Making Tokenised Payments a Treasury Reality

The opportunities and potential for tokenisation to support global liquidity management alongside traditional payments are there for the taking. Lewis Sun, Global Head of Domestic and Emerging Payments, Global Payments Solutions, HSBC, talks to TMI about the options for treasurers.

If ever there was any doubt that tokenisation is on the brink of acceptable practice, as opposed to a disreputable Wild West show, just consider how the numbers have changed in recent years.

The market value of tokenised assets has experienced double-digit compound annual growth rate since early 2023. In their report, Approaching the Tokenization Tipping Point, digital asset infrastructure provider Ripple and Boston Consulting Group further anticipate that tokenised real-world assets will increase in value from $0.6tr. in 2025 to $18.9tr. by 2033. This all sounds promising from an investor perspective, but the case for the practical everyday use of tokenisation – for payments, for example – is also making good headway, it seems.

CBDCs, tokenised deposits, and stablecoins are different forms of digital money. In July 2025, HSBC launched its Tokenised Deposit Service (TDS) with its client, Singapore-based fintech, Ant International. TDS is live in Hong Kong and Singapore. The aim of the service, built entirely on HSBC’s in-house distributed ledger (blockchain) infrastructure, is to enable real-time payments in HKD, SGD and USD between corporate wallets held by clients within HSBC.

HSBC’s offering is essentially a form of tokenised commercial bank money, based on a secure closed-loop environment, rather than a public stablecoin offering. But what of progress in the public blockchain space, where perceptions of coin security may halt wider adoption? Well, that too is moving ahead, with J.P. Morgan’s Kinexys recently launching its JPMD deposit token on Coinbase’s Base public blockchain.

With these announcements, it’s becoming clear that even for the tokenisation of payments, both private and public environments can satisfy the requirements of many users, albeit their numbers are currently modest. It could be that the accounting treatment of tokenised money as an asset, and therefore potentially subject to capital gains tax in some jurisdictions, is the sticking point. But even here, movement is afoot.

The European Central Bank’s digital euro programme envisions legal-tender status for CBDCs, but of course these are some way off being a fully-fledged reality. However, the US Securities and Exchange Commission (SEC) has lately issued interim guidance suggesting that fully collateralised stablecoins may be classified as cash-equivalents on corporate balance sheets.

Under the GENIUS Act (Guiding and Establishing National Innovation for US Stablecoins), signed in July 2025, federal law establishes a regulatory framework for payment stablecoins. It requires 100% reserve backing, monthly disclosure of reserves, and prioritising coin holders in bankruptcy to protect consumers. It also mandates AML and anti-terrorism sanctions compliance for issuers. This may now pave the way for the adoption in corporate treasury of digital money, facilitating new, real-world, programmable payments and real-time settlements tools.

Foundations of respect

The exploration of digital money has been a major trend in the past few years, notes Sun.  However, before engaging with the topic, he is keen to mark the difference between digital money and traditional electronic or e-money.

While both are representations of ‘real money’, only digital money can use blockchain or tokenisation technologies to add value – e-money has no such capabilities. The key additional features offered by blockchain, he offers, include full native 24/7 transaction transparency, and smart contract-enabled payment programmability.

There is a key variance in the definition of liabilities supporting digital money instruments that also needs to be highlighted, continues Sun. If the liability is the central bank’s, then it will be deemed a CBDC. If the liability is private or commercial bank money, then it will likely either be in the stablecoin family, or a TDS-style mechanism.

It’s worth noting that the stability of every stablecoin is maintained by pegging each coin’s worth to a reserve asset such as a fiat currency (typically USD). Without that stability, stablecoins cannot function effectively as a payment tool. Although the value of fiat currencies fluctuates a little, the extreme volatility of Bitcoin and other cryptocurrencies – stablecoin’s unpegged cousins – renders them generally unusable as a payment instrument, especially for corporates that need more predictability.

CBDCs, tokenised deposits, and stablecoins are different forms of digital money. HSBC’s chosen descriptor of its commercial bank money as ‘tokenised deposits’ is, notes Sun, becoming an industry standard. “Essentially, issuance takes place on a blockchain infrastructure, and the coding can be [but not necessarily is] made compatible between a public and private infrastructure,” he explains.

Of course, a bank-based system such as TDS must meet additional demands such as KYC and AML monitoring elements (see Public versus private spaces, below), but private blockchain compatibility with a public infrastructure is technically possible. Here, the use of EVM (Ethereum Virtual Machine) and ERC-20 (Ethereum Request for Comment 20) standards for smart contract and tokenisation coding respectively, means separate coding is not necessary as it can be executed consistently and securely across all related nodes.

As a private system, TDS is completely within HSBC’s own control. Sun says the requirements of the Hong Kong Monetary Authority (HKMA) and the Monetary Authority of Singapore (MAS) are thus easily met. This is important in terms of each authority’s approach as to how commercial bank money should be tokenised, vis-à-vis eliminating any negative digital money impact on their respective monetary policies.

As Sun clarifies: “A tokenised deposit is still a deposit, so HKMA and MAS account-based banking deposit rules still apply.” As a digital re-creation of an underlying deposit, it can be operated as a blockchain instrument so that using an API call to enable instant settlement – in a delivery versus payment (DvP) arrangement, for example – does not have to be treated as a different component of the balance sheet.

Building value for all

From an operational point of view, it may thus reasonably be asked why not simply use a traditional bank account and payment set-up? For Sun, it is the flexibility of digital money’s native 24/7 blockchain infrastructure that provides the answer. “It grants the removal of many current limitations with the traditional account- and deposit- based infrastructure. This is especially useful where banking cut-off times limit the operational window between us and our clients.”

But Sun also notes that an established blockchain helps promote optimal bank-client integration, with all that this implies for increased end-to-end transaction processing. “If the client wants to add smart contract programmability, we can do that,” he says. It can then use tokenised deposits to settle any debt instruments issued on blockchain – a digital bond, for example. And whereas normally subscriptions to, or redemptions of, a digital bond still have to follow traditional banking rails, by using programmable digital money, full process automation is enabled, without sacrificing performance or security.

Sun offers another “genuine added-value” in this setting. “Companies moving high volumes or high values of treasury payments can be subject to payment pre-funding if execution is to occur outside of normal banking hours. This is purely a cost to them. However, if they are able to use digital money to move funds on a 24/7 basis, that cost is removed.”

While the first user of HSBC’s TDS –  Ant International – could be described as ‘digital native’, Sun sees the expansion of the service into more traditional sectors. He notes that while blockchain has been an actively implemented technology in a few other financial areas, it has emerged in the payments space really only in the past few years, as regulatory guidelines have filtered down.

As noted above, CBDCs, tokenised deposits, and stablecoins are different forms of digital money. Of course, HSBC remains an active participant within the wider CBDC programme, and the bank is also fully engaged with stablecoin policies and governing rules, Sun wryly observing that keeping ahead of the curve is for him becoming “almost more than a full-time job”. But while CBDCs and stablecoins are yet to make any real headway as everyday payment tools for treasurers, he believes TDS has a clear use case in payments and clients no longer have to wait to see if this format is viable. “In our view, it is already reaching a mature stage.”

Public versus private spaces

TDS is a private infrastructure. However, the idea of tokenised deposits on an open blockchain, as with J.P. Morgan’s JPMD deposit token on the Coinbase public blockchain, is not alien to Sun. However, he is aware of the need to identify where a public infrastructure sits in terms of the bank’s operational resilience, and related support for its clients.

“First, we need to understand that each use case must be absolutely controllable from a compliance point of view. We need to know the nature of each fund movement, and we must know all entities involved in that movement. If we open up to a public infrastructure, it is vital to understand each use case.”

For a common activity – a wallet-to-wallet transfer, for example – if this service is open to all, then the provider is making a huge statement of confidence. Every compliance measure – including AML and KYC – has to apply, with rigour equal to that of a private service, to all those who can access this instrument. If digital money moves from one wallet to another, the bank has to know, for example, the nature of each transaction, and the beneficial owner of that wallet.

To overcome this, every user of a system could be invited to be a client of the bank offering the service, but then ultimately little difference is created between public or private infrastructure service. The need therefore is to balance system resilience with the necessary risk mitigations. This, says Sun, could be achieved through a closed-loop on a public infrastructure using a permission-based approach. This would enable users to control their own data, and grant explicit, case-by-case consent for its use by their service providers.

Whether this extra work is worth the effort is a moot point. Public infrastructures use either Layer 1 (L1) or Layer 2 (L2) protocol. L1 is the core or base blockchain protocol upon which each network operationally depends. L2 is a third-party protocol that provides integrated functionality with that L1 blockchain.

Rather than a single L1 network, there are multiple versions around the world – Ethereum or Bitcoin, for example. “This means that even if a private network posts to a public, there will be conversations around which protocol and standard to use, and how interoperability might be served,” notes Sun.

This has been a conundrum for a while, but he notes recently that a number of startups have been appearing, advancing the idea of themselves as ‘super connectors’. The aim is to be an exchange for instruments such as TDS, CBDCs and regulated stablecoins, enabling interoperability between any compliant network. The idea, he suggests, reflects typical market practice. “There won’t be just one infrastructure, one coin or one offering, there will be multiple approaches – but interoperability will need to be achieved.”

In 2024, the HKMA announced Project Ensemble to start exploring the feasibility of a financial market infrastructure able to facilitate the seamless interbank settlement of tokenised money through wholesale CBDCs. Sun, who spoke at the launch, sees this project as “critical for the market because it will enable 24/7, real-time, cross-border transactions”.

Expanding horizons

Digital money needs to be scalable to be a useful payments tool for corporate treasury, but at the same time must be subject to regulatory oversight and compliance to ensure its stability. It’s a challenge, says Sun. But addressing security, compliance, and scalability issues is why the term ‘tokenised deposits’ is used for TDS.

“While some may mistake it to be an investment instrument, market consensus places it firmly as a payment tool,” says Sun. “It’s why we had a direct conversation with regulators on this topic. In defining it as a deposit, essentially all the prevailing rules, regulations and controls apply, so we are not compromising our AML and KYC obligations. We can carry the full information in the ISO 20022 message format, and so can fully engage with compliance screening and process monitoring.”

Sun does not foresee any “fundamental constraints” on the expansion of a digital money system such as TDS, other than the need to align with all currency controls it meets on its travels as it moves towards enabling cross-border payments, and to ensure in this instance that its liquidity provision for client funding transfers is robust. Of the latter, he says HSBC is advantaged by having at its disposal “a sizeable global network and a very strong balance sheet”.

Initially, the capacity to meet these demands may mean only Tier 1 banks such as HSBC and J.P. Morgan will make any impact on the digital money landscape. But, insists Sun, the next critical step is to properly establish that interoperability layer. “In my view, this will most likely require a central bank, or central bank equivalent, to play that role, because that’s where all commercial banks can place their trust.”

However, Sun notes a number of startups trying to fulfil this role. The challenge for these will always be bank unwillingness to place much of a funding position with a startup, simply because the counterparty risk will typically be deemed too high. “It’s why central co-ordination is important, and why we see the importance of Project Ensemble in being able to bring about that interoperability layer and facilitate cross-border transfers.”

Arriving at the final frontier

In addition to confronting interoperability challenges at the operational level, the sometimes cautious or even negative public perception of tokenisation needs to be tackled too, notes Sun. “We need to promote the concept of tokenised deposits as essentially a form of tokenised commercial bank money, but we also need to provide more education around its nuanced differences with stablecoin as tokenised private money,” he says.

For digital money to become an acceptable functional payment instrument, Sun also contends that each of these formats should comply with a common set of rules. “If not, market arbitrage tends to emerge, and digital money cannot function as a payment tool if its value is subject to significant volatility and does not offer transparency.”

Conversations HSBC has had so far with regulators suggest there is little appetite, from a control and compliance standpoint, to create separate polices for each type of money. This is good for the development of digital money as a payment instrument. “When lower standards are set for one format, it risks creating just another investment tool; payments demand trust in the instrument used, and that only comes from proper controls.”

Towards a new payments landscape

Even with all the effort being put into building out the right setting and structure, Sun believes that the role of tokenisation in the payment space will nonetheless be as a supplement to existing payment rails, not its replacement. “We have seen a sizeable wave of modernisation of traditional payment rails in recent times, with domestic 24/7 real-time systems. This has enabled the same digital experience using a bank account as when subscribing to a wallet. That’s a huge development.”

The cross-border experience when using a blockchain-based digital money instrument is also being replicated to an extent by Swift, with bilateral RTP to RTP connections. Indeed, HSBC is now participating in the Payment Connect scheme linking the People’s Bank of China’s Internet Banking Payment System (IBPS) and Hong Kong’s Faster Payment System (FPS). This facilitates real-time transfers between China and Hong Kong for HKD and CNY.

With traditional payment systems evolving quickly, Sun comments that blockchain-based digital money “cannot completely replace this”. He further suggests that blockchain has limitations that may determine its future use with digital money. “Essentially, every transaction will have to write to every single node; from a capacity point of view, it’s probably not the best IT infrastructure.” That said, he recognises a “unique advantage” in blockchain’s inherent transparency. For use cases such as institutional cross-border transactions, and digital asset settlement, digital money may yet become “very valuable”.

Old ways persist though. Indeed, Sun retains global responsibility for cheques in HSBC. Hong Kong, despite having one of the best digital payment infrastructures anywhere, also remains one of the world’s major cheque users.

It seems replacing traditional payment forms is, for many, not yet on the agenda. However, as the use cases for digital money build, so the technology will continue to develop. While interoperability is the next major hurdle for the industry, from a treasury perspective, delivering real-time services remains the major topic of conversation between banks such as HSBC and their corporate clients. The two are closely connected.

As Sun comments: “Real-time cash visibility, funding, and information movements are now key components of the treasury story. Digital money and tokenised deposits have a clear role to play in this context.”

In urging treasurers to begin their digital money journey now, he suggests organisations with a high demand for cross-continent and out-of-hours funding management in particular should seriously consider moving beyond their watching-brief phase and start experimenting with tokenised deposits. “Try some of these new ideas. Get to know their capabilities. Once you begin to understand where and how they could benefit your organisation, you will start seeing ways in which you can support global liquidity management in entirely new ways.”