In a significant development for the banking sector, Switzerland’s major banks have successfully completed a proof-of-concept (PoC) that tested the use of blockchain technology and smart contracts for interbank payments. This initiative marks what these banks have identified as the first legally binding bank payment executed through a public blockchain.
The project, coordinated under the Swiss Bankers Association (SBA), involved prominent financial institutions including UBS, PostFinance, and Sygnum Bank. The SBA announced that the banks conducted a feasibility study exploring blockchain-based deposit tokens and payments infrastructure.
The test involved an off-chain fiat money transfer that was triggered by payment instructions, which were tokenized on the blockchain as “deposit tokens.” The initial use case facilitated a payment between customers of the participating banks, while the second aspect of the test focused on an escrow-like mechanism. This process enabled the exchange of deposit tokens for tokenized real-world assets (RWAs), with transactions processed automatically.
The SBA highlighted this milestone as the inaugural case of banks executing legally binding payments between institutions, using bank deposits alongside a public blockchain. However, challenges regarding scalability remain. The SBA noted that the smart contracts underpinning the system provided “verifiable processes, technical security, and compliance with regulatory requirements.” They emphasized that public blockchains paired with permissioned applications could initiate “legally binding” payments.
Despite the successful outcomes affirming the “feasibility” of utilizing blockchain technology for institutional payment scenarios, the SBA acknowledged that scalability issues necessitate “additional design adjustments” and greater collaboration with other banks, infrastructure providers, and regulatory authorities.
This study could potentially amplify interest among financial institutions in blockchain-based payment systems, possibly further bridging the gap between traditional finance and decentralized finance (DeFi). The SBA, founded in 1912 and featuring around 265 member organizations and over 12,000 individuals, plays a pivotal role as an umbrella organization for Swiss banks.
Christoph Puhr, the digital assets lead at UBS Group, commented on the implications of the study, suggesting that the interoperability between traditional bank deposits and public blockchains is becoming increasingly feasible. “The PoC demonstrates that interoperability of bank money via public blockchains can become a reality, enabling innovation around tokenized assets,” he remarked. He also noted that this advancement could significantly influence the future of financial systems both at the national and global levels.
Beyond Switzerland, similar experiments are underway in the United States, where central banks are also exploring the potential of smart contracts and blockchain infrastructure. A recent collaborative study involving the US Federal Reserve Bank of New York’s Innovation Center and the Bank for International Settlements (BIS) noted that smart contracts might provide central banks with flexible tools for a tokenized financial system. The BIS highlighted the ability of central banks to rapidly adapt their tools, although it acknowledged that existing infrastructures might struggle with advanced use cases.
The evolving landscape suggests a growing convergence of established financial systems with innovative blockchain solutions, potentially reshaping the future of banking and payments.
