U Card Project: Hong Kong is the best starting choice

In recent years, the U Card project has gradually attracted the attention of practitioners in the fields of payment, wallets, and cryptocurrency products. The U Card essentially serves as a service that converts USDT/USDC into HKD/USD, allowing users to swipe the card at POS machines, bind it to Alipay, or withdraw cash at ATMs using either a physical card or a virtual card. For entrepreneurs looking to start the U Card project from scratch, Hong Kong may be the most ideal starting location.

Why choose Hong Kong?

The reasons why Hong Kong has become the preferred location for the U Card project are mainly as follows:

1. Clear regulatory boundaries: Currency exchange businesses require an MSO license, stored value services fall under SVF jurisdiction, while stablecoin custody currently does not require additional licensing.
2. Convenient management of crypto assets: Management can be completed through a custodian without the need to apply for a special license.
3. Abundant cooperative resources: There are numerous BIN partners, MSO service providers, KYC providers, and payment clearing network resources locally.
4. Flexible operational space: Project parties can bypass the definition of stored value through structural design (instant authorization + custodial wallet) to gain development opportunities in the regulatory gray area.

Preparation Required for U Card Project

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

1. Issuing Institution (BIN Sponsor)
2. Payment Processor
3. Custodian of Digital Assets
4. Fiat Settlement Channel
5. KYC/AML service provider

U Card Related Licenses

The U Card business mainly involves two types of licenses:

1. Money Service Operator (MSO) License: Used to legalize currency exchange functions.
2. Stored Value Facility (SVF) License: Currently, most U-card projects circumvent this license requirement through specific structural designs.

The Current Status of SVF Licenses

Currently, most U-card projects have not applied for SVF licenses, but operate in the following ways:

• Clearly state "non-value storage tool", emphasizing "not a wallet", "not a balance" features.
• Use the MSO license to legalize the currency exchange function.
• Adopting the structure of "token payment + real-time authorization + third-party channel clearing" to bypass SVF regulation.

Regulatory agencies are currently taking a wait-and-see approach to this practice, mainly because:

• The threshold for SVF licenses is high, and the costs are significant.
• The U Card project is relatively small in scale and has not yet posed a systemic risk.
• The project is cleverly designed to avoid the stored value property.

However, once the number of U card users grows significantly, it may trigger a reassessment by regulators.

The Necessity of the MSO License

Although certain business models may not legally require an MSO license, in practical operations, the MSO license is almost essential:

• Banks require an MSO license to provide deposit accounts.
• Clearing agencies require the provision of an MSO license to accept fiat currency transactions.
• Investors will regard the MSO license as an important indicator of project compliance.

In addition, the upcoming "VA MSO" system in Hong Kong will further regulate virtual asset exchange businesses.

The Exchange Process from U Coin to Fiat Currency

The exchange of U coins to fiat currency is usually completed through the following process:

1. Users deposit USDT/USDC into the platform's custody wallet.
2. The project party or the clearing house transfers assets to the local OTC.
3. OTC will transfer the equivalent fiat currency into the project's MSO or payment clearing account.
4. When users swipe their cards or withdraw, fiat currency flows to the end user's or merchant's account.

This method has advantages such as flexibility, speed, and avoiding exchange scrutiny.

Other Low Barrier Area Options

Apart from Hong Kong, Singapore, Dubai, and Lithuania are also relatively ideal starting points for U Card projects, each with its own advantages and disadvantages:

• Singapore: Regulatory friendly, but higher costs.
• Dubai: Loose policies, but difficult to cooperate with banks.
• Lithuania: EU passport, but regulations are tightening.

Considering all factors, Hong Kong remains the preferred destination that is the easiest to establish, has high bank acceptance, and relatively flexible regulations.

Conclusion

The U Card is not just a new feature of the wallet; it represents an important step for crypto assets into real payment scenarios. Entrepreneurs can promote the development of crypto payments based on compliance with a clearer structure and a more secure path, making it closer to the traditional payment system rather than merely remaining on the regulatory fringe.