Banks are betting big on digital money

Let’s talk about oat milk. 

For a long time, it was dismissed as an alternative to dairy. Why do we need oats when we have cows? It’s not even real milk. It tastes different. It’ll never catch on. 

Then a few niche suppliers started to gain traction. Oatly began to grow at an astounding rate. So did Califia Farms in the US. Before long, the big players started to pay attention: Danone leaned in, growing Silk in the US and Alpro across Europe and the UK. And then supermarkets got involved. And coffee shops. Now, oat milk is offered as a staple alternative all over the world. 

It didn’t replace dairy milk. Or cream. You can still have a skinny latte or a full-fat cappuccino. But oat milk is there for the days when you don’t fancy dairy. 

Now, digital money. 

Not long ago, digital money was written off as a niche experiment. Interesting to enthusiasts, irrelevant to mainstream finance. That is no longer the case: 

• Tether and Circle, the world’s biggest stablecoins, are worth around $184bn and $74bn respectively. 
• A 140-strong consortium – including Visa, Mastercard, BlackRock, and Stripe – has launched Open USD, a stablecoin, to take them on.
• JPMorgan, Citi, Bank of America, and Wells Fargo are building a bank-led tokenized-deposit network through The Clearing House. 
• Western Union and MoneyGram both rolled out dollar tokens across their remittance networks. 
• And in Europe, the European Central Bank is moving central bank money onto distributed ledger technology, and a retail digital euro pilot is possible in 2027, pending EU legislation.

With all of this in motion, it’s worth understanding what we mean when talking about digital money and why the differences matter.  

How digital money works

Stablecoins, tokenized deposits and Central Bank Digital Currencies (CBDCs) often get lumped together under the ‘digital money’ banner, but each is built and backed very differently.

Stablecoins: A digital token designed to hold a steady value, pegged one-to-one against a country’s fiat currency. 

Tokenized deposit: Like a regular bank deposit but represented digitally. It moves faster within banking infrastructure, and the money never leaves the banking system. Not to be confused with ‘deposit tokens’ – which are funds that stay on a bank’s balance sheet and can move to a holder at another institution. 

CBDC: Digital money issued directly by a central bank. That means it’s got the same standing as physical cash. Most CBDC projects (like the digital euro) are still in pilots rather than in everyday use. 

That’s three layers of digital money, each with live or imminent infrastructure, and each with its own rulebook. Every bank now must work with all three. 

But how? 

For a start, there are major commercial constraints. 

First, the balance sheet: stablecoins can pull money out of the bank entirely, as customer deposits move out of the bank entirely, as customer deposits move to wallet providers, taking a source of cheap, reliable funding with them. 

Then there are cross-border payments: known for cost, complexity and time, and in need of fixing. Stablecoins might be the remedy, and banks that aren’t exploring this now risk their competitors getting there first.  

And finally, income: fees from remittances or FX margin won’t disappear, they’ll simply be collected by whoever owns custody, issuance and redemption instead.  

Being ready for digital money doesn’t mean rebuilding your infrastructure – it’s an extension of what already exists. 

Are banks actually ready for digital money? 

Digital money looks set to become part of the mainstream, what’s not yet clear is whether the industry is prepared for its arrival.  

Who backs each type of digital asset will impact your bank. It will shift the nature and type of work needed to integrate them into your systems. It will affect your payments hub. How customers pay will change. You will need to be ready. 

To understand the state of play, we surveyed 300 senior payments professionals across the world, to find out if the industry is ready, where the gaps sit and if anything is holding their progress back.  

This research gives you an overview of where your bank fits and what you need to be ready for the digital money era.

We hope you find it useful and if you have any questions about the shift to digital payment rails, don’t hesitate to get in touch.

Download the report.