Three Swiss banks—UBS, PostFinance, and Sygnum Bank—have recently achieved a groundbreaking milestone in the finance sector by executing the first binding cross-bank payment using tokenized deposits on a public blockchain. This landmark event was part of a feasibility study conducted under the auspices of the Swiss Bankers Association.
The cross-bank payment system utilizes blockchain technology to facilitate transactions among financial institutions, presenting several advantages over traditional correspondent banking networks. Notable benefits include faster settlement times, lower costs, and enhanced transparency. Additionally, incorporating smart contracts within this framework could automate compliance and reporting functions, streamlining processes significantly.
“This is something really new,” remarked Thomas Frei, head of product innovation at Sygnum Bank. He emphasized that the tokenized deposits, which can now be utilized across different banks, represent a novel advancement that had previously not existed.
During the study, clients transferred tokens symbolizing bank deposits via blockchain to settle transactions. This innovative approach stands in contrast to earlier initiatives, such as JP Morgan’s JPM Coin, which operates solely within a single institution. The new system highlights enhanced interoperability among banks, allowing for a more flexible payment method. “Basically, what we did is we launched a kind of new form of payments on the blockchain, which is an alternative to stablecoins,” Frei explained.
The success of this initial test illustrates that banks can effectively manage counterparty risk while processing payments on public blockchain networks. The Swiss Bankers Association noted that future iterations of this system could enable immediate and definitive payments on a shared infrastructure, which could be directly integrated into automated business processes.
This development provides significant validation for Ethereum’s capabilities in institutional financial applications. The decision to leverage Ethereum’s public infrastructure, as opposed to private blockchain networks historically preferred by banks, signifies a growing confidence in decentralized systems for essential financial operations.
Switzerland’s forward-thinking regulatory environment surrounding digital assets has granted banks the freedom to explore blockchain applications more thoroughly compared to counterparts in other jurisdictions. The country has established transparent frameworks for cryptocurrency businesses, encouraging innovation in the financial sector.
Nonetheless, Frei cautioned that further work is required before the tokenized deposit system can be deployed commercially. Banks must still address regulatory requirements, scalability considerations, and operational integration challenges before enabling a broader rollout.
The successful test aligns with a global trend wherein traditional financial institutions are increasingly exploring blockchain applications for payments and settlement purposes. Despite extensive investments in distributed ledger technology, most previous efforts by major banks have focused on private or consortium networks rather than capitalizing on public blockchain ecosystems.
