Lawyer: Why does U Card business seem simple, but in practice is full of pitfalls everywhere

Author: Shao Jiadian and Mankun

Original link:

Disclaimer: This article is a reprint. Readers can access more information through the original link. If the author has any objections to the reprint, please contact us, and we will make modifications according to the author's requirements. Reprints are for information sharing only and do not constitute any investment advice or represent Wu Shuo's views and positions.

U Card-type services seem straightforward on the surface. Users deposit USDT or USDC, the platform helps convert it into fiat currency, then binds a Visa or Mastercard card so users can spend online and offline. The first reaction from clients is usually: Isn’t this just a “cryptocurrency version of a bank card”?

But anyone who has actually done it knows, U Card is never just about the card itself. It’s a business built from a payment chain, a card issuing partnership, a crypto asset deposit and withdrawal arrangement, an anti-money laundering system, plus a user agreement and risk isolation mechanism.

It looks simple because the front-end experience is made very lightweight. It’s complex because behind the scenes, no step can be casually overlooked.

U Card is not “issuing the card oneself”; most projects are just managing the card project.

Many project teams say they want to “issue a U Card,” but when you ask further, you find they are not part of the card organization, not licensed issuing banks, and not institutions capable of assigning BINs (Bank Identification Numbers).

In reality, most startups follow a partnership route: they find an issuing bank, a BIN sponsor (a licensed institution that provides BINs), a card processor, KYC service providers, crypto exchange or settlement partners, to jointly build a card product.

This means that the project team cannot just issue cards at will. To enter the card organization ecosystem, you need to conduct due diligence on partners, meet issuing rules, accept transaction monitoring requirements, and prove your user sources, funding sources, business scenarios, and risk controls are clear.

Many people think the core of U Card business is “finding a channel.” But relying solely on a channel makes the business fragile. Once the partner finds out your customer quality is poor, transactions are abnormal, regional risks are high, complaints are frequent, or your source of funds is unclear, the channel can be cut off at any time.

The biggest risk in U Card startups is not the lack of partners at the start, but discovering after launch that you are completely dependent on your partners.

How the flow of coins and funds is designed directly determines regulatory risk.

U Card projects must first answer a key question: whose wallet do the user’s stablecoins go into? Who is responsible for converting to fiat? Who holds the fiat? Who deposits into the card account? Who bears the liability for user balance payments?

This is not a technical issue; it’s a legal classification issue.

If the platform only provides the front-end interface, and the user’s crypto assets go directly into a licensed exchange or custodial institution, with fiat also entering the card account via partners, then the platform is closer to a tech service provider or project manager.

But if the user’s USDT first enters a wallet controlled by the platform, and the platform then handles unified conversion, settlement, and recharges the user’s card account, then the platform is likely to have substantively involved itself in fund transfer, exchange, customer asset holding, or payment services. At this point, the platform can no longer casually claim to be just a “tech service.”

Regulators look at the business, not the packaging. Saying “we do not provide financial services” in the contract is useless; what really matters is who receives the money, who controls the coins, who exchanges currencies, who settles, and who bears the payment obligations to users.

Many issues with U Card projects stem from here: front-end claims to be a tool, but the backend keeps funds and coins under its control.

KYC cannot be just an account opening step; ongoing monitoring during transactions is also necessary.

U Card business must inevitably involve KYC (Know Your Customer) and AML.

Many project teams say: “We have KYC; users are verified before card issuance.” But in the U Card scenario, just having account opening KYC is far from enough. Because risks don’t only occur at account opening but also during deposits, exchanges, spending, withdrawals, refunds, chargebacks, and cross-border transactions.

A user might open an account with a clean identity, but the funds they deposit come from high-risk addresses; they might perform small tests and then suddenly make large deposits; their card usage might be concentrated in gambling, adult content, gray markets, or virtual goods cashouts; or there could be multiple users sharing an account, batch card issuance, abnormal IPs, unusual devices, frequent rebindings, and other behaviors. All these need to be monitored.

For U Card projects, compliance isn’t just “scanning a passport at registration,” but continuously identifying user behavior. Especially when the project involves crypto asset deposits, on-chain fund source screening, sanctions list matching, high-risk address identification, transaction limits, abnormal freezes, and manual reviews should all be integrated into product and operational workflows. Otherwise, once the card is issued, the risk is also released.

Project teams should not only talk about “user experience” but also about “responsibility boundaries.”

The most attractive part of U Card products is a smooth experience: deposits, exchanges, card swipes, cashback, free withdrawals, global spending.

But lawyers looking at U Card projects are more concerned about responsibility boundaries.

For example, if a user’s card is frozen, who is responsible for explaining?

If a partner refuses a transaction, does the platform compensate?

If stablecoins are delayed in arriving, who bears the loss?

If on-chain transfers go to the wrong address, does the platform have an obligation to recover?

How are the card organization, issuing party, and payment channel adjustment rules handled? What about user balances?

If a partner suddenly terminates service, can the platform still fulfill its obligations?

If a user is identified as a high-risk account, does the platform have the right to suspend, freeze, or refuse service?

If these issues are not clearly addressed in user agreements, card service terms, risk disclosures, and partnership agreements, the project will be very passive later on.

Many U Card teams focus heavily on UI, rates, and user acquisition early on, but neglect the agreements. When cards get frozen, balances disputed, users complain, channels shut down, or regulators inquire, they realize they lack a solid responsibility boundary.

The real compliance capability of a U Card is to deconstruct the business and reassemble it.

U Card is not impossible to do. On the contrary, combining stablecoin payments with card networks is a very promising direction in the coming years. Traditional card organizations, payment institutions, and crypto infrastructure companies are all pushing in this direction. But the more promising the business, the more it must be started carefully.

A truly sustainable U Card project must clarify several issues:

Who are your target users in which countries and regions?

Do you handle user funds or crypto assets?

Are you involved in exchanges?

What is your relationship with the issuing bank, BIN sponsor, processor, KYC provider, and crypto exchange service?

How does your user agreement disclose third-party services, freeze rules, refund policies, and asset risks?

When partners cease services, how are user rights handled?

When regulatory rules change, does the platform reserve the right to adjust or stop services?

Without solving these questions, a U Card is just a pretty front-end shell.

The truly valuable U Card projects are not just writing “USDT + Visa Card” into business plans, but assembling licenses, partners, fund flows, coin flows, KYC, AML, user terms, and contingency mechanisms into a coherent, operable, and auditable chain. The market is never short of people wanting to do U Cards; what’s lacking is those who can build this business to be sufficiently stable.