by  Ivan Leshko

Why US Mid-Size Banks Must Offer Cryptocurrency Trading to Their Customers

clock-icon-white  12 min read

American banking institutions are starting to take crypto more seriously. For example, a group of 300 community banks recently announced it would allow customers to trade cryptocurrency with mobile banking apps through a crypto custody partnership. The banks said this feature would be available in the second quarter of 2022. This news demonstrates that big banks aren't the only ones impacted by new crypto players on their turf. Regardless of size, financial institutions see the same potential impact. Customers will migrate money away from their traditional bank accounts and offer it to trading platforms like Coinbase and others unless offered a cryptocurrency solution.

Securing the future


Cryptocurrency adoption has been slower in smaller institutions, but we see acceleration. For instance, a few of them recently partnered with Coinbase to allow clients to buy bitcoin with checking accounts. Groups of banks undertaking future tech-related endeavors like this might potentially result in a kind of proxy war among crypto trading platforms. It's an interesting scenario to ponder.

"Mid-size and small banks appear to be aware of cryptocurrency's growing popularity. While there is still a lot of uncertainty regarding the future of crypto assets and trading, one thing is certain: they aren't going to disappear from a market," observes Adam Gabrault, President of Strategic Verticals at SoftServe.

He's watched retail banking's base grow despite cryptocurrency's popularity. Even regional institutions now have a national customer footprint. But what can sustain this expansion?

Bitcoin and other types of crypto trading support revenue growth. It keeps banks competitive while retaining customers.

Our own experience supports this. For example, our client partnered with a crypto exchange to support cryptocurrency purchases through its checking accounts in 2021. They now facilitate various cryptocurrencies.

"It's gone well for them," says Gabrault. "Our US-based client has experienced impressive adoption from their retail base, representing customers from across the nation."

Getting ready


When they pull money out of banks, customers create market disruption by placing it into digital-asset exchanges such as Coinbase.

It's easy to see why banks have made a significant investment in fintech development. Cryptocurrency trading—primarily via a mobile app—preserves customer relationships.

"Banks are aware their customers have a current active interest in these business models," says Daniel Scaglione, SoftServe's Finance Business Director. He notes that banks are fighting for wallet share, which fintech can steal.

From our clients' perspective, we see the market shift of digital assets, in general, becoming more important to banks. However, most banks remain focused on lending activities surrounding physical assets such as trucks, farm equipment, and commercial real estate. As a result, to stay competitive, there's a significant need to design and implement a quick, effective solution that includes digital assets such as cryptocurrency.

The banking industry must follow suit as the movement toward digitizing assets and putting them on public blockchains with irrefutable ownership and value records continues. The direction paves the way for blockchain-based security in the banking industry.

At SoftServe, we believe that the operational structures of the banking back end must pivot toward working on a blockchain or DLT technology. While cryptocurrency was the first landing spot, it will trigger a shift in security risk programs and require more regulatory thoroughness. Here's an example of why.

Every cryptocurrency purchase involves a public key and a private key. The public key asks for an email address where a buyer receives crypto. The private key is like a personal password. But unlike a password, if it's stolen, lost, or hacked, the private key can't be reset. There are cases where people have lost millions of dollars in crypto because their private key was lost, hacked, or stolen.

Cryptocurrency buyers can keep their private keys in a hot wallet. A hot wallet is software, an app on the internet, or cold storage, where a device or server is not connected to the internet.

A bank customer can use funds from their account to purchase and store cryptocurrency on their mobile banking app, which acts as their hot wallet. However, this cryptocurrency cannot be transferred to a different wallet. The cryptocurrency stored on the app can only be exchanged for fiat money deposited to a traditional bank account. The inability to transfer between wallets mitigates the risk of cryptocurrency theft from the mobile app of a partner's bank.

A crypto exchange is how banks can keep the upper hand.

Exchange Validation


Independent Community Bankers of America is the primary trade group for mid-size and smaller US banks. The organization has sponsored multiple fintech startups by investing in accelerator programs for the last decade.

"Many banks that invest in banking tech ventures are interested in working with SoftServe's Banking and Innovation Lab," Daniel Scaglione adds. "Bitcoin has piqued their curiosity. They don't want just to let money leave the bank. They want a safe, trustworthy, and reliable solution. Risk management is an essential aspect of how banks view the world. Of course, they want to keep growing and innovating, but they have to do so in a risk-adjusted manner."

The American Bankers Association also has invested in innovative solutions centered on a "compliance-first" approach, creating partnerships with tech vendors serving community banks. These tech vendors are selected because they believe in supporting banks rather than competing with them.

While there's fluctuation, crypto market capitalization continues to reach new heights. Exchange charge fees range from 0.1% to 4%. The optimal time to launch your cryptocurrency exchange is now. Banks looking to construct something more for customers than just to hold crypto can make additional revenue from crypto trading and the broader market. Creating an API-driven store opens revenue streams to other financial institutions or fintech. 

Crypto exchange development


There are three basic approaches to crypto exchange development.

Option 1: Create a cryptocurrency exchange from the ground up

Developing a crypto exchange requires time, effort, and expertise you may have to seek from outside your bank. Generally, in-house development requires a sizable team of well-paid expert crypto developers working for about 12 months. In addition, debugging adds extra time and expense.

"Flawless" is the goal. After all, your new exchange manages and safeguards the digital assets your customers would otherwise have taken elsewhere.

Here are the essential elements that must be implemented when developing crypto exchanges.

Matching Engine

The matching engine lies at the heart of a crypto exchange. It's an electronic system that gathers all open orders and bids before matching them to conduct trades.

The order book keeps track of buy and sell orders. It sorts by price and time stamp. Transactions occur when supply satisfies demand.

The matching engine's algorithms maintain track open orders. Transactions are completed when orders are equal. In addition, the matching engine's algorithms may execute various charges, including market orders, limit orders, and stop-limit orders.

Algorithms oversee buying and selling orders. The most popular is time price priority, meaning bids and offers submitted in the match have precedence over similar requests.

The matching engine is highly sophisticated because it collects and synchronizes data from several trading pairs. However, developing a reliable matching engine capable of processing orders in a few microseconds is a time-consuming task that industry specialists should only undertake.

The matching engine's performance influences the exchange's overall efficiency, dependability, features, and order matching mechanism.

It should be noted that when building a crypto exchange from the ground up, the task of keeping software updated never ends. Therefore, service partners must retain a software engineering team.

Trading Platform

This software allows traders to keep track of their accounts and place trades. The platform comprises numerous necessary and interrelated components. At the very least, these include the platform's trading engine on the server-side, trading terminals on the client side, and auxiliary services and APIs that make the platform available for subsidiary connections.

The trading platform is a decisive aspect of the crypto exchange because robustness corresponds to its usage. Specific modules should be developed for calculating wallet balances, crypto-asset transactions, buy transaction administration, and access to the book of orders.

Liquidity Aggregation Module

Liquidity refers to how fast and easily one asset can be converted into another without substantially impacting the stability of the spot price.

For example, a customer wishes to buy 10 BTC at market price. Let's assume the current market price in the order book is $40,000. If market liquidity is low, the first two BTC are purchased for $40,000, but the order price for the remaining eight BTC is $40,500. The recently purchased 10 BTC had an average price of $40,400.

Next time, the customer won't make the same trade on the low-liquidity exchange. Instead, they'll have the opportunity to utilize a higher-liquidity exchange. The example demonstrates how liquidity must be considered when building a crypto exchange. In addition, the liquidity aggregation module can be expanded to include external suppliers and internal market-making algorithms.

External suppliers and internal market-making algorithms can be added to the liquidity aggregation module. It's merely a tool that assists you in obtaining the highest possible liquidity from an infinite number of suppliers that have been gathered and connected to your crypto exchange.


Crypto wallets hold cryptocurrency and enable deposits and withdrawals accepted by the exchange. The highest level of security is essential to safeguard cryptocurrency and fiat wallets.

The process to deposit and withdraw fiat money (like USD, EUR, and other currencies) requires fiat gateways. Therefore, crypto exchanges, banks, and other fiat gateways must be securely integrated.

New crypto coins continue to be created, so engineers must constantly investigate and integrate to maintain customer satisfaction.

Trader's Room

The Trader's Room is a shared space where users can track their financial flow. Consider it a client's versatile tool to manage assets, with registration and verification instruments in one place. Related payment systems, financial records, and data analytics are included.

Admin Panel

The Admin Panel allows the cryptocurrency exchange's management to keep track of the whole payment system, including all wallets and transactions.

Designed exclusively for bank officials, it features modules for user personalization, reporting, and analytic tools required for compliance with the crypto exchange's legal requirements.

User Interface

User interface (UI) and usability (UX) are critical for all digital businesses. For bank customers, the design should be simultaneously contemporary, appealing, fresh, and trustworthy.

Cryptocurrency Exchange and Security

End-to-end encryption is required for all crypto trading. Holding assets in hot and cold wallets is crucial for risk diversification. Because an exchange with many crypto assets is a pot of gold for hackers, avoiding security breaches must take top priority.

Bottom lineWallets

Developing a crypto exchange from the ground up is the optimal approach to retain control and expected results. Optimization, however, comes with a high cost.

The development process is fraught with danger, led by the threat of a security breach caused by bugs or weaknesses. A competent development team must construct the exchange and maintain essential components such as the matching engine and trading platform. The crypto exchange market is so competitive that even a year of development can result in a considerable delay.

Justify in-house development by asking these questions:

Option 2: Purchase a white label crypto exchange

Theoretically, the white label cryptocurrency exchange option is an efficient way to save time and money. It covers customers' essential needs and provides a well-functioning product if you decide to pursue a separate system.

A white label crypto exchange is a product that comprises pre-developed components such as a matching engine, trading platform, or liquidity module. The downside is that it may be hard to modify to accommodate specific banking requirements.

You decide whether the cost of cryptocurrency trading meets your needs. When can you buy an off-the- You have to decide whether an off-the-shelf product that may only be semi-modifiable will satisfy your banking clients' cryptocurrency needs. Will it offer a true competitive advantage?

Option 3: Extend your current banking system with a crypto exchange module

The extension of your existing banking platform is a bridge between the previous two options. The bank keeps current systems with the extension of a new module.

You'll take a white label engine and adapt it with your team. It means you will take on the cost and responsibility of new features, maintenance, and continuous testing. However, this approach can be efficient because it is less impactful on resources than creating a solution yourself.

Personalizing based on UI/UX banking standards has advantages. The web interface can be designed to reflect your brand. This approach can save time while still integrating with your banking platform.

In a nutshell: how to make your decision

These three options each have advantages and disadvantages. Creating an exchange from the ground up is time-consuming and expensive. You'll need experienced specialists or risk losing both invested funds and your bank's reputation. Can your in-house team keep up with constant market changes?

The white label crypto exchange offers a quick win and allows customers to enter the market as soon as possible. However, it is challenging as you'll have a total dependency on IP from a third party. There's also likely no distinct difference from competitors who use the same platform.

The third option allows for modification and branding. It may take longer and will be more expensive than a white label solution, but it's far more affordable than building an exchange from the ground up. You'll get in the game faster, just not as fast as the white label option.

Asking these three questions will help you decide which option might work best.

Can you sacrifice the time it takes to initiate the exchange, which may delay profit?. SoftServe provides a ready-to-use approach to crypto exchange development. We extend banking with further integration of fintech and digital assets.

LET'S TALK about how we can help you with the main crypto exchange elements or a complete solution that includes mobile apps and promotion.