South Korea selects Toss Payments to advance CBDC merchant integration, with no need to replace existing POS terminals.

Korea Selects Toss Payments to Advance CBDC Merchant Access; Existing POS Terminals Need No Replacement

South Korea is moving central bank digital currency (CBDC) from policy testing to commercial application. According to TechTimes, South Korea's Ministry of Science and ICT (MSIT) and the Korea Internet & Security Agency (KISA) have selected Toss Payments as the preferred negotiation partner to connect the Bank of Korea-led Project Hangang deposit token network to merchants' POS terminals. The contract, valued at approximately 9.6 billion won (about $6.7 million), means millions of small merchants can accept CBDC payments without replacing their equipment.

Industry Background

To understand this deal, one must first clarify the technical path of South Korea's central bank digital currency. Project Hangang is not a retail CBDC but rather adopts a two-tier architecture combining a wholesale CBDC and deposit tokens. The Bank of Korea issues the wholesale version of the digital won only to financial institutions, and commercial banks create deposit tokens on top of that and distribute them to consumers. Deposit tokens are claims on banks, unlike stablecoins, which are claims on the issuer and may face reserve and credit risks. The Bank for International Settlements (BIS) noted in April 2023 that, compared with stablecoins, deposit tokens settle in central bank money and can better preserve the singleness of money. The Hangang project also uses a "burn-and-mint" protocol to achieve atomic interbank settlement, eliminating partial settlement and credit risks.

South Korea's central bank digital currency solution is not an isolated experiment. Many central banks around the world are considering similar architectures, and South Korea has chosen a route that is "compatible with merchants' existing terminals" to solve the adoption challenge.

Current Developments

According to the "2026 Blockchain Innovation Leading Project" plan by MSIT and KISA, the contract is led by the Korea Financial Telecommunications & Clearing Institute (KFTC), in cooperation with nine commercial banks, eight payment gateways, and two large retailers. Real merchant data testing is scheduled to begin in the second half of 2026. Toss Payments will leverage its mature payment gateway infrastructure and merchant relationships to serve as the bridge connecting consumer wallets to merchant acquiring systems. The key to this design is "backward compatibility": merchants do not need to replace terminals or rebuild backend integrations. When consumers pay by scanning a QR code or using near-field communication through their banking wallets, Toss Payments converts the deposit token transaction in the background into a settled payment signal that existing merchant terminals can receive.

Toss Payments is the payment gateway subsidiary of South Korean super-app operator Viva Republica, and its existing merchant network was an important consideration in its selection. In this project, Toss Payments will undertake part of the development and operation work under the total contract amount of about 9.6 billion won; roughly 3 billion won will be used specifically for the development, operation, and promotion of small, medium, and startup enterprises, while participating institutions such as banks plan to add approximately 4.5 billion won in related investment.The progress of Project Hangang also explains why this contract emerged. In the first phase (April–June 2025), testing with seven banks and approximately 12,000 merchants generated about 115,000 transactions, but the total payment volume was roughly KRW 692 million (about US$483,000)—not particularly high compared with the roughly KRW 30–35 billion invested by participating banks. The second phase (launched in March 2026) expanded to nine banks, adding biometric payment, P2P transfer, automatic top-up, and recurring payment functions, and began disbursing real government subsidies—such as electric-vehicle charging subsidies—through smart contracts to control the flow of subsidy funds. On July 15, 2026, the project was designated as an “innovative financial service” by Korea’s Financial Supervisory Commission, allowing nine banks to issue deposit tokens to up to 500,000 users, with large-scale real-time transactions planned for September.

Impact on the Financial System

Notably, Toss Payments, as a payment gateway, is itself an important financial market infrastructure. This partnership could have far-reaching effects on payment efficiency, financial inclusion, banking competition, compliance costs, and risk management.

Payment efficiency: By adopting a burn-and-mint protocol and a Proof-of-Authority model on Hyperledger Besu, with the Bank of Korea as the sole validator, transaction finality is guaranteed. Atomic interbank settlement eliminates counterparty risk and, compared with traditional retail payment systems, has the potential to operate around the clock. Still, offline reconciliation between the DCS and BOK-Wire+ remains a weak link.

Financial inclusion: Because merchants do not need to replace terminals or perform additional integration, small merchants can accept CBDC at zero marginal cost. Previous CBDC pilots around the world have often been slowed by merchant resistance. If Korea’s model proves viable, it could become a template for other central banks.

Banking competition: By directly entering the merchant acquiring space for a central bank digital currency as a non-bank institution, Toss Payments is effectively introducing a fintech company into core payment infrastructure. This follows the same trend seen in open banking and digital banking: banks retain deposit and account functions, while the role of the payment touchpoint may shift to others.

Compliance costs: With all transactions online and governed by programmable conditions, regulators can monitor fund flows in real time. Smart contracts automatically verify KYC/AML requirements, which in theory can reduce the manual cost of suspicious transaction reports. If poorly designed, however, they could also make compliance review more difficult.

Risk management: Under the two-tier architecture, deposit tokens remain bank deposits and are covered by deposit insurance, reducing credit risk. Technical risk, however, is concentrated in the central bank’s sole validator node, and a more robust fault-tolerance mechanism needs to be built.

Challenges

Although the industry generally views Toss Payments’ selection as positive progress, Korea’s central bank digital currency still faces many obstacles before it can become a reality.Data Privacy and Cybersecurity: All transactions are recorded on the ledger operated by the central bank. Although a permissioned blockchain is used, data silos may introduce single points of failure and privacy challenges. Any large-scale payment system must guard against cyberattacks and internal leaks. How access permissions are designed and audited will affect public acceptance.

Technology Integration: The gap between DCS and BOK-Wire+ has yet to be bridged. BOK-Wire+ went live in 1994 and operates only from 9:00 to 20:00 on weekdays. Currently, the two systems rely on encrypted USB drives for offline settlement reconciliation, with daily snapshots taken at 3 p.m. to record banks' wholesale CBDC balances. This "transitional arrangement" cannot support true 24/7 settlement, and bottlenecks will become even more pronounced as payment volumes and user numbers grow significantly.

Regulatory Uncertainty: Although South Korean financial regulators have given the green light to the second phase, legislation around CBDC and deposit tokens remains incomplete. The recent conservative stance of the United States toward CBDC adds a degree of geopolitical color to this technological progress and also increases the difficulty of international interoperability.

Future Outlook

Over the next three to five years, South Korea may provide a key model for commercial CBDC implementation. Merchant field tests starting in the second half of 2026 will first answer the core question of "whether merchants are willing to switch to CBDC without changing terminals." As the gateway, Toss Payments will have a natural data advantage, helping regulators assess payment efficiency and business models.

As BOK-Wire+ is upgraded or new settlement infrastructure advances, the divide between DCS and the existing banking system will be eliminated. Once true 24/7 interbank settlement is achieved, Korea's CBDC could be used not only for domestic retail but may also develop into a settlement tool for international cooperation. Standards around digital identity and smart contracts may also evolve, creating more room for open banking and embedded finance.

At the same time, we need to remain prudent. Any transformation of a large-scale payment system must take into account financial stability and not exclude marginalized groups. If South Korea can strike a balance among compliance, security, and financial inclusion, it will undoubtedly become an important reference point for global CBDC research and payment infrastructure upgrades.

Reference source: TechTimes