South Korea’s top bank trials stablecoin VAT refunds

One of the top five largest commercial banks in South Korea, NH NongHyup, has announced that it has initiated a proof of concept (PoC) to digitize its VAT refund service for foreign tourists using blockchain technology and test the concept of instant payments with stablecoins.

For the experiment to be carried out successfully, sources close to the matter said that the proof-of-concept will be conducted in collaboration with Worldpay, Mastercard, Fireblocks, and Avalanche.

Most importantly, this initiative will use the Avalanche blockchain to explore how to automate refunds via smart contracts and make settlements using stablecoins. 

While the process is ongoing, customer details or real money will not be required because the intended purpose of this PoC is to check whether the technology adopted functions properly and can be used effectively, according to the press release.

Meanwhile, South Korea recently announced that it is close to finalizing its long-awaited stablecoin legislation, as the central bank and financial regulator jostle over who should regulate digital tokens pegged to the won.

The Financial Services Commission (FSC) plans to submit a government-sponsored bill by the end of 2025. It will join five other competing stablecoin bills under review in the National Assembly, which individual lawmakers have submitted.

NH NongHyup aims to lead in the digital transformation of Korea’s tourism economy

In a statement, Choi Woon-jae, the executive vice president of NH NongHyup Bank, stated that the refund model based on stablecoins demonstrates how blockchain technology can actually enhance national competitiveness and boost customer experience.

Therefore, with this ability in mind, Choi outlined their goal: to secure the top ranking in the digital transformation of Korea’s tourism economy by implementing strategies like enhancing cross-border payment and settlement efficiency.

The PoC, on the other hand, focuses on attracting the booming tourist volume visiting South Korea by streamlining the VAT refund process. Sources pointed out that this process is essential as it enables foreign tourists to reclaim the VAT, usually 10%, they paid on eligible items when they decide to take them out of the country.

Meanwhile, it is worth noting that in 2024, South Korea welcomed approximately 16.37 million tourists into the country. This figure represented a significant increase of about 48.4% compared to the previous year. 

Concerning NH NongHyup’s intention to modernize the traditional paper-based tax refund system, the bank stated that this initiative will be delivered in two main ways. To begin with, the PoC will thoroughly investigate a digital system based on blockchain technology that automates the tracking of refund data. This method will make it easier and more efficient for both businesses and tourists.

For the Second method, NongHyup highlighted that the process will include a test on a method using stablecoins to allow users to effectively exchange currency and make their payments.

Being a key player in the financial sector, with a broadened customer base and significant assets, NH NongHyup made public its intentions to improve its refund services and stablecoin payment while strictly adhering to new regulatory guidelines from financial authorities. 

South Korea’s financial regulators focus on the development of new laws for won-pegged stablecoins

Sources knowledgeable about NH NongHyup’s proof-of-concept mentioned that South Korea is developing regulations to promote a stablecoin market linked to the Korean won. The move is intended to increase its control over money matters, especially in the face of strong competition from US dollar stablecoins.

While financial regulators and local lawmakers cooperate toward these regulations being put in place for the won-pegged stablecoins, major banks and institutions are also preparing to launch their own stablecoin projects by cooperating with others and obtaining ticker symbols.

However, individuals who received this plan had mixed reactions. The Bank of Korea argued that it is wise for banks to be granted the opportunity to issue stablecoins, while private companies stated that non-bank organizations should be given the chance to establish stablecoins to achieve healthy competition and promote innovation in the market.

Join Bybit now and claim a $50 bonus in minutes