Banks race to tokenize deposits as FedNow expands reach

The Clearing House consortium, comprising 25 major banks including JPMorgan, Bank of America, Citigroup, and Wells Fargo, is spearheading a tokenized deposit network aimed at launching in the first half of 2027 to counter the $263 billion stablecoin market. This initiative seeks to protect approximately $6.6 trillion in bank deposits vulnerable to yield-bearing stablecoins by offering a compliant, interest-bearing digital alternative aligned with regulatory frameworks like the GENIUS Act, which prohibits stablecoin interest payments starting January 2027.

By bridging blockchain technology with existing payment rails such as CHIPS and RTP, the consortium aims to create a 24/7 interoperable tokenized deposit system that combines the speed and programmability of crypto assets with the settlement finality of traditional bank money. This approach addresses longstanding challenges like weekend settlement closures, enabling corporate treasurers to automate payment workflows tied to invoices or delivery milestones, thereby transforming liquidity management and treasury functions across member banks.

Despite the consortium’s ambitious vision, historical difficulties in aligning multiple banks and the presence of competing projects funded by some lead institutions cast uncertainty on its success. Previous collaborative ventures such as we.trade, Marco Polo, and Contour failed between 2022 and 2023, highlighting the complexity of achieving true interoperability and unified infrastructure in a fragmented banking landscape where individual banks also pursue proprietary token pilots.

Complementing The Clearing House’s efforts, global initiatives like Swift’s blockchain-based ledger and Japan’s 40-bank pilot demonstrate a broader industry push towards interoperable tokenized deposit networks that enable real-time, 24/7 cross-border settlement. Swift’s orchestration layer connects diverse tokenized deposit systems across continents, while Japan’s DCJPY platform experiments with on-chain real-time gross settlement to replace traditional batch clearing, collectively underscoring a strategic shift from competing digital currencies to seamless interoperability among regulated digital monies.

By early 2026, the FedNow Service had onboarded over 1,776 financial institutions, with a striking 95% comprising community banks and credit unions, underscoring its broad appeal across diverse institution sizes and geographies. Notably, FedNow supports high-value transactions, with average payment amounts exceeding $100,000 in 2025, positioning it as a critical infrastructure for large-scale B2B payments compared to competitors like The Clearing House’s RTP network, where averages hover around $4,000.

FedNow’s growth is propelled by a versatile, use-case agnostic platform that fosters innovation across consumer and business payments, including rapidly expanding applications such as earned wage access, off-cycle payroll, instant escrow payments, digital wallet funding, and accelerated supplier payments. This flexibility is complemented by operational advantages like the direct participation model enabling banks to settle transactions through their Fed master accounts, exemplified by FEMA’s pioneering use of FedNow for instant government disbursements.

Interoperability stands as a cornerstone of FedNow’s expansion strategy, heavily reliant on third-party providers like Volante Technologies, whose decade-long Ripple integration facilitates seamless multi-network access including FedNow, RTP, and XRP settlement. This multi-network capability addresses the critical demand for cross-system compatibility, with 92% of surveyed organizations emphasizing interoperability’s importance, while also navigating evolving regulatory landscapes highlighted by Ripple CEO Brad Garlinghouse’s calls for updated U.S. crypto asset frameworks to balance innovation and consumer protection.

The operational shift to real-time, transaction-by-transaction clearing and settlement presents significant challenges for banks accustomed to batch processing workflows, requiring substantial back-office transformation. Successful FedNow adoption extends beyond instant payment receipt to developing origination capabilities and customer-facing products that leverage real-time features, all while prioritizing seamless user experiences that abstract the complexity of underlying payment rails, ensuring customers benefit from instant payments without needing to understand whether RTP, ACH, or wire transfers are used.

The Clearing House is positioning its RTP network to become the first U.S. instant payments system with cross-border capabilities by piloting a one-leg-out international real-time payment feature slated for the first half of 2027. This pilot, involving major financial institutions such as BNY Mellon and likely other TCH owners like JPMorgan Chase and Bank of America, aims to enable RTP to serve as the U.S. leg of inbound and outbound cross-border transactions, effectively addressing the complex multi-legged nature of international payments.

To facilitate this international expansion, The Clearing House updated RTP’s rules earlier in 2026 to allow one-leg-out instant payments, a critical change that enables RTP to operate 24/7 for cross-border flows. According to TCH spokesperson Greg MacSweeney, these enhancements help tackle the multi-legged challenge inherent in cross-border payments, positioning RTP to meet growing global demands for seamless, real-time transactions involving U.S. beneficiaries.

There is robust demand from overseas entities for round-the-clock payment capabilities to and from U.S. accounts, a need that RTP’s international extension seeks to fulfill alongside the Federal Reserve’s FedNow service. Carl Slabicki, head of commercial, global payments and trade at BNY Mellon, emphasized that enabling 24/7 cross-border payments will unlock significant benefits for both U.S. account holders and their foreign counterparties, underscoring the strategic importance of RTP’s international pilot in the evolving global payments landscape.