Where is the lowest compliance cost for starting a U-card business? Hong Kong may be the best choice

Original Author: Shao Jiayi, Huang Wenjing

Over the past two years, many people working in payment, wallet, and crypto products have been quietly focusing on one direction: the U-card.

To put it simply, users deposit USDT/USDC, and the system converts it into Hong Kong dollars/US dollars. Users can then use a physical or virtual card to swipe at a POS, link it to Alipay, or even withdraw cash from an ATM. You may have already used it, but simply haven't realized its true nature.

Then the question arises: If I want to build a U-card project from scratch, where would I find the easiest, most cost-effective, and fastest-to-implement location?

My answer is clear: Hong Kong.

Why Hong Kong?

Not because Hong Kong has the most relaxed policies, but because it's practical, structurally sound, and easy to find partners.

• Hong Kong's regulatory boundaries are clear: currency exchanges are handled by MSOs, stored value is handled by SVFs, and stablecoin custody currently does not require additional licenses.
• Crypto assets can be managed by custodians (such as Fireblocks) without requiring a license.
• Locally, there are abundant resources in BIN partners, MSO service providers, KYC providers, and payment and clearing networks.
• In practice, projects have circumvented the definition of stored value through structural design (instant authorization + custodial wallets), creating a breathing space in this gray area.

It's not that no regulation is best; rather, clear and effective regulation is the ideal environment for U-card startups.

What do you need to prepare for U-card development in Hong Kong?

A compliant and implementable U-card structure requires at least five core partners:

What licenses are involved in the U-card?

Current Situation:

• Card projects like RedotPay haven't adopted SVF. Instead, they proactively disclose that they're "not a stored-value tool," emphasize that they're "not a wallet" and "not a balance," and use MSOs to legitimize their fund exchange functions.
• These cards essentially employ a "token payment + real-time authorization + third-party channel clearing" structure that circumvents SVF.

Why hasn't anyone adopted SVF? Why haven't regulators taken action?

The reason is simple: High costs, low returns, and a wait-and-see regulatory stance.

• SVF has extremely high barriers to entry: Requires HK$25 million in paid-in capital, technical review by the HKMA, three-tier risk management, and continuous reporting;
• U-card projects are relatively small in scale: User base is not yet scalable, complaints are few, and there is no systemic risk;
• Regulators are currently taking a wait-and-see approach: The HKMA may view these U-card products as "observable gray area practices that have not yet impacted monetary stability";
• Clever compliance design: Most U-card projects are designed not to create platform balances, using the "instant settlement + no remaining funds" logic to circumvent the stored-value nature.

My assessment is: If this type of product experiences explosive growth in the future (e.g., with over 100,000 users), there may be a wave of SVF liquidations.

Is an MSO really necessary?

Legally speaking, if you don't exchange fiat currency for fiat currency or conduct cross-border remittances, an MSO is not subject to strict regulation.

But in practice, banks, clearing houses, and payers will all require you to provide an MSO. Otherwise:

• The bank won't grant you a deposit account;
• The clearing house won't accept your fiat currency;
• Investors will also question the compliance of your funding channels.

Furthermore, Hong Kong's upcoming "VA MSO" system will explicitly regulate virtual asset exchange businesses.

So: MSOs aren't legally mandatory, but they are practically indispensable.

U → Who will handle fiat currency exchange?

This is the most misunderstood yet crucial step.

• In practice, the "conversion" isn't handled by Fireblocks, Circle, or an exchange.
• Most projects connect with local OTC service providers to complete the USDT/USDC to HKD/USD fund transfer.

The actual process is as follows:

1. Users deposit USDT/USDC into a platform-custodial wallet (such as Fireblocks);

2. The project or clearing house transfers these assets to a local OTC;

3. The OTC uses its bank account to deposit fiat currency into the project's affiliated MSO or payment clearing account;

4. Fiat currency flows to the end user or merchant account when using a card or cash withdrawal.

The advantages are flexibility, fast transaction processing, avoiding exchange scrutiny, and eliminating the need to explain on-chain compliance procedures.

A few large-scale projects have also connected with EMI/PSPs (such as Checkout.com and XanPool), but the barrier to entry for small teams is too high, and OTC clearing is currently the mainstream path in the market.

Besides Hong Kong, what other low-barrier regions are available?

In summary: Hong Kong remains the first stop for practical application, with high bank acceptance and regulatory buffers.

Finally: As Web3 lawyers, what can we do for you?

If you are planning a U-card project, considering connecting with a card issuer, or launching a stablecoin acquiring structure, we can provide you with full compliance support, including but not limited to:

(I) Structural Design and Regulatory Interpretation

• Evaluate whether SVF regulation is triggered and whether MSOs must hold assets;
• Plan funding pathways and liability isolation structures;
• Draft structural disclosure documents, on-chain/off-chain linkage diagrams, and risk management instructions.

(II) Core Compliance Document Preparation and Customization

According to the requirements of card organizations such as Visa and Mastercard, we assist in preparing the following compliance documents:

The above documents are both the bottom line for compliance and the "ticket" for your successful card issuance and launch.

(III) Implementation and Negotiation Support

• Assisting you in connecting with MSO licensees, BIN sponsors, and payment clearing networks;
• Reviewing cooperation agreements, liability clauses, and AML sharing mechanisms;
• Preparing structure diagrams, legal specifications, and risk disclosure materials for financing/due diligence.

Compliance documentation isn't just a formality; it determines whether you can legally launch, access funds, and ensure that others can confidently do business with you.

Conclusion

The U Card isn't a new feature in a wallet; it's a definitive model for crypto assets to truly enter the real world of payments. You can continue to hesitate about whether to implement it, or you can adopt a clearer structure and a more reliable path, building momentum first and then building the foundation. By adhering to the bottom line of compliance, we can work together to make crypto payments more like "payments" rather than "skirting the edge."