U Card Project: Hong Kong may be the best starting choice

In recent years, many practitioners engaged in payment, wallets, and cryptocurrency products have been focusing on an emerging direction: U Card. This product allows users to deposit USDT or USDC, and then the system converts it to Hong Kong dollars or US dollars. Users can swipe their cards at POS machines, bind mobile payment applications, and even withdraw cash from ATMs using physical or virtual cards.

If someone wants to start a U Card project from scratch, where is the best starting point? The answer is clear: Hong Kong.

Why choose Hong Kong?

The reason why Hong Kong has become the first choice is not because its regulations are the most lenient, but because it is practically feasible, structurally reasonable, and capable of finding necessary partners.

• The regulatory boundaries in Hong Kong are clear: currency services require an MSO license, stored value business is managed under SVF, and currently, stablecoin custody does not require an additional license.
• Crypto assets can be managed through custodial service providers without the need to apply for additional licenses.
• There are abundant local BIN partners, MSO service providers, KYC service providers, and payment clearing network resources.
• In practice, projects can bypass the definition of stored value through structural design (such as instant authorization and custodial wallets) to gain development space in the regulatory gray area.

For U Card entrepreneurship, the ideal environment is not one without regulation, but one with a clear regulatory framework that can be clearly explained and implemented.

Basic Elements of the Hong Kong U Card Project

To establish a compliant and feasible U-card structure in Hong Kong, at least the following five types of core partners are needed:

1. Issuing Institution (BIN Sponsor)
2. Custodial wallet service provider
3. MSO License Holder
4. Payment Settlement Network
5. KYC service provider

Licenses Involved with U Card

The U Card business mainly involves two types of licenses:

1. Money Service Operator License (MSO)
2. Stored Value Facility License (SVF)

The current real situation is:

• Most U card projects have not applied for SVF licenses, but have explicitly stated that they are not stored value tools, emphasizing the attributes of "non-wallet" and "non-balance," and only use MSO licenses to legalize the fund exchange function.
• These cards essentially circumvent SVF regulation through "token payment + real-time authorization + third-party channel clearing."

Why do most projects not apply for SVF licenses?

The main reasons include:

• The SVF license has a very high threshold, requiring a paid-in capital of HKD 25 million, passing the technical review by the Monetary Authority, establishing a three-line risk control system, and continuous reporting, among other requirements.
• Currently, the user base of the U Card project is relatively small, with few complaints, and has not yet posed a systemic risk.
• Regulatory agencies seem to adopt a wait-and-see approach and may regard these U-card products as "gray area products that temporarily do not affect currency stability and can continue to be observed."
• Most U-card projects are designed to avoid forming platform balances by using the logic of "instant settlement + no money left" to circumvent the characteristics of stored value.

However, once the user scale of such products experiences explosive growth (e.g., exceeding 100,000 users), it may trigger a wave of SVF liquidations.

The Necessity of MSO License

From a legal perspective, if it does not involve fiat currency exchange or cross-border remittances, an MSO is not a mandatory requirement. However, from a practical operational standpoint, an MSO license is indispensable:

• Banks require an MSO license to provide deposit accounts.
• The clearing institution needs an MSO license to process fiat transactions.
• Investors will question the compliance of the funding channels of projects without an MSO license.

In addition, Hong Kong's upcoming "VA MSO" system will explicitly include the regulation of virtual asset exchange businesses.

Therefore, although the MSO is not legally required, it is indispensable in practical operations.

The Process of Converting U Coin to Fiat Currency

This is the most easily misunderstood yet crucial part. In fact, the "exchange" is not performed by custodians or exchanges. Most projects complete the conversion from USDT/USDC to Hong Kong Dollars/USD through local over-the-counter (OTC) service providers.

The specific process is as follows:

1. Users deposit USDT/USDC into the platform's custody wallet.
2. The project party or the liquidator will transfer these assets to the local OTC.
3. OTC uses its bank account to transfer fiat currency to the MSO or payment settlement account associated with the project party.
4. When users swipe their cards or withdraw cash, fiat currency flows to the end user's or merchant's account.

The advantage of this method is its flexibility, quick arrival of funds, and it avoids the scrutiny of exchanges, eliminating the need for compliance explanations regarding the on-chain fund path.

Some large projects also interface with Electronic Money Institutions (EMI) or Payment Service Providers (PSP), but this poses a higher threshold for small teams. Currently, OTC clearing is the mainstream path in the market.

Other Low-Threshold Regional Options

Apart from Hong Kong, there are also some regions to consider:

1. Singapore: The regulations are relatively clear, but the costs are high.
2. Dubai: Policy-friendly, but the banking system is not well-developed.
3. Lithuania: EU EMI license, but regulation is tightening.
4. Malaysia: The regulation is relatively open, but the market size is limited.

Overall, Hong Kong remains the preferred region that is easiest to set up, has high bank acceptance, and offers a grace period for regulations.

Conclusion

The U Card is not just a new feature of a certain wallet; it represents a definite model for the real integration of crypto assets into payment scenarios. Entrepreneurs can choose to wait and see, or they can adopt a clearer structure and a more secure path, taking action while improving as they go. Based on compliance, we can work together to make crypto payments more like "payments" rather than "gray area transactions."