South Korea Partners with Toss Payments to Bring CBDC to Merchant Checkout Without Terminal Replacement

South Korea Partners with Toss Payments to Connect CBDC to Merchant Checkout Without Replacing Terminals

South Korea has selected Toss Payments—the payment gateway division of super-app operator Viva Republica—as the preferred negotiating party for a government contract worth approximately 9.6 billion KRW (about $6.7 million) to connect the country's deposit token network to point-of-sale (POS) systems used by millions of small businesses. This is the first time the Project Hangang central bank digital currency (CBDC) infrastructure has entered civilian commercial scenarios, and merchants do not need to replace terminals or rebuild backend integrations.

The contract is awarded by the Ministry of Science and ICT (MSIT) and the Korea Internet & Security Agency (KISA) under their "2026 Blockchain Innovation Leading Project" program. On July 22, a joint launch ceremony was held at KISA's Seoul headquarters. The Korea Financial Telecommunications & Clearing Institute (KFTC) will serve as the project's lead organizer, coordinating a consortium of nine commercial banks, eight payment gateways, and two large retailers. Real merchant testing is expected to begin in the second half of 2026.

Industry Background: The Merchant Adoption Bottleneck for Global CBDC

CBDC pilots have been ongoing worldwide for years, but a common problem is: how can merchants be willing to accept this new payment form? Many projects require merchants to replace POS terminals or rebuild payment integrations, which becomes an insurmountable adoption barrier. According to the Bank for International Settlements (BIS) 2023 "unified ledger" blueprint, solving the problems of monetary system design and merchant adoption friction are two critical dimensions for CBDC implementation.

South Korea's approach differs: through Toss Payments' existing payment gateway infrastructure and merchant relationships, deposit token wallet transactions are bridged to the payment rails that merchants already use. This means merchants can accept CBDC-paid transactions without any upgrades. This backward-compatible design is one of the project's most notable innovations.

Current Developments: Toss Payments Selected for Merchant Gateway Contract

Technical Solution: Backward-Compatible Payment Gateway

Toss Payments' integration layer will sit between the deposit token wallet applications issued by consumer banks and the merchant-side acquiring infrastructure. When a consumer scans a QR code or taps to pay on their phone, the bank wallet initiates a deposit token transaction on the digital currency system (DCS); Toss Payments, as the payment gateway, will confirm it and route it through the merchant's existing payment rails to their current POS terminal. The entire process requires no new terminal hardware and no new merchant software integration; deposit token payments will appear in the merchant's existing systems as settled payments.This approach is feasible thanks to the "burn-and-issue" protocol designed by the Bank of Korea. When a customer of Bank A pays a merchant that banks with Bank B, three steps are executed as a single atomic transaction via a smart contract: the sending bank's deposit token is burned; an equivalent amount of wholesale CBDC is transferred between the two banks via DCS; and the receiving bank re-issues a deposit token to the merchant. If any step fails, the entire transaction is void—there is no partial settlement, no gap between delivery and payment, and no counterparty risk.

DCS runs on Hyperledger Besu, with the Bank of Korea as the sole validator using proof-of-authority consensus. The token architecture separates value transfer from conditions: the money layer uses the ERC-20 standard, while the conditions layer uses ERC-1155 and is upgraded to ERC-3525 to carry programmable spending restrictions (such as approved merchants, time windows, and expense categories) without embedding this logic into the currency itself. Even if a conditional smart contract malfunctions, it does not compromise the fungibility of the underlying deposit.

Project Background: From Phase 1 to Phase 2

Project Hangang Phase 1 ran from April to June 2025, involving seven banks and approximately 12,000 merchant locations, generating about 114,880 transactions. Of the roughly 100,000 invited citizens, around 80,000 opened wallets, with total payments reaching approximately KRW 692 million (about USD 483,000). This phase validated technical reliability but exposed adoption challenges.

Phase 2 launched in March 2026, adding a ninth bank and expanding to biometric payment approval, peer-to-peer wallet transfers, auto-top-up, recurring automatic payments, and the first real-time programmable government disbursement—electric vehicle charging subsidies distributed to eligible operators via smart contracts, enforcing approved merchants, time windows, and expense categories at the moment of transaction, preventing fraud before funds move rather than auditing receipts afterward.

On July 15, 2026, the Financial Services Commission of South Korea officially designated Phase 2 as an "Innovative Financial Service," permitting the nine participating banks to issue deposit tokens to up to 500,000 users, with a target for large-scale real-time transactions set for September.

Impact on the Financial System: Efficiency, Inclusion, and Competition

The significance of this merchant gateway project goes far beyond operational convenience. It has the potential to bring structural changes to the field of digital payments.

First, in terms of payment efficiency, atomic settlement removes intermediaries and settlement risk. Traditional interbank transfers can take hours or a day, while DCS-based deposit token transactions can be completed in near real time and operate around the clock (although they remain subject to reconciliation with the BOK-Wire+ mechanism).Secondly, in terms of financial inclusion, not requiring terminal replacements means millions of small merchants can join the CBDC payment network at zero cost. This lowers the adoption barrier and gives the digital won a real chance to enter everyday consumer scenarios. This is especially beneficial for small businesses that have not been able to deploy modern POS systems across the board.

Third, in terms of banking competition, the wholesale CBDC design preserves banks' role as custodians of customer relationships. Banks issue deposit tokens, and customers still use bank wallets, helping maintain the stability of the existing financial system and avoid "disintermediation" risks. Meanwhile, payment gateways such as Toss Payments may gain new revenue streams by providing connection services.

Fourth, in terms of compliance costs, programmable payments enable the automatic execution of fund usage rules—for example, government subsidies can only be used at designated merchants or for designated goods—reducing ex-post auditing and fraud recovery costs. For financial institutions, smart contracts can embed anti-money laundering and Know Your Customer (KYC) logic, lowering compliance burdens.

Fifth, in terms of risk management, the burn-and-issue protocol ensures the singleness of money, a key design choice emphasized by the BIS. Unlike stablecoins, the underlying liabilities of deposit tokens remain on the balance sheets of regulated banks and are covered by deposit insurance, so there is no de-pegging risk caused by deterioration of the issuer's creditworthiness.

Challenges Ahead: Technical Integration and Regulatory Uncertainty

Despite the bright prospects, the project still faces significant challenges.

The most immediate challenge is the engineering gap between DCS and Korea's traditional interbank settlement system, BOK-Wire+. DCS operates around the clock, while BOK-Wire+ has only operated from 9:00 to 20:00 on weekdays since 1994. The two systems are currently reconciled offline through encrypted USB media, with changes in banks' wholesale CBDC balances recorded in a daily 3:00 p.m. snapshot rather than in real time. Bank of Korea Governor Shin Hyun-song acknowledged in a paper for the European Central Bank's 2026 forum that this is a "transitional arrangement" that needs to be resolved.

Data privacy and cybersecurity are also critical issues. CBDC transaction data may be accessed by governments or banks, and balancing privacy with anti-money laundering is a common challenge for the international community. In addition, once the CBDC network becomes critical financial infrastructure, its exposure to cyberattacks also increases.

Regulatory uncertainty persists. South Korea currently approves the project through a financial regulatory sandbox, but a more comprehensive legal framework will be needed in the future to clarify the property rights of deposit tokens, bankruptcy liquidation rules, and cross-border usage. Moreover, international coordination of digital asset regulation is another complicating factor.

Future Outlook: The Next Stop for the Digital WonIn the short term, with the second phase of large-scale real-time transactions launching in September and the MSIT/KISA merchant gateway contract entering the development stage, South Korea will become one of the few countries in the world to run CBDC payments in a real commercial environment. If the tests go smoothly, the digital won is expected to reach more merchants in the second half of 2026, and may gradually expand into areas such as government payments and cross-border payments.

In the medium term, resolving the integration issues with BOK-Wire+ will determine whether true 7x24 real-time payments can be achieved. Once realized, the digital won will provide businesses and individuals with an uninterrupted funds transfer experience, driving financial infrastructure toward greater efficiency.

From a global perspective, South Korea's experience may serve as an important reference for other countries exploring CBDCs. In particular, the "backward-compatible merchant terminal" design is expected to become a viable solution to the merchant adoption problem. At the same time, South Korea's architecture combining wholesale CBDC with deposit tokens also offers new ideas for balancing centralization and decentralization.

Over the next three to five years, as technology matures and regulation improves, the digital won may become a regular component of South Korea's payment ecosystem, deeply integrated with trends such as fintech, open banking, and embedded finance. And all of this begins with a contract that requires no terminal replacement.