Banks Target Fees from Growing Digital Currency Race

Banks are positioning to earn fees by providing custody, wallet services, payment rails and asset tokenization as central banks and private firms test and pilot digital currencies worldwide.

Financial institutions are developing services that link fiat-based digital currencies to existing client accounts and treasury systems. That work includes running customer onboarding and authentication, operating retail wallets, and managing custody and safekeeping for tokenized cash and securities.

In a retail central bank digital currency model, central banks would issue the currency while regulated banks would verify customers, open accounts, handle wallets and offer products such as overdrafts or savings tied to the digital balance. In wholesale designs, banks would use tokenized central bank balances to settle securities, reduce counterparty credit exposure and shorten settlement windows.

Banks plan to charge fees for on- and off-ramps between token and legacy systems, foreign-exchange execution, reconciliation tools and liquidity provisioning for cross-border flows. They are also pitching advisory and systems-integration work to corporate clients that need to adapt treasury operations for real-time token settlement.

Asset tokenization is another revenue area. Banks can convert bonds, loans and trade receivables into digital tokens, run trading platforms, provide custody and handle post-trade settlement. Programmable tokens can automate conditional payments and escrow arrangements; banks intend to charge issuance, market-making and settlement fees for those services.

Banks also expect to extend existing compliance work to tokenized flows. Know-your-customer, anti-money laundering and sanctions screening can be applied to tokens and offered across multi-bank networks. Custody for private stablecoins and CBDC-denominated tokens is presented as a potential service for institutional clients that need regulated safekeeping.

Obstacles include legacy core systems that require upgrades to support token accounting and real-time settlement, fragmented interoperability standards and varying regulatory frameworks across jurisdictions. Competition from fintechs and large technology firms, cybersecurity and privacy risks, and the potential for rapid shifts in deposit patterns are cited as operational and regulatory challenges.

“Digital currencies will create new fee pools around custody, conversion and settlement, but banks must modernize back-office systems to capture them,” an industry analyst observing bank pilots warned. Central banks have cited falling cash use, the need for faster payments and improved cross-border settlement as motivations for exploring digital currency designs. As pilots and platform builds continue, banks that join programs aim to secure roles as distributors, custodians and integrators.