Nearly three-quarters of major UK financial institutions expect tokenization to reshape financial services, according to an annual survey by Lloyds Banking Group, as banks and asset managers step up their exploration of blockchain-based infrastructure for payments, settlement and liquidity management.

Tokenization refers to the representation of assets such as bonds, funds or deposits as digital tokens recorded on blockchain-based infrastructure, allowing them to be transferred and settled using shared digital systems.

The poll surveyed 100 senior decision-makers across major UK banks, insurers, asset managers and financial sponsors.

Faster payments and settlement emerged as the most widely cited potential benefit, named by 60% of respondents, while 41% pointed to improved collateral and liquidity management. Lloyds said that moving assets and payments onto digital infrastructure could also unlock capital and liquidity currently tied up in financial transactions, allowing institutions to redeploy those resources elsewhere.

"The next phase is about turning those individual use cases into infrastructure that works at scale, with the interoperability and common standards needed to connect digital and traditional markets," said Rob Hale, co-head of global markets at Lloyds.

Lloyds has also tested the technology directly. Earlier this year, the bank partnered with Archax and Canton Network on what it described as the UK's first public blockchain transaction in which tokenized deposits were used to purchase a tokenized UK government bond.

UK builds infrastructure for tokenized finance

The survey comes as UK policymakers work to move tokenization beyond pilot projects and embed it in the country's financial infrastructure. In May, the Bank of England proposed extending its core settlement infrastructure for interbank payments toward near-24/7 availability, and a subsequent government payments blueprint called for tokenized and traditional forms of money to operate within an interoperable payments system.

In July, a government-backed industry task force estimated that leadership in tokenized finance could add as much as 33 billion British pounds ($44 billion) to the UK's annual economic output by 2035, according to the UK Wholesale Markets Digital Strategy, while also calling for the country's first tokenized government bond by early 2027.

The UK has additionally pursued closer coordination with the United States on tokenized finance. That same month, the US and UK treasuries recommended creating a private-sector group to test cross-border uses of tokenized assets and urged US financial regulators and the Bank of England to identify shared approaches to their regulation.