Why Banks Need to Stop Thinking About TradFi and DeFi as Opposites

Banks may not have to choose “TradFi or DeFi?” Interoperability, regulation, and coexistence are the new way. Bottomline Chief Product Officer Gareth Priest explains.

For banks, the debate over traditional finance (TradFi) and decentralized finance (DeFi) is often framed as a choice between the system they know and the system supposedly coming to replace it. That framing is becoming less useful.

The real challenge is figuring out where DeFi solves a problem better than existing payment infrastructure and then giving banks a practical way to seamlessly interoperate between the two.

That’s how Bottomline Chief Product Officer Gareth Priest sees the next phase in payments. “Banks are going to need to be doing [TradFi and Defi] for a good period of time,” he said. The assumption that DeFi represents an inevitable evolutionary step beyond traditional finance, he added, is far from certain.

Instead, Priest believes that banks should start with a simpler question: “What’s the problem that DeFi can solve, rather than just doing DeFi for the sake of it?”

Decentralized finance can offer near-instant settlement and ledger-based movement of value. But banks already have real-time rails for many domestic use cases, although the value of atomic 24/7 cross-border on-chain settlement is clear, and on-chain can provide a path towards greater operational resilience as back-up on the domestic level. The opportunity becomes clearer where today’s infrastructure remains expensive or complex, particularly in some cross-border corridors.

 

The Hybrid Era has Already Begun

Banks can’t simply choose one model at the exclusion of the other. Payment use cases vary, jurisdictions are moving at different speeds, and a bank may need to originate a transaction on a digital rail even when the receiving institution or local market still requires fiat currency through a traditional system.

Banks therefore need to “exist in both worlds because different corridors and different jurisdictions will adopt it at different paces,” Priest said. Additionally, the on-chain ecosystem is fragmenting more than consolidating at this point, so it is likely that banks will need to interoperate across different chains too.

Banks also don’t want to make big bets on infrastructure projects whose ultimate scale remains uncertain, but neither do they want to be caught unprepared if/when adoption accelerates. Priest describes the result as “pretty heavy coexistence.” That’s why the Global Pay Connect design abstracts on-chain complexity, so that banks can begin adoption and experimentation, without placing bet on a winning network too early.

 

Build a Bridge and be a ‘Babel Fish’

Priest uses the familiar analogy of “on-ramps” and “off-ramps” to describe infrastructure that connects traditional payment messages and accounts with the ledger-based world.

A bank might initiate a payment in a familiar format, route it onto a digital rail, then have the receiving institution either retain the asset digitally or convert it back into local currency for payment through a domestic system.

“These two worlds exist through a very thin pane of glass,” Priest said. “You need to convert from one to the other.”

That translation layer becomes important as banks support both environments without maintaining entirely separate infrastructures. Priest compared the role a payment service provider can play to the universal translation critter called ‘the Babel Fish’ from The Hitchhiker’s Guide to the Galaxy by Douglas Adams. “We’re like Babel Fish,” Priest said. “We live in both worlds and enable [TradFi and DeFi money and messages] to easily go back and forth.”

As for the “build or buy” question, building a parallel infrastructure may be worth it for the world’s largest banks. For super-regional and regional institutions, the economics get harder. Maintaining separate payment, compliance and operating stacks for TradFi and DeFi could turn optionality into a cost problem.

Priest’s preferred model is “native interoperability, coexistence and optionality” on a platform capable of moving payments across both environments. Bottomline has successfully demonstrated seamless interoperability between ISO 20022 and on-chain settlement within a single live platform used by banks today, called Global Pay Connect, in partnership with Chainlink. That partnership was announced at the 2026 Sibos conference.

 

Trust as Infrastructure

DeFi can move value quickly. That alone does not make it a mature payment system.

The traditional payments world has spent decades building rules around authentication, sanctions, fraud, reimbursement, disputes and governance. Those controls are so embedded that customers rarely think about them unless something goes wrong.

Priest believes DeFi needs the same foundation. “What makes something market-ready” is having strong regulation, governance, and in the end, trust, he said.

Clear rules can give institutions the confidence to adopt new rails responsibly. “People will feel it’s okay to put money through that system, and it’s trusted,” Priest said. “It’s backed by regulation. There’s governance.”

A bank that performs sanctions screening, KYC checks and fraud controls on conventional payments can’t abandon those obligations because value is represented differently on a ledger. Providers will need ways to connect wallet or token information with the parties behind a payment and extend existing controls into new environments.

The better outcome is not another compliance stack dedicated to a relatively small volume of digital payments. It’s extending the infrastructure banks already use until, from their perspective, “It’s just another rail.”

 

Partnership May Matter More than Ownership

As stated before, most banks won’t build every component themselves. Institutions already active in DeFi are working with specialist providers, and that reliance on partnerships is likely to increase as adoption moves beyond the largest global players.

The economics make the reason obvious. A regional or super-regional bank is unlikely to spend hundreds of millions building its own DeFi ecosystem before transaction volumes justify the investment.

Bottomline’s approach is to explore how traditional payments infrastructure can work with DeFi specialists to give banks “the best of both worlds,” Priest said.

As he put it, the objective is to provide solutions “in a much more packaged fashion” for FIs that want digital capabilities, but don’t want to reinvent the wheel without having to build everything from scratch and later having to build connections back to where most of their live payments happen today.

 

Tokenized Deposits Complicate the Stablecoin Story

Even the digital side of the equation is unlikely to settle around a single model.

Stablecoins have dominated much of the discussion to date, but tokenized deposits may be a more natural fit for many banking use cases because they retain the connection between customer deposits and the bank balance sheet. While stablecoins and tokenized deposits are often positioned as competitors, many banks are exploring both, with each serving different payment, treasury, liquidity, and settlement needs.

Priest describes tokenized deposits as a bank-native approach to bringing programmable money into the regulated banking ecosystem.

That distinction goes directly to the banking business model. Deposits help fund lending and generate economic value. Moving substantial value away from deposits and into externally issued digital assets raises questions that go beyond the mechanics of making business payments.

“If you have a payment type that effectively pulls assets away from your balance sheet, you’re risking the fundamental business model of the bank,” Priest said.

Tokenized deposits could offer some advantages of digital rails while keeping money inside the regulated banking structure. That helps explain why banks are examining digital instruments that provide the benefits of tokenization without unnecessarily surrendering deposit economics.

Priest stops well short of declaring a winner, saying “I think it’s a little premature.” The treatment of stablecoins, tokenized deposits and other digital assets is still developing. Banks, fintechs and regulators are working out where different forms of digital money fit, which reinforces the larger argument: banks don’t need to predict the winner today. They need infrastructure access that gives them choices as those answers emerge.

For now, Priest said, “coexistence, side by side, an each-way bet, is the status quo.”

That may sound less dramatic than declaring the death of TradFi or the triumph of DeFi. It is also much closer to how banking actually changes: use case by use case, jurisdiction by jurisdiction, and rail by rail.