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As the Bank of Korea's CBDC experiment — Project Han River Phase 2 — moves toward a live pilot, card companies and payment gateway firms are expected to join in earnest. While banks issue and manage deposit tokens, card companies and PGs will connect their established merchant and payment infrastructure to bring deposit tokens into everyday use.

South Korea's five major banks are preparing live transaction tests for Project Han River Phase 2 in partnership with card companies and PG firms, according to financial industry sources Wednesday. The key shift from Phase 1 — in which banks offered limited payment services at a handful of merchants — is a dramatic expansion of acceptance points by tapping into the merchant networks already operated by card companies and PGs.

Project Han River is a program in which commercial banks issue deposit tokens backed by institutional CBDC issued by the Bank of Korea, allowing users to make payments with those tokens. The Financial Services Commission held its regular meeting Wednesday and newly designated the deposit-token-based payment services of Kyongnam Bank and iM Bank — two new Phase 2 participants — as innovative financial services. For the seven existing participating banks, including KB Kookmin Bank, Shinhan Bank and Woori Bank, the FSC amended their designations to reflect an expanded range of acceptance points and the addition of peer-to-peer transfer functionality.

KB Kookmin Bank is working with PG firm KG Inicis to leverage existing payment infrastructure, with the goal of enabling merchants to accept deposit token payments without installing new terminals or overhauling their systems.

KB Kookmin Bank is also preparing to implement deposit token payment use cases at stores affiliated with KG Inicis, targeting a live transaction test by year-end. The plan involves connecting KG Inicis's kiosk payment network to the bank's deposit token system.

Banks participating in Project Han River Phase 2 have submitted these plans to the Bank of Korea as part of their pilot proposals. Shinhan Bank had initially considered linking Shinhan Card's merchant network to its deposit token payment system, but is now understood to be leaning toward connecting deposit token payments to insurance services — such as travel insurance — rather than card company networks.

Hana Bank is also reviewing collaboration with PG firms for Phase 2. Woori Bank plans to expand deposit token acceptance by linking Woori Card and Korea Information & Communication Co. — known as KICC — with Woori Card providing its card merchant network and KICC supplying offline payment infrastructure.

NH NongHyup Bank, which partnered with KICC in Phase 1, is exploring ways to use PG payment infrastructure alongside NH NongHyup Card in Phase 2. The bank has determined that expanding acceptance to small-business merchants — through both public live transactions and government expense pilots — will require integration with the card payment methods familiar to users, as well as online (PG) and offline (VAN) infrastructure.

Once card company and PG infrastructure is connected, banks will be able to rapidly expand acceptance points using existing merchant networks without negotiating contracts with individual merchants. The system is also designed to let all participating banks share merchant networks jointly, rather than restricting each bank's merchants to its own customers — a feature that further accelerates the expansion of usable locations.

In Phase 1, NH NongHyup Bank partnered with Hanaro Mart, but customers of other participating banks could also use deposit tokens at those stores through the digital wallets in their respective bank apps. Phase 2 is expected to operate similarly. In that case, what matters more than how many PG firms each bank has contracted with is how broadly the overall payment network is connected.

"When card companies and PG firms join the project, the range of deposit token use will expand regardless of region or industry," a financial industry official said. "The vast majority of merchants should be accessible to users for payment."

The payment flow under consideration has users paying with deposit tokens through the digital wallet in their bank app, while PG firms and card companies handle the distribution and settlement of payment information. Banks take responsibility for the actual issuance, custody and management of deposit tokens, while card companies and PGs support payment authorization and won-denominated settlement using their existing merchant networks.

Card companies and PG firms have not received separate innovative financial service designations in connection with the Project Han River Phase 2 pilot. Such designations grant regulatory exemptions allowing financial services that are unclear or restricted under existing law to be tested within a defined period and scope. Industry observers believe card companies and PGs can participate within their existing licenses because they are not independently holding deposit tokens — they are simply providing their merchant networks and payment and settlement infrastructure.

At the same time, analysts note that the interests of banks and card companies may not fully align, given that deposit token payments could partially displace the existing card payment market. If a structure in which deposit tokens transfer directly from consumer wallets linked to bank accounts to merchant wallets becomes entrenched, card companies' payment processing and acquiring functions could shrink.

As deposit token acceptance expands and cases involving payment cancellations, partial cancellations, refunds and consumer disputes multiply, experts say the roles and responsibilities of banks, card companies and PG firms will need to be more precisely defined.

"The key right now is figuring out how to integrate deposit tokens into the card and PG payment infrastructure that already exists," said Hwang Seok-jin, a professor at Dongguk University's Graduate School of International Information Security. "As the project takes shape and the user base grows, there will be a need to redefine the roles of participating institutions with an eye toward the problems that could arise in real transactions."


kyoung@heraldcorp.com