South Korea’s NH NongHyup Bank Launches Pilot for VAT Refunds with Stablecoins

South Korea’s NH NongHyup Bank has initiated a proof-of-concept (PoC) project aimed at testing stablecoin-based value-added tax (VAT) refunds for tourists. This innovative approach is part of the bank’s mission to modernize financial transactions and enhance the tourism experience in South Korea through blockchain technology.

Collaboration with Leading Technology Partners

The PoC involves a collaboration with notable technology firms including Avalanche, Fireblocks, Mastercard, and Worldpay. The project leverages Avalanche’s blockchain to explore the use of smart contracts in automating VAT refund processes. Importantly, the pilot will not utilize real funds or customer data, focusing instead on validating the operational and technical feasibility of stablecoin transactions for real-time settlements.

According to Choi Woon-jae, Executive Vice President of NH NongHyup Bank, this initiative illustrates the potential of blockchain technology to enhance customer experiences while bolstering national competitiveness. He emphasized that the project represents a significant advancement in South Korea’s digital transformation within the tourism sector, facilitating faster and more efficient cross-border payments.

Streamlining VAT Refunds for Tourists

Currently, tourists in South Korea face a cumbersome paper-based process to reclaim the 10% VAT on eligible purchases. NH NongHyup’s new system aims to alleviate this burden by automating refund processes through blockchain technology. This innovation will provide transparency between tourists, merchants, and government agencies, ensuring a smoother experience for international visitors.

The integration of stablecoins will enable instant transactions, simplifying currency exchanges and significantly reducing delays in refunds. This initiative comes at a time when South Korea is experiencing a surge in tourism, with 16.37 million visitors expected in 2024, marking a 48.4% increase compared to the previous year.

The pilot program aligns with South Korea’s broader efforts to establish a regulatory framework for Korean won-pegged stablecoins (KRW stablecoins). These digital assets aim to maintain national monetary sovereignty and lessen dependence on U.S. dollar-backed stablecoins.

However, the growing interest in stablecoins has sparked a regulatory debate within the country. The Bank of Korea maintains that only regulated banks should issue stablecoins, while proponents in the private sector advocate for fintech companies to participate in fostering innovation and competition.

NH NongHyup plans to expand its blockchain-based payment and VAT refund systems in anticipation of the country’s forthcoming stablecoin regulations. Should the PoC prove successful, it could position South Korea as a leader in blockchain-integrated tourism finance, where stablecoins and smart contracts redefine how international visitors engage with local businesses.

This pilot not only represents a leap forward for South Korea’s digital finance strategy but also sets the stage for potentially transformative changes in how tourists manage their spending and refunds during their visits.