[Interview] Four Digital Innovations of 'Sengold,' the New World of Gold Trading

Kim Jong-in, CEO of Korea Gold Exchange Digital Asset

Jong-in Kim, CEO of Korea Gold Exchange Digital Asset (KorDA)

[Asia Economy Reporter Lim Jeong-su] Interest in gold investment, a representative safe asset, has surged due to the impact of the novel coronavirus infection (COVID-19). There are many direct and indirect gold investment methods such as gold bars, gold banking, and exchange-traded funds (ETFs), but various costs such as transaction fees and taxes occur. Although gold investment is possible through the Korea Exchange (KRX), no other convenient functions beyond simply buying and selling gold can be utilized.

ITCEN Group acquired Korea Gold Exchange Three M (hereinafter Gold Exchange) in 2018 and simultaneously established Korea Gold Exchange Digital Asset (KorDA), the group's first in-house venture, centered on key personnel. The goal was to innovate the gold market and enter the physical asset trading market. CEO Kim said, "With the group's full support, we quickly started service development and launched the mobile gold trading platform 'CEN Gold' in December last year," adding, "We have worked to improve service accessibility so that anyone can easily invest in gold with a small amount."

◆ #1 Innovation in Transaction Costs... "Buy Cheaper and Sell Higher"

The factor that makes people hesitate to invest in gold is transaction costs. The costs required for gold trading are not limited to transaction fees. The bid-offer spread between buying and selling prices of gold is much wider compared to other financial assets. Especially when buying physical gold, the cost burden is considerable.

According to the pure gold price announced by the Korea Gold Exchange, as of the 17th, the buying price of gold is 271,000 KRW per don (3.75g), and the selling price is 248,000 KRW. To make a profit by buying gold bars or other physical gold, the gold price must rise by more than 10%. This gap has narrowed significantly due to the surge in gold trading volume caused by COVID-19. When trading volume decreases, the purchase-sale gap can widen to over 20%. Another method of physical gold trading, bank gold bars, incurs high transaction fees of '5~7% plus alpha.' Gold banking has lower fees at about 1%, but a 15.4% dividend income tax applies.

Using CEN Gold, one can buy and sell the mobile gold exchange voucher called 'eGold' at a single price without a bid-offer spread. It is a physical asset-based trading service with a bid-offer spread of '0.' Gold investors can buy gold cheaper and sell it higher than other trading methods with only a 0.5% fee. Since eGold trading is not a fund investment, there is no dividend income tax. In terms of transaction costs, the only competitor is KRX gold trading. KRX has reduced the purchase-sale gap through liquidity providers (LPs), but spreads can widen depending on the situation.

Trading silver (eSilver) under the same conditions is also possible. He said, "During times of high economic uncertainty, gold investment increases, but when COVID-19 ends and industries revive, silver prices will rise," adding, "You can flexibly trade gold and silver according to market conditions at low costs."

Gold trading mobile platform 'CEN Gold' application trading screen (Source: Korea Gold Exchange Digital Asset)

◆ #2 Innovation in Trading Methods... Buy with 100 KRW or Points

Removing restrictions on gold trading units and time and diversifying gold purchase methods are also innovation points. CEN Gold allows trading gold in units as small as 0.0001g. You can buy gold with just 100 KRW, and above all, 24-hour gold trading is possible.

Various points such as credit card points can also be converted into gold. By logging into the app and clicking a few times, points that might expire unnoticed can be converted into eGold. CEO Kim said, "Annual expiring telecom points alone approach 400 billion KRW," adding, "CEN Gold is expected to reduce individuals' losses from point expiration and serve as a point-based financial management tool."

The 'Geumbang Geumbang' service, which converts old gold such as gold rings and gold necklaces into eGold, will be launched next month. Using this, you can conveniently check prices through the app without visiting offline stores. If satisfied with the price checked via the app, you can convert that value into eGold.

By legitimizing the sale of old gold by individuals, which tends to be informal due to undocumented trading practices, the gold distribution market size is expected to expand. He said, "The scale of old gold trading reaches 3.6 trillion KRW annually," adding, "Once the service is launched, physical gold that has been dormant at home for a long time will be converted into eGold, which can be conveniently traded, increasing transaction volume."

◆ #3 Non-face-to-face Innovation... Even Doljanchi Rings Can Be Gifted as eGold

All gold trading through CEN Gold is conducted non-face-to-face. It is expected to activate everyday gold trading such as gifting doljanchi (first birthday) rings. A 1-don gold ring costs about 300,000 KRW on average. With rising gold prices, this has become a burdensome amount for office workers.

Using CEN Gold's gold gifting function, you can gift gold worth 50,000 or 100,000 KRW. eGold acts as a kind of gold gift certificate. CEO Kim explained, "If you register a bank account with CEN Gold, you can conveniently invest in gold and conduct various gold transactions anytime, anywhere, 24 hours a day," adding, "It is a trading platform suitable for the Untact era."

eGold is not just a numerical value displayed on the CEN Gold app. Investors can withdraw their eGold as physical gold anytime. This is because physical gold equivalent to the amount of eGold purchased is deposited at the Gold Exchange. There are plans to receive regular audits from external professional institutions to ensure that physical gold is properly and securely stored according to trading status.

This is possible because the affiliated company Korea Gold Exchange Three M is the largest physical gold supplier in South Korea, responsible for 60% of domestic physical gold supply. It supplies gold bars sold by the four major commercial banks as well as physical gold for withdrawal at KRX. CEO Kim expressed confidence, saying, "There is no need to worry about the unfortunate event (settlement risk) of not being able to provide physical gold due to lack of gold in the vault," adding, "The trading stability of CEN Gold will not be inferior to regulated financial companies."

Employees transporting physical gold at Korea Gold Exchange 3M are moving 'gold bars' to be sent to commercial banks. (Source: Korea Gold Exchange Digital Asset)

◆ #4 Fintech Innovation... Utilizing Open Banking for Financial Services

They have also applied for an open banking license from the Korea Financial Telecommunications & Clearings Institute. Once authorized, basic banking services such as account inquiry, transfers, and remittances will be possible within CEN Gold. They are currently discussing main transaction contracts with major banks. They are accelerating linkage with financial products, preparing to launch gold-collateralized loan services.

He said, "CEN Gold's services such as easy gold trading and gifting are similar to the early services of 'Toss,'" adding, "Starting with open banking, we plan to expand financial functions by integrating the group's IT technology."