Banks still wary of cryptocurrency partnership

04-Mar-2021 Intellasia | Koreaherald | 6:54 AM Print This Post

The resurgence of cryptocurrency trading as well as upcoming changes in law that mandate investments in bitcoins be made with accounts under real names are likely to provide new opportunities for commercial lenders seeking new income sources. But many are still reluctant to make ties with crypto exchanges, citing risks in the volatile market and lack of confidence over forging partnerships with smaller crypto exchanges here.

Currently, three banksShinhan, NH Nonghyup and K bankare in partnerships with the country’s four largest exchangesUpbit, Bithumb, Coinone and Korbit. Their partnerships appear to have paid off, as the three fetched a combined 1.4 million new accounts in January alone, a 31 percent increase from the same month last year. Not just expanding their client base,the banks also profit from crypto transaction fees.

However, most commercial banks, beyond the aforementioned three, are still unwilling to ride the second boom of the cryptocurrency market partly because of their bitter history back in 2017, when the first wave of bitcoin hit the market here.

KB Kookmin, Woori and IBK all established partnerships with crypto exchanges four years ago, but they soon encountered hurdles. KB Kookmin Bank ended its partnership with Bithumb in July 2017, following a personal information leakage that involved the exchange.

The government’s anti-money laundering guidelines for cryptocurrencies issued in early 2018 eventually led lenders to step back from their partnerships with local exchanges.

“The crypto market is booming now but what if the market collapses just like it did in 2018? Who would take the blame?” an industry expert said on condition of anonymity.

“From the banks’ perspective, additional income from crypto transaction fees and new customers do not outweigh risks they must take on,” the expert added.

The revised law on specific financial transaction information that goes into effect on March 25 appears to be favourable for lenders, as small crypto exchanges are eager to forge partnerships with them.

The new legislation will require all trading between Korean won and cryptocurrencies to be via real-name accounts issued by local banks.

Currently, only four large exchanges have such resources and follow the government’s guidelines. Smaller exchanges, estimated to be between 100 and 120, will have to find partner banks before September, when a grace period for the implementation of the new law ends.

But banks are unsure as to the safety of partnering with local crypto exchanges, particularly smaller ones, and also as to specific state guidelines that might protect them from possible risks, according to insiders.

Meanwhile, industry watchers say that K bank’s partnership with the country’s largest crypto exchange Upbit, for instance, has helped bring market attention to its business, which resumed in June 2020. Though born as the nation’s first online bank, K bank’s business had been suspended for 15 months over liquidity issues, losing its client base to platform giant Kakao, which also runs the rival Kakao Bank.

Currently, a cryptocurrency trader is required to convert cash with accounts registered under his or her real name, meaning that in order to trade bitcoins via Upbit, for instance, one must open a K bank account.

Amid the recent bitcoin frenzy, K bank has secured more than 3.11 million customers who brought 2.34 trillion won ($2.09 billion) in deposits in February alone.

http://www.koreaherald.com/view.php?ud=20210303000849&np=1&mp=1

 

Category: Korea

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