retail banks may prioritise stablecoins. Some banks may join national/regional consortia to pool resources and scale stablecoin ventures, e.g. ten European banks plan to launch a euro-pegged stablecoin in 2026.⁹ Building a stablecoin offering could also appeal to banks aiming to give clients wider access to digital assets markets (e.g., trading). 

These choices unfold amid an ongoing debate about the launch (if any) of UK/EU central bank digital currencies (CBDCs), both retail and wholesale, which will persist beyond 2026. In the meantime, stablecoins and tokenised deposits are gaining momentum as more immediate payment solutions. As more details on CBDCs emerge, analysing their potential interaction with stablecoins and tokenised deposits will be key to shaping strategic responses.

Looming payments compliance deadlines 

However, banks’ stablecoins and tokenised deposits ambitions face a stark reality. Looming payments regulatory deadlines demand mandatory compliance investments, absorbing resources, and potentially reducing the capacity needed for strategic, yet optional, ventures into these new forms of money and payments. 

The EU and UK are implementing new regulations to strengthen consumer protection, choice, and resilience. In the EU, after some delays, lawmakers have reached a political agreement on the Payment Services Directive 3 and Payment Services Regulation (hereafter referred to as the “PSD3 package”). The final legal texts are expected by mid-2026, with compliance deadlines anticipated in 2028 (to be confirmed in due course).  

Meanwhile, the UK is expected to provide much-needed clarity on the sequencing and prioritisation of payments regulatory initiatives early this year.¹⁰ This includes more clarity on next steps for open banking account-to-account payments and modernising the UK’s payments and e-money framework. 

While framed as a targeted review, the EU PSD3 package is poised to have a significant operational and financial impact on banks. For instance, the likely introduction of mandatory refunds for impersonation fraud will create a substantial financial exposure. In the UK, firms reimbursed £112 million to victims within nine months of similar rules taking effect.¹¹  

EU proposals to make online platforms liable for compensating banks that refund defrauded customers — if platforms are informed of fraudulent content and fail to remove it — could offer some relief.¹² However, the practicalities remain unclear until the final legal text is published. Regardless, strategic investments in Artificial Intelligence and advanced biometrics may offer greater ability to monitor transactions, spot anomalies and assess risk in real time, and mitigate the impact of refund costs. 

Elsewhere, changes aimed at achieving open banking's full potential will demand new technological investments. This includes developing dedicated interfaces for third-party providers to access customer open banking data, meeting strict functionality and performance standards, and building dashboards for customers to manage their open banking data permissions.  

PSD2 implementation experience suggests that the PSD3 package will divert resources away from the development of new payments offerings towards compliance efforts. 2026 is crucial for planning and future-proofing dependent programmes. Banks should assess resource needs, secure executive buy-in and funding and integrate PSD3 package changes into broader transformation strategies. 

Upcoming compliance deadlines create a particular challenge for non-bank payment and e-money firms. Several factors paint a gloomy picture: funding conditions remain tight [Figure 2] and interest income on safeguarded funds will fall as interest rates decline. For firms facing persistent profitability challenges, these pressures are likely to intensify further. 

While some EU regulatory changes may boost non-banks’ competitiveness, e.g. facilitating improved access to customers’ open banking data, many will increase operating costs. Fraud refunds are a prime example. In addition, EU non-banks will likely need to submit new information to regulators, including wind-down and safeguarding arrangements, to demonstrate compliance with the PSD3 package. 

Against this backdrop, non-banks should reassess their strategic positioning in 2026, evaluating how the regulatory developments affect their viability. Larger players may explore banking licences to expand their product and service offerings and unlock new revenue streams. However, firms will need to balance this approach against the costs and lengthy process involved, which are likely to deter smaller players.  

Non-banks may also diversify their offerings to drive revenue growth. However, buy-now-pay-later (BNPL)¹³ will become a more challenging option as these services face increased regulatory requirements. FCA regulation commences on 15 July 2026, including introducing creditworthiness checks for all transactions. Increased costs, coupled with potentially reduced transaction volumes – as some previously viable agreements may no longer be profitable – could trigger BNPL market consolidation. 

Source: Dealroom¹⁴

Beyond payments: tokenisation and unbacked digital assets 

As the adoption of blockchain technologies for the cash leg of transactions gains traction, the asset leg remains important too. Securities and fund tokenisation will remain central to digital asset strategies for banks and investment managers, though we expect these markets to remain nascent in 2026. For example, notwithstanding growing industry interest and increasing issuances, tokenised money market funds (MMFs) are still in the early stages of their development, representing around 0.1% of the traditional MMF market.¹⁵ 

Regulatory pilots and sandboxes alone will not serve as silver bullets for scaling tokenised markets. For instance, as of September 2025, the EU Distributed Ledger Technology (DLT) Pilot has facilitated two debt securities issuances, compared to 51 debt securities issued by EU entities since 2023.¹⁶ Scaling demands a concerted global effort between politicians, policymakers, and the private sector to develop infrastructure and standards – beyond the capabilities of individual firms.  

Furthermore, market momentum and a maturing regulatory framework will prompt some firms to reconsider unbacked digital assets offerings (e.g. Bitcoin). Custody is a natural entry point, enabling a broader suite of services (e.g. brokerage). In the EU, existing licences give incumbents a competitive edge. Banks can provide custody of unbacked digital assets via a simpler regulatory notification under MiCA. In the UK, firms lack sufficient clarity to press the “go” button yet, with final rules only expected later this year. 

Final thoughts 

Increasing regulatory clarity will unlock opportunities to launch new payments and digital assets offerings. However, uncertainties regarding market adoption and commercial models will persist, and mandatory compliance investments may constrain capacity to innovate.