Three major Korean banks just pulled off something interesting with cross-border payments. Shinhan, NH NongHyup, and KakaoBank completed a stablecoin transfer experiment with Japan that changes how money moves between the two countries.
The project, called "Project Pax," shows exactly how Seoul's financial institutions are building parallel systems that work alongside traditional banking infrastructure rather than replacing it.
Why Seoul Banks Are Building "Sandwich" Payment Systems
The sandwich model is pure Korean pragmatism at work.
Here's what happens: Korean won enters the traditional banking system, converts to stablecoin for the cross-border segment, then converts back to yen through Japanese banks. The existing banking infrastructure handles the first and last mile. Blockchain handles the middle.
Think of it like using KTX for the Seoul-Busan segment of a longer journey. You still take local transport to and from the stations, but the main distance gets covered faster.
Korean banks kept all their existing compliance systems intact. Anti-money laundering checks, customer verification, regulatory reporting — everything stays in place. The stablecoin layer simply accelerates the actual transfer portion.
The Real Numbers Behind Korea-Japan Money Transfers
Traditional SWIFT transfers between Korea and Japan take 1-3 business days. Project Pax cuts this to under 10 minutes.
Cost reduction hits 60-80% compared to standard international wire fees.
For context: sending 1 million won to Japan normally costs around 30,000-50,000 won in fees. The stablecoin method drops this to under 10,000 won. Gas fees on the blockchain network run about $1 regardless of transfer size.
Samsung Electronics alone could save over $100 million annually if they switched their supplier payments to this system. That calculation comes from eliminating intermediate bank fees and reducing foreign exchange conversion costs.
How Korean Financial Culture Shaped This Approach
Seoul's banking sector operates differently from Western markets. Major corporations here maintain accounts at multiple banks simultaneously — it's normal for a company to have active accounts at Shinhan, Woori, KB, and Hana all at once.
This multi-bank culture made the sandbox testing easier. Each bank could run parallel experiments without disrupting existing payment flows.
The testing ran from March to May 2025, with Korean banks partnering with Japan's Progmat, Datachain, and Shoko Chukin Bank. The Korean Financial Services Commission's approach also differs from other regulators. They allow controlled testing of new technologies while maintaining strict oversight. Banks can experiment with real transactions but within set limits and reporting requirements.
Actually, the timing matters too. Korea and Japan share similar business hours, unlike transfers to the US or Europe. This means both sides can monitor and verify transactions in real-time during testing phases.
Common Mistakes Foreigners Make About Korean Stablecoin Rules
Many assume Korea banned stablecoins entirely. Wrong.
Korea prohibits issuing won-pegged stablecoins domestically but allows using foreign stablecoins for specific purposes. Project Pax navigates this by using the stablecoin only for the cross-border segment, not for domestic transactions.
Foreign companies often misunderstand Korean banks' API structures. Korean banking APIs require specific security certificates that differ from Western standards. The authentication process uses Korea-specific protocols that aren't immediately obvious to outside developers.
Another confusion point: Korean banks face opposition from the Bank of Korea regarding stablecoin issuance. The central bank worries about monetary policy effectiveness if private stablecoins proliferate. Meanwhile, fintech companies argue restricting issuance to banks kills innovation.
What Actually Happens During a Transfer
Let me walk you through an actual transfer.
A Korean auto parts supplier needs to pay their Japanese partner. They initiate the transfer through their regular Shinhan Bank interface. Nothing changes from their perspective.
Behind the scenes, Shinhan converts the won to a stablecoin at a pre-agreed rate. The stablecoin moves across the blockchain to the Japanese bank. The Japanese bank converts it to yen and credits the supplier's account.
Shinhan tested this as both sending and receiving bank, validating exchange rate simulations, information management, and foreign exchange risk controls. The whole process happens while you grab coffee.
Why Korean Banks Beat Everyone Else to This
Korean banks had unique motivations for speed.
First, Korea-Japan trade volume is massive. These aren't experimental transfers — Korean companies send billions to Japanese suppliers monthly. Every day of float costs real money.
Second, Korean banks already lost significant market share to fintech companies in retail banking. They needed a win in corporate services to maintain relevance.
Third, regulatory uncertainty forced creativity. Since Korea doesn't have clear stablecoin regulations yet, banks built systems that work within existing frameworks while preparing for future rules.
The Infrastructure Nobody Talks About
The open API structure means second-tier financial institutions and corporations can join without massive infrastructure investment.
Thing is, Korean banks didn't just build for themselves. They created infrastructure that regional banks, credit unions, even large corporations can plug into directly.
The APIs handle the complex stuff — currency conversion, blockchain interaction, compliance reporting — while presenting a simple interface to users. Kind of like how KakaoTalk handles all the messaging complexity but you just see a chat window.
What Phase Two Actually Means
The next phase includes SWIFT integration, Payment versus Payment mechanisms for simultaneous exchange, and expansion to retail remittances.
Here's what that means in practice: Your grandmother in Busan could send money to her sister in Osaka as easily as sending a KakaoTalk message. Same speed, minimal cost.
The SWIFT integration is clever. Instead of replacing SWIFT, they're making it faster. Banks still use familiar systems but transactions complete in minutes instead of days.
Reality Check on Limitations
Project Pax isn't perfect yet.
Exchange rate volatility remains an issue. During the few minutes of transfer, rates can shift. For large corporate transfers, even small rate changes matter.
Regulatory clarity is still missing. Korea hasn't decided how to handle foreign stablecoins officially. Banks are operating in a gray area, which limits how aggressively they can scale.
Technical challenges exist too. Not all Japanese banks have the infrastructure to receive stablecoin-based transfers. The network effect hasn't kicked in yet.
Why This Matters Outside Korea
Seoul just demonstrated something important: You don't need Silicon Valley-style disruption to modernize finance.
Korean banks took boring, practical steps. They kept what worked (compliance, customer relationships, regulatory frameworks) and fixed what didn't (transfer speed and cost).
This approach could work anywhere. Traditional banks in Europe, struggling with slow SEPA transfers, could adapt this model. Southeast Asian banks dealing with complex multi-currency settlements could use similar systems.
What You Can Actually Use:
- If you do business with Korea, ask your bank about Project Pax integration timeline
- For fintech developers, study the API documentation — it shows how to bridge traditional and blockchain systems
- Corporate treasurers should model potential savings from faster float times
The most Korean thing about Project Pax? It works quietly in the background. No hype, no token sales, no promises of revolutionizing finance. Just faster, cheaper transfers that actually function today.
Makes sense, right?
Disclaimer: This article is for educational and informational purposes only and should not be considered as financial, investment, or trading advice; always conduct your own research and consult with a qualified financial advisor before making any investment decisions.