South Korean banks are resisting the urge to participate in a “deposit rate war” with crypto exchanges as the platforms strive for market dominance. Following the implementation of the Virtual Asset User Protection Act, which mandates that crypto exchanges offering crypto-fiat trading must manage customer deposits in dedicated bank accounts, exchanges have been adjusting interest rates to attract more customers. However, South Korea’s top banks seem uninterested in engaging in this competition, citing disadvantages such as the lack of protection under the Depositor Protection Act. Despite the exchanges’ efforts to offer competitive rates, banks believe they still hold the advantage in terms of brand awareness and asset protection trust.
The Cost of Funds Index, a key lending rate for mortgage loans, has been declining recently, making it challenging for commercial banks to increase deposit interest rates in the near future. While banks acknowledge their solid position in long-term deposits, they recognize the potential for short-term investment funds to shift to other industries offering more favorable rates and limits. The increasing accessibility of fintech has also led some investors to seek out better conditions elsewhere, prompting banks to reconsider their strategies in retaining customers. This shift in demand has put pressure on banks to adapt to changing preferences, particularly among younger investors looking for more lucrative options.
In late July, South Korean exchanges engaged in a heated competition over interest rates in a bid to attract more customers. Market leaders such as Upbit, Bithumb, Korbit, and Coinone announced competitive rates ranging from 1.3% to 2.5%. The rapid escalation of rates displayed the exchanges’ eagerness to outdo each other and expand their customer base. Despite their initial indifference, reports surfaced suggesting that Kookmin (KB) Bank successfully persuaded Bithumb to end its partnership with NongHyup in favor of a collaboration with KB. This strategic move by KB indicates its efforts to target younger demographics and capitalize on Bithumb’s customer base to attract new clients in the 20-39 age group.
As the competition intensifies within the crypto sector, South Korean banks may face growing pressure to adapt to changing market dynamics and retain their customer base. The reluctance of banks to engage in the deposit rate war with exchanges poses a challenge as platforms strive to offer more competitive rates to attract investors. However, banks continue to emphasize their advantages in brand reputation and asset protection, highlighting the trustworthiness of traditional banking institutions. While the future landscape of the crypto market remains uncertain, the increasing demand for innovative financial solutions and higher interest rates may prompt banks to reconsider their strategies and explore new partnerships to remain competitive in the evolving financial ecosystem.
