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Design Note – Interoperability models for UK based payments

This design note sets out the Bank of England’s emerging thinking on interoperability models for a digital pound, where both payer and payee are based in the UK. It does not consider cross-border interoperability models, which is a separate topic. It explores how interoperability can support innovation, inclusion, and the singleness of money by enabling seamless exchange between digital pounds, commercial bank deposits, cash, and new forms of digital money. The note outlines three potential models for delivering interoperability, evaluates their trade-offs, and presents a preferred approach. It also shares findings from a technical proof of concept using existing UK payment infrastructure. This note is exploratory and intended to prompt discussion; it does not represent final policy or design decisions.

Design notes

The Bank of England (‘the Bank’) and HM Treasury are committed to our work on a digital pound being informed by dialogue with the public, business, and civil society.

To support this engagement, the Bank is publishing design notes, which set out the Bank’s emerging thinking on specific topics related to a digital pound. These notes explore matters we are considering during the design phase for a digital pound, on which we wish to give stakeholders visibility of our emerging thinking. Publishing design notes allows us to be transparent about our work on a digital pound, and to prompt discussion on specific topics with stakeholders at an early stage and in an exploratory manner.

As is the case with all our work during the design phase, no decision has yet been taken on whether to build a digital pound. Design notes do not represent final policy or design decisions, nor do they represent policy proposals upon which we are formally consulting. On completion of the design phase and taking account of evolution in the wider payments landscape, the Bank and the Government will decide whether to proceed to build a digital pound. If the decision was taken to build a digital pound, it would only be introduced once Parliament had passed the relevant primary legislation.

As set out in the 2023 Consultation Paper, a digital pound should be interoperable with other forms of money – including cash and commercial bank deposits – and complement emerging forms of privately issued digital money, such as stablecoins or tokenised deposits.

Interoperability is key to achieving the two primary motivations in considering a digital pound:

Preserving the singleness of money – meaning all forms of sterling money are valued equally and interchangeable with each other. This underpins confidence in the monetary system and enables efficient financial system operation.
Supporting innovation, choice and efficiency across the UK payments system.

The digital pound ecosystem must allow users to easily move money through the financial system when they choose. It should make sending and receiving payments at least as quick, secure and straightforward as existing options. It should also complement cash and preserve payment choice for businesses and consumers. And users should typically be able to pay with digital pounds for goods and services wherever digital payments are accepted.

There are several ways to deliver interoperability. We look at three models, each one involving trade-offs – for users, for participants and for the wider financial system. This note sets out our early thinking on those models in a domestic context. It explains how interoperability shapes the overall design, and the outcomes we aim to deliver through it. We welcome feedback on whether our preferred model would be the right way forward.

Design features that shape interoperability

The proposed model for a digital pound – as described in the 2023 Consultation Paper, the 2024 Consultation Response, and the 2025 Progress update – underpins our approach to interoperability. Four core features are especially important:

A digital pound would be issued by the Bank of England and remain its direct liability.
It would be delivered through a public-private platform, with intermediaries responsible for user-facing services – including onboarding, Know Your Customer (KYC) checks, and the management of users’ personal data.
It would be interchangeable with other forms of money – including cash, bank deposits and emerging forms such as stablecoins.
Neither the Bank nor the Government would access users’ personal data through the core infrastructure.

These features shape the way interoperability must be delivered. The system must support secure, low-friction exchange between different forms of money – preserving the singleness of sterling while supporting practical everyday use.

How interoperability supports innovation and singleness

Innovation

For a digital pound to support innovation, it would need to be highly interoperable. This interoperability is necessary for digital pound users to seamlessly send and receive a range of everyday payments (shopping instore or online, invoices, bills or salaries) whether or not their counterpart is a digital pound user. This can develop meaningful choice in retail payments for consumers and retailers; support the entrance of new participants in the digital pound ecosystem; and drive utility for users who adopt the digital pound. In general terms, high interoperability can contribute to lower retail payments costs, increase convenience, enable new business models and increase inclusion.

Today, payment firms often need to: act as money issuers; integrate with existing service providers to reach users; and join multiple payment systems to offer services to those users. This raises barriers to entry and limits the diversity of products that can emerge.

The digital pound would allow intermediaries to offer payment services without issuing money or holding customer funds. That separation reduces liability, complexity and regulatory burden. As a public authority, the Bank is uniquely positioned to set the conditions for system-wide connectivity related to a digital pound, which enables a broader range of firms to participate safely in digital pound payments and supports innovation without requiring firms to become money issuers.

The digital pound platform model reinforces this. Interoperability could be delivered through shared infrastructure and standards. New participants could connect once and reach the broader system. This reduces duplication, avoids reliance on a small number of gatekeepers, and allows innovation to scale more easily.

Without this, the system risks becoming fragmented. New forms of money that lack interoperability may operate as ‘walled gardens’ – limiting user mobility, reinforcing market concentration and making it harder for new ideas to succeed. The digital pound platform can help counter this trend by providing a shared, open platform for retail payments.

Singleness

To support the singleness of money, a digital pound must be interoperable with other forms of money. If users encounter friction when converting between the digital pound and commercial bank money or new forms of digital money, they may begin to perceive differences in value or reliability. This risks undermining the principle that all sterling money is interchangeable, regardless of its form.

Outcomes

Interoperability enables the digital pound to function alongside other forms of money – supporting both singleness and innovation. At a high level, it means users should be able to move value between different forms of money they hold and pay or be paid by someone using a different form of money. They should be able to do so conveniently and without undue delay, within applicable limits on value, and at low or no cost for individuals.

These outcomes are design goals rather than fixed requirements. Not all outcomes will be needed in all cases. The product strategy will phase them in over time, based on user needs, delivery complexity and commercial opportunity. As adoption grows and the ecosystem evolves, interoperability will adapt to meet those needs.

Interoperability with different forms of money

Commercial bank deposits

Interoperability with commercial bank deposits is essential for the digital pound to function from the outset. Deposits are the primary form of money held and used by the public today and would be a major channel by which value is transferred into digital pounds. If users cannot move easily between deposit accounts and digital pounds, it will limit adoption and utility.

Users should be able to:

Transfer value between their digital pound and deposit accounts – including manual transfers and automated features that help manage balances.
Transfer value between different forms of money they hold – for example, from a digital pound account to a personal bank account, or vice versa.
Pay or be paid by someone who holds a different form of money – including peer-to-peer, business-to-business, and consumer-to-merchant payments.
Spend digital pounds with merchants who do not use the digital pound, provided those merchants can accept account-to-account (A2A) payments.
Accept digital pounds as a merchant or business from customers who are not using the digital pound.

These outcomes allow users’ funds to enter or exit the digital pound platform with minimal friction. They also support merchants and service providers who want to accept digital pounds without waiting for universal customer adoption. With appropriate commercial arrangements, this interoperability can strengthen the business case for early adoption and promote a more dynamic and inclusive ecosystem.

Cash

The Bank remains committed to providing cash for those who wish to use it, and while cash use is declining, it continues to play an important role in the UK economy – particularly for inclusion and trust. A digital pound should allow users to convert between cash and digital pounds through familiar channels, such as ATMs, cashback at point of sale, or branches.

Users should be able to:

Withdraw cash from their digital pound account.
Deposit cash into their digital pound account.
Do both without requiring a bank account. This allows users to fund or withdraw from their digital pound account using cash directly.

This supports individuals who rely on cash, as well as businesses that receive cash payments and want to manage funds digitally. Intermediaries (Payment Interface Providers (PIPs)) that offer meaningful cash-to-digital services will play an important role in enabling this functionality and expanding the reach of the digital pound.

New forms of money

A digital pound should have the technical capabilities to interoperate with new forms of regulated privately issued money – including stablecoins and tokenised deposits – as they emerge. This is not a commitment to automatically convert these forms of money into public money. Instead, a digital pound would enable the level of interoperability required to preserve the singleness of money and enable reliable, low-friction exchange.

These forms of money may offer new features or serve different market needs, but without strong interoperability they could fragment the monetary system, reduce user choice and create risks to financial stability.

The degree of interoperability with new forms of money will depend on their systemic importance and the risks they pose to monetary and financial stability. Where these forms become significant, desired outcomes may include:

The ability to move funds between wallets or accounts across systems.
The ability to pay or be paid using different types of money.
The ability to convert balances across forms without delay or loss of value.

The digital pound platform will support this through an open and extensible design, using clear rules and standards to govern interoperability. This approach allows the system to adapt over time, while continuing to support regulatory goals and maintain coherence across the broader financial system.

How intermediaries can deliver interoperability

Interoperability between the digital pound, deposits or cash requires an actor who can exchange value from one form of money into another on behalf of account holders. As noted in the Technology Working Paper, connecting the digital pound to existing interbank payment schemes is the most effective and efficient route for doing so. As such, the actor that delivers interoperability must be a settling participant of interbank payment schemes and an account holder in Real-Time Gross Settlement (RTGS). There are three options for how this could be undertaken:

Model A: Centrally provided interoperability by the digital pound operator through the digital pound platform for the whole digital pound ecosystem.
Model B: A small number of intermediaries (not necessarily PIPs) competitively provide interoperability to the digital pound ecosystem.
Model C: Each PIP directly provides interoperability to their users, via commercial arrangements.

Model A (centrally provided interoperability) would need to be in place at launch to ensure baseline interoperability across the ecosystem. Models B (small number of intermediaries) and C (each PIP connects directly) could be demand-driven from launch and may become increasingly relevant as the system evolves to support interoperability with new forms of digital money or cross-border use cases. These models are not mutually exclusive.

Integration with existing systems would be guided by payment systems’ capabilities and the use cases they support. For example, Pay.UK’s Faster Payment System (FPS) could facilitate A2A payments for peer-to-peer, ecommerce, or in-store transactions. The Bacs system might support salary payments, or LINK to interoperate with ATMs.

The Bank supports a centrally provided deposit interoperability capability. All users require this service and so all intermediaries would need this capability. This is not an area where there is strong opportunity for innovation or differentiation. A central option can reduce costs for PIPs and the industry at large and offer a uniform experience to digital pound users. Such an approach comes with privacy challenges that would need to be addressed. This has been explored via technical experimentation, further details of which are provided below (Box A).

Exclusive reliance on models B or C could concentrate market power in a few intermediaries, undermining the innovation potential of the ecosystem.

A centrally provided capability could also be extended or reused to support broader policy objectives. For example, intermediaries wishing to offer digital pound – cash interoperability could use the same infrastructure, supporting entry and growth for inclusion-focused intermediaries and services.

A central capability would not prevent intermediaries from investing in or commercially sourcing their own interoperability solutions where they see an opportunity or already have the necessary infrastructure. These models are not mutually exclusive.

This proposal won’t replace existing regulatory initiatives, such as the Access to Cash regime.

Practical considerations for delivery

Any interoperability capability – whether centrally provided or delivered by PIPs – would need to use the existing A2A instant payments rail, FPS. FPS is designed to support high-volume, low-value payments.

The interoperability outcomes described above would require additional enabling capabilities, rules, and commercial arrangements, which further work will explore. Example capabilities include:

Certainty of fate – At point of sale, users and merchants need to know immediately whether a payment has been successful. FPS infrastructure and rules currently allow for payment confirmation within two hours, which is not suitable for real-time retail transactions. This would affect sweeping payments too, for example automated transfers of excess digital pound balances into a linked deposit account.
Increased use case support – FPS cannot currently support batch payments or more complex use cases like payroll. These restrictions mean that 8 out of 10 employees in the UK are still paid via Bacs.
Privacy overlays – FPS was not designed to support layered privacy services or overlays. Meeting the digital pound’s privacy requirements may require additional components or third-party architecture.
Initiation and acceptance – The infrastructure for in-person payments – such as codes, links or wallet interfaces – lacks shared standards, which would be essential for point-of-sale use.
Shared directory – A cross-scheme alias service (eg email or phone-based identifiers) does not yet exist but would be helpful to enable consistent payment experiences across systems.
Standardised request to pay – A universal, scheme-agnostic request to pay feature would improve trust and usability and help reduce fraud risks such as authorised push payment (APP) fraud.

Delivering effective interoperability for a digital pound will also depend on appropriate supporting frameworks – particularly around consumer protection and commercial incentives. These frameworks shape how users experience interoperability and how it is maintained by participants. They are therefore relevant to both the design of a digital pound and the wider ecosystem in which it would operate.

Consumer protection – As the digital pound enables A2A payments, it will need to reflect evolving standards for consumer protection across the broader payments landscape. This includes giving users clear recourse when something goes wrong, and ensuring protections are proportionate to the type of transaction. Work is already underway in the Open Banking ecosystem to establish baseline protections and dispute resolution processes. A digital pound would need to build on this foundation to support confidence and consistency across payment types.
Commercial model – A sustainable commercial model will be important to ensure that interoperability is not only technically possible but also commercially viable. The digital pound will need to support incentives for participants. Without this, the benefits of interoperability may not be fully realised in practice.

Next steps

As we continue our research into the technological foundations of a digital pound, we will review the extent to which existing and prospective infrastructures can support interoperability for a digital pound.

The decision to integrate with general interbank settlement infrastructure could affect many aspects of the digital pound’s design. For example, wallets may need to incorporate account number and sort code aliases, and alterations to existing infrastructure may be needed. As such, we anticipate further collaborative engagement with payment infrastructure operators to progress this work.

To support this, we have begun a series of technical experiments to assess the viability of different interoperability models – subject to privacy and performance constraints – to inform the Blueprint design. Further detail on this work is available through related design notes.

You can read more about our recent and upcoming work to deliver the digital pound design phase on our website.

Box A: Interoperability proof of concept

This experiment aimed to assess whether existing interbank payments infrastructure in the UK could support interoperability between the digital pound and bank deposits while achieving the privacy objectives for a digital pound.^{^{footnote [1]}} In particular, we explored whether FPS could deliver interoperability with the digital pound without requiring changes to its infrastructure.

We worked with PA Consulting and Pay.UK to develop a proof of concept to explore potential end-to-end transaction flows for converting digital pounds into and out of bank deposits. This experiment explored interoperability from a technical perspective only: no real money payments were made, and no real customer data was used.

The proof of concept

The proof of concept comprised the following components:

A demonstration digital pound platform, comprising a demonstration ledger and exposing application programming interfaces (APIs)^{^{footnote [2]}} that provided access to the ledger functionality (the core platform).
A simulator of the FPS scheme,^{^{footnote [3]}} demonstrating the functions of FPS’s single immediate payments interface, including the transfer of funds between commercial bank accounts.
An interoperability module, acting as a bridge between both the digital pound platform and the FPS simulator.
Simulated user interfaces for PIPs and commercial banks.

In addition, common standards were used and other payments functionalities enabled:

Digital pound accounts were assigned sort code and account number aliases, following the standard currently used in the UK to enable A2A payments.
The proof-of-concept utilised common universal messaging standards, currently used by FPS and the wider payments ecosystem, such as ISO8583 and ISO20022.
Peer-to-peer and person-to-business payments were enabled. Additional payment types, namely Request to Pay,^{^{footnote [4]}} automated scheduled transfers, and point-of-sale payments,^{^{footnote [5]}} were also explored. To enable the Request to Pay functionality, we developed an ancillary service to enable the exchange of messages between the simulated PIP and commercial bank interfaces. This was necessary because there was no standardised, scheme-agnostic Request to Pay framework available.
Confirmation of Payee functionality was also implemented to support fraud prevention.

We explored the feasibility of the interoperability module acting as a direct participant in the FPS infrastructure to facilitate the transfer of payment messages to and from other FPS participants (commercial banks) to the digital pound ecosystem.

We also considered technology approaches for routing interoperability payment messages, including enabling the interoperability module to route messages between the core platform and PIPs (Figure B); and enabling the core platform to route payment messages from the interoperability module to the relevant PIPs (Figure C). In both approaches, privacy-enhancing technologies such as data minimisation, pseudonymisation and/or encryption were applied by the interoperability module to protect users’ personal data; no personal data was accessed by the core platform.

Key findings

This experiment demonstrated that it is technically feasible to support interoperability between the digital pound and bank deposits using FPS, without requiring changes to the FPS infrastructure. This might be achieved by using an interoperability module that acts as a direct participant in the FPS scheme, facilitating communication between FPS and the digital pound ecosystem. These findings could apply equally to providing interoperability to other financial and payments infrastructures that exist today or those that might be developed in the future, including other interbank rails, or cash rails, provided similar standards are used. Other findings included:

Privacy-enhancing technologies can be applied to protect users’ personal data, such that no data is shared with the Bank.
Confirmation of Payee can be implemented such that a consistent user experience is provided when converting digital pounds into and out of bank deposits.
In addition to conversions, other types of payments, namely Request to Pay^{^{footnote [6]}} and automated scheduled payments could be implemented. Although Request to Pay required the development of an ancillary service, this might not be needed if common Request to Pay standards are adopted across the payments industry. In this experiment, we did not explore implementing new standards at the commercial bank level.
A certainty of fate mechanism would be required to support additional payment types, such as interoperability between digital pound and bank deposits at points of sale.

Some non-functional aspects, such as performance and throughput, were not explored in this experiment. Also, this experiment did not test integration with RTGS. Further work will be needed to explore those as well as key operational and legal considerations around utilising FPS, including how holding limits might be handled. Notwithstanding this, the experiment provided useful insights around the technical feasibility of utilising existing payments infrastructure, namely FPS, and forms basis to develop our thinking for the digital pound blueprint.

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