South Korean Banks Resist Joining Crypto Exchanges in Deposit Interest Rate War

South Korean banks are choosing not to engage in the intense deposit interest rate competition among crypto exchanges, which are offering increasingly competitive rates to attract customers. Despite pressure from the crypto sector, banks remain confident in their traditional advantages, such as depositor protection and brand trust.

South Korean banks have decided to stay out of the escalating “deposit interest rate war” sparked by the nation’s leading crypto exchanges, which are fiercely competing for market dominance. According to Daehan Keumyoong Shinmun, these banks believe they have “no reason” to actively participate in the competition, as they continue to rely on their established reputation and trust in asset protection.

The Virtual Asset User Protection Act, which came into force last month, mandates that crypto exchanges offering crypto-fiat trading must manage their customers’ deposits in dedicated bank accounts. This law also requires exchanges to pay interest on customer deposits, allowing them to set their own interest rates. This flexibility has led to a surge in competitive interest rates among exchanges as they strive to attract more users.

However, South Korea’s major banks appear indifferent to this competition. An anonymous official from a leading banking group explained that even though other businesses might offer products similar to bank accounts, banks still hold a significant advantage due to the Depositor Protection Act, which does not apply to these new competitors. This, combined with strong brand awareness and trust in their ability to protect assets, keeps banks confident in their position.

Despite this, some financial experts warn that as fintech becomes more accessible, short-term investment funds might start shifting to industries offering more attractive interest rates. This shift could pressure banks, particularly as younger customers show interest in crypto-related services.

In late July, the competition among exchanges intensified, with market leader Upbit initially offering a 1.3% annual interest rate, followed by its rival Bithumb, which quickly upped the ante to 2%. This was followed by further increases from both exchanges, with Korbit and Coinone joining the fray, offering rates as high as 2.5% and 2.3%, respectively.

Despite banks’ current stance, the ongoing competition in the crypto sector could push them to reevaluate their strategies, especially as younger customers, whom KB Bank is keen to attract through a new partnership with Bithumb, continue to show interest in these alternative financial services.

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