If money is understood as a form of energy, every innovation in payment media and tools is accompanied by a leap in social efficiency and a reshaping of the power structure - from shells to gold and silver, paper money, and mobile payments. The emergence of cryptocurrency marks another leap in this process, and the revolution driven by PayFi (payment finance) is quietly emerging, using wallets as the entrance to redefine the underlying logic of global value exchange.
PayFi, as the name implies, is Pay+DeFi, which combines the concepts of payment (Pay) and decentralized finance (DeFi). It aims to achieve efficient application of cryptocurrency in payment scenarios through blockchain technology, while optimizing the time value of funds. People say that in the world that PayFi ultimately points to, there are no dormant deposits, only perpetual value...
In PayFi's vision, the "Pay" part is particularly critical. As its core link, the cryptocurrency cross-border acquiring business realizes low-cost, real-time cross-border payments through blockchain technology, becoming a bridge connecting global consumers and merchants. However, the rapid development of the cryptocurrency cross-border acquiring business is also accompanied by complex legal and compliance challenges, especially under the strict supervision of mainland China and the international pluralistic framework. Its legality and compliance have become the primary concerns of enterprises in starting and developing businesses.
In this article, Attorney Mankiw focuses on the cross-border acquiring business of cryptocurrencies, compares its business model with that of traditional cross-border acquiring, provides professional advice to entrepreneurs who hope to seize the trend and develop related businesses, and reveals the legal compliance challenges they face.
Traditional acquiring vs. cryptocurrency acquiring: Reshaping cross-border payments
1. What is acquiring?
Acquiring service refers to the payment acceptance, fund clearing and settlement services provided by financial institutions or payment service providers to merchants. In simple terms, it helps merchants receive payments from consumers and transfer funds to their accounts.
A cryptocurrency acquiring platform refers to an acquiring system that allows merchants to use and accept consumers to pay in cryptocurrency. The acquiring platform is responsible for converting the cryptocurrency paid by consumers into legal currency and ultimately transferring it to the merchant's bank account.
2. Traditional cross-border acquiring: a profit eater
Cross-border acquiring business usually involves companies accepting payments from global customers, especially in the fields of cross-border e-commerce, service trade and digital entertainment. However, traditional cross-border acquiring faces the following problems:
High cost burden: Traditional cross-border payments rely on banks or third-party payment institutions (such as PayPal and Stripe). Each transaction is often accompanied by multiple fees - payment gateway fees, cross-border handling fees, currency exchange fees, etc. The cumulative amount may account for 3%-6% of the transaction amount, or even higher. For small and medium-sized enterprises with meager profits or e-commerce with high-frequency small transactions, it is a high cost pressure.
Lengthy settlement cycle: In the traditional system, the journey of funds from customer payment to corporate accounts is like a "long journey". Cross-border bank transfers usually take 3-5 working days, or even longer, especially when it comes to countries with small currencies (such as Kenyan Naira in Africa or Peruvian Sol in Latin America), the settlement delay may be up to a week. This not only slows down the cash flow turnover of the company, but may also affect the normal operation of the supply chain.
Exchange rate fluctuation risk: Cross-border payments usually involve multiple currency conversions, and each conversion is accompanied by the uncertainty of exchange rate fluctuations. Especially in emerging markets, currency depreciation or foreign exchange controls may cause companies to suffer additional losses.
Difficulty in supporting small currencies: Traditional payment systems have relatively complete support for the US dollar, euro, and RMB in developed markets, but are often unable to cope with small currencies in emerging markets (such as Vietnamese dong and Nigerian naira). Many payment institutions either do not support these currencies or raise costs through multiple conversions, making it difficult for companies to penetrate these high-potential markets.
These pain points are intertwined to form an invisible barrier that eats up the profits of enterprises. This is especially true for small and medium-sized enterprises that lack the bargaining power to negotiate with large banks to reduce rates. The traditional cross-border acquiring model can no longer meet the needs of modern business for efficiency, cost and flexibility. It is in this context that various encrypted acquiring platforms are trying to open a new path for enterprises with digital currency and blockchain technology.
3. Cryptocurrency acquiring: Reshaping cross-border payments
Business Model
Cryptocurrency acquiring optimizes cross-border payment processes through blockchain technology and digital currencies (such as stablecoins, Bitcoin, etc.), bypasses traditional financial intermediaries, and achieves low-cost and high-efficiency fund settlement. Platforms such as KUN Pay and BlockBee provide merchants with encrypted payment systems. Enterprises can quickly connect through APIs or customized interfaces, accept consumer cryptocurrency payments, and convert them into legal currency and transfer them to accounts, promoting business expansion and efficiency improvement.
Actual case: KUN Pay & BlockBee
KUN Pay: Launched by KUN, it focuses on toB scenarios and provides cross-border acquiring services based on stablecoins (such as USDT) for enterprise-level customers. It supports real-time settlement, legal currency exchange, global commission issuance and scheduled payment, and is particularly suitable for cross-border e-commerce and service trade companies.
BlockBee: A lightweight payment gateway that supports multiple cryptocurrencies (such as Bitcoin and Ethereum), provides simple API integration and real-time fiat currency exchange functions, suitable for small and medium-sized merchants and individual users, and emphasizes rapid deployment and flexibility.
Cryptocurrency acquiring has significant advantages
Significant cost reduction: The traditional acquiring fee of 3%-6% is reduced to 0.5%-1%, eliminating payment gateway fees and multiple exchange costs, saving money for small and medium-sized enterprises with slim margins.
Faster settlement speed: Blockchain technology reduces settlement time from 3-5 days to a few minutes or even seconds, improving cash flow efficiency and helping companies operate quickly.
Exchange rate risk mitigation: Avoid multiple currency conversions and exchange rate fluctuations through stablecoins or real-time exchange mechanisms, especially benefiting emerging market businesses.
Small currency coverage: Cryptocurrency breaks through geographical restrictions and supports the collection of small currencies such as Vietnamese Dong and Nigerian Naira, helping companies to explore high-potential markets.
Comparison summary
Both KUN Pay and BlockBee demonstrate the core value of cryptocurrency cross-border acquiring: low cost, high speed and transparency. Compared with traditional cross-border acquiring, the two have jointly reduced costs, improved efficiency and expanded market coverage, providing small and medium-sized enterprises with new tools for global competition, with unlimited potential. This revolutionary payment model naturally attracts many entrepreneurs to join in, but entrepreneurship and business development are not smooth sailing, and compliance is a key link that cannot be ignored. Enterprises face many legal risks when developing and operating cryptocurrency acquiring businesses.
Want to seize the opportunity? How to start a business without risking failure: Analysis of compliance points
1. Can cryptocurrency acquiring business be carried out in mainland China?
There are major legal obstacles to conducting cross-border cryptocurrency acquiring business in mainland China, especially for domestic residents, and may even constitute the following crimes:
Illegal business operation
According to the (Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation) issued on September 24, 2021, the exchange business of legal currency and virtual currency is characterized as an illegal financial activity and is strictly prohibited. The acquiring operation business provides users with exchange, trading or settlement services for cryptocurrency and legal currency, which may violate the "illegal business operation crime" stipulated in Article 225 of the (Criminal Law of the People's Republic of China) and face administrative penalties or even criminal liability.
Money laundering
Cryptocurrency is anonymous and confidential, and its source may involve upstream criminal activities (such as fraud and illegal fundraising). If the operator knows or should know that the source of funds is illegal, but still provides acquiring and exchange services to facilitate the transfer or conversion of funds, it may constitute the "money laundering crime" stipulated in Article 191 of the Criminal Law.
Foreign exchange management and user risks
The cryptocurrency acquiring business involves cross-border capital flows, which may touch the red line of foreign exchange management. According to Article 45 of the (Foreign Exchange Management Regulations), handling foreign exchange business without the approval of the State Administration of Foreign Exchange is an illegal act and may face administrative penalties such as fines and confiscation of illegal gains.
Therefore, it is not recommended that cryptocurrency cross-border acquiring operators conduct exchange, trading, and settlement business between cryptocurrency and legal currency in mainland China to avoid being involved in illegal crimes. Ensure that the business complies with the requirements of Chinese laws and regulations to avoid legal risks caused by violations.
2. What about going overseas to conduct encrypted cross-border acquiring business? There are many compliance challenges
Although they cannot do business in mainland China, small and medium-sized enterprises see the opportunity to go overseas and make money. Many entrepreneurs are eager to enter the international market through cryptocurrency acquiring business. This is indeed a good track, but compliance issues are like "roadblocks". From company establishment to licenses, operations to taxation, any step that is not taken well may turn over. The following are some compliance points:
Facing multinational regulation: payment licenses and AML/KYC are basic skills
When going overseas to engage in encrypted payment collection, the first step to compliance is to understand the rules of each country, otherwise fines, account suspension and even business suspension are waiting.
License is indispensable
Every place needs a "pass" to work legally:
In the United States, you need to register as a money services business (MSB) with the Financial Crimes Enforcement Network (FinCEN). In addition to the federal level, you also need to apply for the corresponding license according to state regulations.
In the EU, a CASP license is required under the (Markets in Crypto-Assets Act) (MiCA).
In Hong Kong, if your business involves currency exchange services or remittance services, you need to apply for a Money Service Operator (MSO) license.
AML/KYC must keep up
The world is paying attention to anti-money laundering and identity verification:
In the United States, AML and KYC policies must be strictly implemented, including verifying customer identity, conducting transaction monitoring, and submitting suspicious transaction reports (SARs).
In the EU and Hong Kong, it is necessary to comply with AML regulations, implement KYC policies, and follow the “Travel Rule” of the Financial Action Task Force (FATF), record the identity information of both parties to the transaction, and fulfill customer due diligence obligations.
The cost of non-compliance: operating without a license may result in a fine at the very least, or even business closure and the demise of your entrepreneurial dreams; not checking identities or underreporting transactions may result in fines leading to bankruptcy, or even blacklisting and restrictions on global business.
Tax issues are inevitable
The cross-border cryptocurrency acquiring business involves exchanging cryptocurrencies for legal tender, which may generate tax obligations in multiple jurisdictions. To reduce risks, acquiring operators should disclose tax responsibilities to users and clearly state tax compliance requirements in the terms of service to avoid affecting business operations or license renewals due to tax violations.
In the United States, the conversion of cryptocurrencies into fiat currencies is considered asset disposal, and users are required to report capital gains tax to the Internal Revenue Service (IRS). Operators should provide transaction records and remind users of their annual tax filing obligations to avoid fines due to failure to file.
In the EU, tax rules vary from country to country. For example, Germany considers cryptocurrencies as "private assets" and requires income tax on exchange gains held for less than one year. Operators need to remind users to keep exchange receipts and cooperate with tax audits.
In Hong Kong, the Hong Kong Inland Revenue Department has not yet formulated a special tax policy for cryptocurrencies, but if the operating unit operates in Hong Kong, the operating income generated by its exchange services is subject to profit tax. Personal users do not need to pay taxes for the exchange, but they need to pay attention to policy changes.
The cost of non-compliance: at the very least, you will have to pay back taxes and receive fines; at the worst, your license will be revoked, and you will lose customers and your reputation will be impacted.
Attorney Mankiw's Summary
The rise of PayFi has brought revolutionary opportunities to the cross-border acquiring business of cryptocurrency. Platforms such as KUN Pay and BlockBee have achieved low-cost and high-efficiency global payments through blockchain technology, reshaping the traditional cross-border acquiring landscape. However, this innovation is not without boundaries. Under the strong supervision of mainland China and the international multi-legal framework, compliance has become the core proposition of business development.
In mainland China, cryptocurrency acquiring business is classified as illegal financial activities due to relevant policies. The risk of touching the red line of "illegal business operation" and "money laundering" is extremely high. Operators should strictly avoid doing business with domestic residents. In the overseas scenario, the market potential is huge, but multi-national supervision, license acquisition, AML/KYC obligations and tax compliance constitute a series of "roadblocks". Compliance is not only the legal bottom line, but also a talisman for the survival and development of enterprises.
For entrepreneurs who want to develop crypto acquiring business and seize the PayFi trend, only by taking steady steps on the compliance track can potential be turned into reality. Shanghai Mankiw Law Firm is deeply engaged in legal services in the Web3 field and is willing to escort your overseas journey. If you have any questions, please feel free to consult!
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