Mankun Research | PayFi is Coming, Key Legal Compliance Points for Cross-Border Acquiring of Crypto Assets

If money is understood as a form of energy, every innovation in payment media and tools is accompanied by leaps in social efficiency and a reshaping of power structures—from shells to gold and silver, paper money, and then to mobile payments, all have been this way. The emergence of Crypto Assets marks another leap in this process, while a revolution driven by PayFi (Payment Finance) is quietly rising, redefining the underlying logic of global value exchange with Wallets as the entry point. PayFi, as the name suggests, stands for Pay + DeFi, integrating the concepts of payment (Pay) and decentralized finance (DeFi). It aims to achieve the efficient application of Crypto Assets in payment scenarios through blockchain technology, while optimizing the time value of funds. People comment that in the world ultimately pointed to by PayFi, there are no dormant deposits, only perpetual value... In the vision of PayFi, the "Pay" part is particularly crucial. The cross-border receiving business of Crypto Assets serves as its core component, enabling low-cost, real-time settlement for cross-border payments through blockchain technology, becoming a bridge connecting global consumers and merchants. However, the rapid development of the cross-border receiving business of Crypto Assets is accompanied by complex legal compliance challenges, particularly under the strict regulations in mainland China and the international diverse framework, where its legality and compliance become the primary concerns for enterprises in entrepreneurship and business development. In this article, Lawyer Mankun focuses on the cross-border acquiring business of Crypto Assets, comparing its business model differences with traditional cross-border acquiring. He provides professional advice to entrepreneurs who wish to seize the opportunity and engage in related businesses, revealing the legal compliance challenges they face. Traditional Acquiring VS Crypto Acquiring: Reinventing Cross-Border Payments

1. What is acquiring? Acquiring Service refers to the services provided by financial institutions or payment service providers to merchants for payment processing, fund clearing, and settlement. In simple terms, it helps merchants receive consumer payments and transfer funds to the merchant's account. A crypto assets acquiring platform refers to an acquiring system that allows merchants to accept payments from consumers using crypto assets. The acquiring platform is responsible for converting the crypto assets paid by consumers into fiat currency and ultimately transferring it to the merchant's bank account.
2. Traditional Cross-Border Acquiring: Profit Eater Cross-border acquiring business typically involves companies accepting payments from global customers, especially in areas such as cross-border e-commerce, service trade, and digital entertainment. However, traditional cross-border acquiring faces the following issues: High Cost Burden: Traditional cross-border payments rely on banks or third-party payment institutions (such as PayPal, Stripe), and each transaction is often accompanied by multiple fees – payment gateway fees, cross-border handling fees, currency exchange fees, etc., which can add up to 3%-6% of the transaction amount, or even higher. For small and medium-sized enterprises with already thin profits or e-commerce with high-frequency small transactions, this is a significant cost pressure. Long settlement cycles: In traditional systems, the journey of funds from customer payments to corporate accounts resembles a "long trek." Bank cross-border transfers typically take 3-5 working days, or even longer, especially when it involves small coin countries (like Kenya's Naira in Africa or Peru's Sol in Latin America), where clearing delays can last up to a week. This not only slows down the cash flow turnover for enterprises but may also affect the normal operation of supply chains. Exchange rate fluctuation risk: Cross-border payments often involve multiple currency conversions, each of which carries the uncertainty of exchange rate fluctuations. Especially in emerging markets, currency depreciation or foreign exchange controls may cause additional losses for businesses. Support for small coins is difficult: Traditional payment systems have well-established support for major currencies like the US dollar, euro, and Chinese yuan in developed markets, but often struggle with small coins in emerging markets (such as the Vietnamese dong and Nigerian naira). Many payment institutions either do not support these currencies or raise costs through multiple conversions, making it difficult for businesses to penetrate these high-potential markets. These pain points are intertwined, forming an invisible barrier that devours the profits of enterprises. This is especially true for small and medium-sized enterprises that lack the bargaining power to negotiate lower rates with large banks. The traditional cross-border acquiring model has struggled to meet the modern business demands for efficiency, cost, and flexibility. It is against this backdrop that various Crypto Assets acquiring platforms are attempting to open a new path for enterprises using digital currency and blockchain technology. 3 Crypto Assets Acquisition: Reshaping Cross-Border Payments Business Model Crypto Assets payment processing optimizes cross-border payment flows through blockchain technology and digital currencies (such as stablecoins, Bitcoin, etc.), bypassing traditional financial intermediaries to achieve low-cost and high-efficiency fund settlement. Platforms like KUN Pay and BlockBee provide merchants with encryption payment systems, allowing businesses to quickly connect via API or customized interfaces, accept consumer Crypto Assets payments, and convert them into fiat currency transferred to their accounts, promoting business expansion and efficiency improvement. Actual Case: KUN Pay & BlockBee KUN Pay: Launched by KUN, focused on B2B scenarios, targeting enterprise-level clients, providing cross-border acquiring services based on stablecoins (such as USDT). Supports real-time settlements, fiat currency exchanges, global commission disbursement, and scheduled payments, particularly suitable for cross-border e-commerce and service trade enterprises.

BlockBee: A lightweight payment gateway that supports acquiring multiple crypto assets (such as Bitcoin, Ethereum), provides simple API integration and real-time fiat currency exchange functionality, suitable for small and medium-sized merchants and individual users, emphasizing quick deployment and flexibility.

The advantages of Crypto Assets acquiring are significant. Significant cost reduction: Traditional acquisition fees of 3%-6% are reduced to 0.5%-1%, eliminating payment gateway fees and multiple conversion costs, saving expenses for small and medium-sized enterprises with thin profits. Faster settlement speed: Blockchain technology compresses settlement time from 3-5 days to just a few minutes or even seconds, enhancing cash flow efficiency and helping enterprises operate quickly. Exchange rate risk mitigation: By using stablecoins or real-time exchange mechanisms, it avoids multiple currency conversions and exchange rate fluctuations, particularly benefiting businesses in emerging markets. Coverage of small currencies: Crypto Assets break geographical limitations, supporting the acceptance of small currencies such as the Vietnamese Dong and Nigerian Naira, helping enterprises explore high-potential markets.

Comparison Summary KUN Pay and BlockBee both showcase the core value of cross-border payment processing for Crypto Assets: low cost, high speed, and transparency. Compared to traditional cross-border payment processing, both have jointly reduced costs, improved efficiency, and expanded market coverage, providing small and medium-sized enterprises with new tools for global competition, with limitless potential. This revolutionary payment model has naturally attracted numerous entrepreneurs to engage in it, but starting a business is not without its challenges, and compliance is a key aspect that cannot be overlooked. When enterprises develop and operate Crypto Assets payment processing businesses, there are many legal risks. Want to seize the opportunity? Start a business without stepping on landmines: Analysis of compliance key points.

1. Can mainland China carry out crypto assets acquiring business? Conducting cross-border payment services for Crypto Assets in mainland China, especially targeting domestic residents, faces significant legal obstacles and may even constitute the following offenses: Illegal Business Operations According to the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading and Speculation" issued on September 24, 2021, the exchange of legal currency for virtual currency is classified as illegal financial activity and is strictly prohibited. The acquiring operation business provides users with services for the exchange, trading or settlement of Crypto Assets and legal currency, which may violate Article 225 of the Criminal Law of the People's Republic of China, concerning "illegal business operations," and may face administrative penalties or even criminal liability. Money laundering Crypto Assets have characteristics of anonymity and confidentiality, and their sources 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, yet still provides acquiring and exchange services, facilitating the transfer or conversion of funds, it may constitute the "money laundering crime" as stipulated in Article 191 of the Criminal Law. Forex Management and User Risk The acceptance of Crypto Assets involves cross-border flow of funds, which may touch upon the red line of foreign exchange management. According to Article 45 of the "Foreign Exchange Management Regulations", conducting foreign exchange business without the approval of the State Administration of Foreign Exchange is considered illegal and may face administrative penalties such as fines and confiscation of illegal gains. Therefore, it is not recommended for Crypto Assets cross-border acquiring operators to conduct exchange, trading, and settlement business between Crypto Assets and fiat currency in mainland China, to avoid being involved in illegal activities. Ensure that the business complies with the requirements of Chinese laws and regulations, and avoid legal risks arising from violations.
2. What about launching crypto cross-border payment services overseas? There are many compliance challenges. Although they cannot operate in mainland China, small and medium-sized enterprises have seen the opportunity to explore overseas markets. Many entrepreneurs are eager to venture into the international market through Crypto Assets payment processing. This is indeed a promising field, but compliance issues are like a "roadblock," and any misstep from company establishment to licensing, operations, and taxes could lead to failure. Below are some compliance key points: Facing multi-country regulation: Payment licenses and AML/KYC are fundamental skills. Going overseas to do crypto payment processing, the first step for compliance is to get the regulations of each country sorted out, otherwise fines, account bans, and even business shutdowns are waiting. Licenses cannot be lacking. Every place requires a "pass" to work legally: In the United States, it is necessary to register as a Money Services Business (MSB) with the Financial Crimes Enforcement Network (FinCEN), and in addition to federal requirements, it is also necessary to apply for the corresponding licenses according to state regulations. In the European Union, it is necessary to obtain a CASP license under the Markets in Crypto Assets Regulation (MiCA). In Hong Kong, if the business involves currency exchange services or remittance services, it is necessary to apply for a Money Service Operator (MSO) license. AML/KYC needs to keep up The whole world is focused on anti-money laundering and identity verification: In the United States, it is necessary to strictly implement AML and KYC policies, including verifying customer identities, conducting transaction monitoring, and submitting Suspicious Activity Reports (SARs), among others. In the EU and Hong Kong, it is necessary to comply with AML regulations, implement KYC policies, and adhere to the Financial Action Task Force (FATF) "travel rule" by recording the identity information of both parties in the transaction and fulfilling customer due diligence obligations. Non-compliance costs: operating without a license can result in fines or, in severe cases, business shutdowns, shattering entrepreneurial dreams; failing to verify identity or reporting transactions incorrectly may lead to bankruptcy and possible blacklisting, restricting global operations. Tax issues cannot be avoided. The cross-border acquiring business of Crypto Assets involves exchanging Crypto Assets for fiat currency, which may create tax obligations in multiple jurisdictions. To mitigate risks, acquiring operators should disclose tax responsibilities to users and clearly specify tax compliance requirements in the terms of service to avoid business operations or license renewal being affected by tax violations. In the United States, the exchange of Crypto Assets for fiat currency is considered an asset disposal, and users are required to report capital gains tax to the IRS. Operators should provide transaction records and remind users of their annual tax obligations to avoid penalties for non-reporting. In the European Union, tax regulations vary by country. For example, Germany classifies Crypto Assets as "private assets," and exchange profits held for less than one year are subject to income tax. Operators need to remind users to keep exchange receipts for tax audits. In Hong Kong, the Hong Kong Inland Revenue Department has not yet established a special tax policy for Crypto Assets, but if an operating unit operates in Hong Kong, the business income generated from its exchange services is subject to profits tax. Individual users do not need to pay taxes for exchanges at the moment, but they should pay attention to policy changes. Non-compliance costs: at light, back taxes plus fines; at heavy, license revocation, customer loss affecting reputation. Mankiw Lawyer Summary The rise of PayFi has brought revolutionary opportunities for cross-border payment services in the crypto assets sector. Platforms like KUN Pay and BlockBee have achieved low-cost and high-efficiency global payments through blockchain technology, reshaping the traditional landscape of cross-border payment processing. However, this innovation is not without its boundaries; under the strict regulations in mainland China and the diverse international legal framework, compliance has become the core proposition for businesses to operate. In mainland China, the crypto assets acquiring business is classified as illegal financial activity due to relevant policies, posing a high risk of violating the "illegal business operation" and "money laundering" laws. Operators should strictly avoid targeting domestic residents. In the overseas market, the potential is enormous, but regulations from multiple countries, obtaining licenses, AML/KYC obligations, and tax compliance pose numerous "roadblocks." Compliance is not only a legal bottom line but also a protective talisman for the survival and development of enterprises. For entrepreneurs looking to engage in crypto asset acquiring business and seize the PayFi opportunity, only by firmly establishing themselves on the compliance track can they transform potential into reality. Shanghai Mankun Law Firm is deeply engaged in legal services in the Web3 field and is willing to safeguard your overseas journey. If you have any questions, feel free to consult us at any time!

/ END. Author of this article: Zheng Hongde, Shao Jiadian