PayFi Arrives: Key Legal and Compliance Considerations for Cryptocurrency Cross-Border Payment Processing
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PayFi Arrives: Key Legal and Compliance Considerations for Cryptocurrency Cross-Border Payment Processing
This article focuses on cryptocurrency cross-border payment processing, comparing its business model with that of traditional cross-border payment processing.
Navigating Web3 tides with focused insightsAuthors: Zheng Hongde, Shao Jiaodian
If money is understood as a form of energy, every innovation in payment media and tools has been accompanied by leaps in social efficiency and shifts in power structures—from shells to gold and silver, paper currency, and then mobile payments. The emergence of cryptocurrency marks another leap forward in this evolution, and a revolution driven by PayFi (Payment Finance) is quietly unfolding, redefining the foundational logic of global value exchange with digital wallets as gateways.
As the name suggests, PayFi combines Pay and DeFi—merging payments (Pay) with decentralized finance (DeFi). It aims to enable efficient use of cryptocurrencies in payment scenarios through blockchain technology while optimizing the time value of capital. In the world envisioned by PayFi, there are no idle deposits—only perpetual value in motion…
In this vision, the “Pay” component is particularly crucial. Cryptocurrency cross-border acquiring, as a core element of PayFi, leverages blockchain technology to enable low-cost, real-time settlement for international payments, serving as a bridge connecting global consumers and merchants. However, the rapid development of crypto cross-border acquiring also brings complex legal and compliance challenges. Especially under China's strict regulatory environment and diverse international frameworks, legality and compliance have become primary concerns for entrepreneurs launching such businesses.
This article focuses on cryptocurrency cross-border acquiring. By comparing it with traditional cross-border acquiring models, ManQin Law provides professional guidance for entrepreneurs aiming to seize this opportunity, revealing the key legal and compliance challenges they may face.
Traditional Acquiring vs. Cryptocurrency Acquiring: Reshaping Cross-Border Payments
1. What Is Payment Acquiring?
Acquiring services refer to financial institutions or payment service providers offering merchants support for accepting payments, clearing, and settling funds. Simply put, it helps businesses receive customer payments and transfer those funds into their accounts.
A cryptocurrency acquiring platform is a system that enables merchants to accept payments from customers using cryptocurrencies. The platform converts the paid cryptocurrency into fiat currency and transfers it to the merchant’s bank account.
2. Traditional Cross-Border Acquiring: The Profit Eater
Cross-border acquiring typically involves businesses receiving payments from international customers, especially common in e-commerce, service trade, and digital entertainment sectors. However, traditional cross-border acquiring faces several issues:
High Cost Burden: Traditional cross-border payments rely on banks or third-party payment processors like PayPal and Stripe. Each transaction often incurs multiple fees—payment gateway fees, cross-border handling charges, currency conversion costs—that can accumulate to 3%-6% or more of the transaction amount. For small and medium-sized enterprises (SMEs) with thin margins or high-frequency, low-value transactions, this represents significant cost pressure.
Lengthy Settlement Cycles: In traditional systems, the journey from customer payment to fund arrival in the business account resembles a "long march." Bank wire transfers usually take 3–5 business days, sometimes longer. When dealing with minor currencies (e.g., Kenyan Shilling or Peruvian Sol), settlement delays can stretch up to a week. This slows down cash flow cycles and may disrupt supply chain operations.
Exchange Rate Volatility Risk: Cross-border payments often involve multiple currency conversions, each exposing businesses to fluctuating exchange rates. In emerging markets, currency depreciation or foreign exchange controls could lead to additional losses.
Poor Support for Minor Currencies: While major currencies like USD, EUR, and CNY are well supported, traditional payment systems struggle with minor currencies such as Vietnamese Dong or Nigerian Naira. Many providers either don't support them or impose high costs via multi-step conversions, making market penetration difficult despite high growth potential.
These pain points collectively create an invisible barrier that erodes corporate profits—especially for SMEs lacking bargaining power with large banks. The traditional model can no longer meet modern commerce demands for speed, cost-efficiency, and flexibility. Against this backdrop, crypto acquiring platforms aim to open new pathways using digital currencies and blockchain technology.
3. Cryptocurrency Acquiring: Reinventing Cross-Border Payments
Business Model
Cryptocurrency acquiring streamlines cross-border payment processes through blockchain technology and digital assets (such as stablecoins and Bitcoin), bypassing traditional financial intermediaries to achieve lower costs and higher efficiency in fund settlement. Platforms like KUN Pay and BlockBee offer crypto payment systems enabling merchants to quickly integrate via API or custom interfaces, accept customer crypto payments, convert them into fiat, and deposit proceeds into their accounts—driving business expansion and operational efficiency.
Real-World Examples: KUN Pay & BlockBee
KUN Pay: Launched by KUN, focused on B2B use cases and enterprise clients, offering cross-border acquiring services based on stablecoins (e.g., USDT). Supports real-time settlement, fiat conversion, global commission disbursement, and scheduled payments—ideal for cross-border e-commerce and service trading companies.
BlockBee: A lightweight payment gateway supporting multiple cryptocurrencies (e.g., Bitcoin, Ethereum) for acquiring. Offers simple API integration and real-time fiat conversion, suitable for SMEs and individual users who prioritize fast deployment and flexibility.
Clear Advantages of Crypto Acquiring
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Significantly Lower Costs: Transaction fees drop from 3%-6% in traditional acquiring to 0.5%-1%, eliminating gateway and multiple-conversion fees—saving substantial costs for margin-sensitive SMEs.
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Faster Settlement: Blockchain reduces settlement time from 3–5 days to minutes or even seconds, enhancing cash flow efficiency and enabling faster business operations.
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Reduced Exchange Rate Risk: Using stablecoins or real-time conversion avoids repeated currency exchanges and exposure to volatility—particularly beneficial for operations in emerging markets.
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Broad Coverage of Minor Currencies: Cryptocurrencies transcend geographical boundaries, enabling acceptance of minor currencies like VND or NGN, helping businesses access high-growth-potential regions.
Summary Comparison
KUN Pay and BlockBee both exemplify the core value of cryptocurrency cross-border acquiring: low cost, high speed, and transparency. Compared to traditional models, both significantly reduce expenses, improve efficiency, and expand market reach—providing SMEs with powerful tools for global competition. This revolutionary model naturally attracts many entrepreneurs. Yet, launching such ventures isn’t smooth sailing—compliance remains a critical hurdle. Businesses developing and operating crypto acquiring services face numerous legal risks.
Want to Ride the Wave? Avoid Pitfalls: Key Compliance Insights
1. Can You Operate Crypto Cross-Border Acquiring in Mainland China?
Operating cryptocurrency cross-border acquiring services in mainland China, particularly targeting domestic residents, presents serious legal obstacles and may constitute criminal offenses including:
Illegal Business Operation
According to the Notice on Further Preventing and Responding to Risks of Virtual Currency Trading Speculation issued on September 24, 2021, any activity involving exchange between legal tender and virtual currencies is classified as an illegal financial activity and strictly prohibited. Since acquiring operations provide users with cryptocurrency-to-fiat exchange, trading, or settlement services, they may violate Article 225 of the Criminal Law of the People’s Republic of China, leading to administrative penalties or even criminal liability.
Money Laundering
Cryptocurrencies possess characteristics of anonymity and confidentiality, and their sources may be linked to upstream crimes such as fraud or illegal fundraising. If operators knowingly or should have known that funds were illicit but still provided acquiring and exchange services, facilitating fund transfers, they could be charged under Article 191 of the Criminal Law with "money laundering."
Foreign Exchange Regulations and User Risks
Crypto acquiring involves cross-border capital flows, potentially violating foreign exchange control regulations. Under Article 45 of the Regulations on Administration of Foreign Exchange, conducting foreign exchange business without approval from the State Administration of Foreign Exchange (SAFE) constitutes an illegal act, subject to fines and confiscation of illegal gains.
Therefore, we strongly advise against operating cryptocurrency-to-fiat exchange, trading, or settlement services in mainland China. Such activities risk crossing legal red lines. Operators must ensure full compliance with Chinese laws and avoid severe legal consequences due to non-compliance.
2. What About Launching Abroad? Compliance Challenges Multiply
While operations cannot target mainland China, many SMEs see opportunities overseas. Numerous entrepreneurs are eager to enter international markets through crypto acquiring—a promising sector indeed. But compliance acts as a “roadblock,” from company formation and licensing to operations and taxation. Missteps at any stage could result in failure. Below are key compliance considerations:
Navigating Multi-Jurisdictional Regulation: Licenses and AML/KYC Are Fundamental
The first step in going global is mastering local rules—otherwise, fines, account suspensions, or even shutdowns await.
Licensing Is Mandatory
You need a “license passport” in every jurisdiction:
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United States: Must register with the Financial Crimes Enforcement Network (FinCEN) as a Money Services Business (MSB). Beyond federal requirements, state-level licenses may also apply depending on location.
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European Union: Requires obtaining a Crypto Asset Service Provider (CASP) license under the Markets in Crypto-Assets Regulation (MiCA).
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Hong Kong: If services include currency exchange or remittance, a Money Service Operator (MSO) license must be obtained.
AML/KYC Compliance Is Non-Negotiable
Global regulators closely monitor anti-money laundering and identity verification:
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United States: Strict implementation of AML and KYC policies is required, including customer identity verification, transaction monitoring, and filing Suspicious Activity Reports (SARs).
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European Union and Hong Kong: Must comply with AML regulations, enforce KYC procedures, and follow the Financial Action Task Force (FATF) “Travel Rule,” which requires recording identities of both sender and recipient and fulfilling customer due diligence obligations.
Cost of Non-Compliance: Operating without a license risks fines or complete shutdown, ending entrepreneurial dreams. Failure to conduct proper identity checks or report suspicious transactions could lead to bankruptcy-level penalties and blacklisting, restricting global operations.
Tax Obligations Cannot Be Ignored
Crypto cross-border acquiring—converting crypto to fiat—may trigger tax liabilities across jurisdictions. To mitigate risk, acquiring operators should clearly disclose users’ tax responsibilities and specify compliance requirements in service terms to prevent disruptions to operations or license renewals.
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United States: Converting crypto to fiat is treated as asset disposal. Users must report capital gains to the IRS. Operators should provide transaction records and remind users of annual tax filing duties to avoid penalties.
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European Union: Tax rules vary by country. For example, Germany treats crypto as “private assets,” and gains from disposals within one year of holding are taxable as income. Operators should prompt users to keep conversion records and prepare for audits.
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Hong Kong: The Inland Revenue Department has not yet issued specific crypto tax guidelines. However, if the operator runs its business in Hong Kong, revenue generated from conversion services is subject to profits tax. Individual users currently do not owe tax on personal conversions, but policy changes should be monitored closely.
Cost of Non-Compliance: At minimum, back taxes plus penalties; at worst, license revocation, loss of customers, and reputational damage.
ManQin Law Summary
The rise of PayFi presents revolutionary opportunities for cryptocurrency cross-border acquiring. Platforms like KUN Pay and BlockBee leverage blockchain technology to deliver low-cost, high-efficiency global payments, reshaping the landscape of traditional cross-border acquiring. However, innovation does not exist beyond regulation. Under China’s stringent oversight and a fragmented international legal framework, compliance has become the central challenge for business expansion.
In mainland China, crypto acquiring is deemed an illegal financial activity under current policy, posing high risks of violating laws related to “illegal business operations” and “money laundering.” Operators must strictly avoid serving domestic residents. For overseas expansion, while market potential is vast, navigating multi-jurisdictional regulations, obtaining licenses, fulfilling AML/KYC obligations, and ensuring tax compliance present formidable hurdles. Compliance is not just a legal baseline—it is the lifeline for survival and sustainable growth.
For entrepreneurs aiming to launch crypto acquiring services and capture the PayFi wave, only by building solidly on compliant foundations can true potential be realized. Shanghai ManQin Law Firm specializes in Web3 legal services and stands ready to support your global journey. Feel free to contact us with any questions!
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