In the evolving landscape of Web3, cryptocurrency payment cards—especially those powered by stablecoins like USDT—are emerging as a bridge between decentralized finance and traditional financial systems. These digital tools offer users seamless spending power, enabling them to use crypto assets for everyday transactions across global platforms. Yet, despite their growing popularity, the industry faces significant structural, operational, and regulatory hurdles.
This article explores the current state of the cryptocurrency card (U-card) ecosystem from an industry-wide perspective, analyzing core challenges in compliance, cost structure, profitability, and risk management—while also identifying potential paths forward in an uncertain but promising market.
The Current State of the U-Card Industry
Cryptocurrency payment cards allow users to spend digital assets like USDT at merchants that accept conventional credit or debit cards. Behind the scenes, these cards rely on a complex network involving stablecoin conversion, fiat on-ramps, payment gateways (like Visa or Mastercard), and banking partners. While the user experience appears simple—swipe and pay—the backend operations are anything but.
Despite rapid innovation, the U-card space remains in its early stages. Regulatory frameworks have not yet caught up with technological advancements, leaving many projects operating in a gray zone. This uncertainty creates both opportunity and risk.
Key Challenges Facing U-Card Providers
1. Channel Access and Banking Partnerships
To issue a functional payment card, a company must partner with a licensed financial institution. Most U-card startups do not hold banking licenses themselves, so they rely on third-party issuers or fintech platforms that provide API-based card issuance services.
This dependency introduces several risks:
- Limited control over user experience
- High onboarding barriers due to strict partner requirements
- Vulnerability to sudden de-platforming if compliance concerns arise
Without direct access to banking infrastructure, U-card providers remain intermediaries rather than full-stack financial entities.
2. High Operational Costs Across the Payment Chain
Every transaction involves multiple stakeholders—each taking a cut:
- Card issuing banks
- International payment networks (Visa/Mastercard)
- Currency conversion services
- Wallet providers and gateways (Apple Pay, PayPal, Alipay, etc.)
These layered fees result in significant cost burdens. For example, merchants processing $100 via international channels may receive only $97 after deductions—compared to lower domestic rates through local networks like UnionPay.
As a result, U-card providers face pressure to either absorb these costs (hurting margins) or pass them to users (reducing competitiveness).
Profitability: Can U-Cards Sustain Long-Term Growth?
Fee-Based Revenue Model Under Pressure
Most U-card platforms generate revenue through transaction fees, including:
- Currency conversion spreads
- Cross-border transfer charges
- Subscription or renewal fees
Typically, the total fee ranges from 1.5% to 2%, depending on volume and negotiation power. Some platforms temporarily reduce rates below 1% during promotional campaigns to attract users—but such discounts are unsustainable long-term due to high underlying costs.
Lowering fees indefinitely isn't viable without external funding. Startups often burn capital to gain market share, hoping to achieve scale that improves their bargaining position with payment processors.
👉 See how leading platforms optimize transaction efficiency while maintaining security and speed.
Can Fees Be Increased?
Raising fees beyond 2% is risky:
- Users can easily switch to alternative methods like OTC withdrawals or direct exchange transfers.
- High fees erode one of the main advantages of U-cards: convenience and speed.
- In China, large payments via Alipay or WeChat already incur ~3% surcharges, making crypto cards less appealing for big-ticket purchases.
Thus, pricing flexibility is extremely limited in a crowded and price-sensitive market.
The Myth and Reality of Funding Gains from Capital Pools
Many assume U-card issuers profit significantly from managing large pools of user funds (TVL—Total Value Locked). However, this assumption overlooks critical realities:
1. Shallow Capital Depth
Unlike centralized stablecoin issuers like Tether—who benefit from net inflows and can invest reserves in Treasuries or high-yield instruments—U-card platforms deal with shallow and volatile deposits.
Users typically load only what they plan to spend immediately, resulting in:
- Low fund retention
- Minimal long-term capital available for yield-generating strategies
- High liquidity demands to support instant redemptions
This makes it difficult to pursue DeFi staking, lending, or other yield opportunities without exposing the platform to liquidity crises.
2. Limited Access to Yield Infrastructure
Only a few major players—such as Crypto.com or Bitget—can integrate their card services with native exchange lending products. Most independent U-card providers lack internal mechanisms to generate yield and must rely on external partners.
But outsourcing fund management brings new risks:
- Counterparty reliability
- Liquidity constraints
- Regulatory exposure
A sudden wave of withdrawals could trigger a loss of trust and a downward spiral—especially in a community where skepticism runs deep.
Compliance: A Necessary Burden or Strategic Advantage?
1. Self-Protection Through Audits and Transparency
Even without formal regulation, responsible U-card operators invest heavily in:
- Smart contract audits
- Third-party financial audits
- Custody solutions with reputable institutions
- Internal risk monitoring systems
These measures protect both users and the business—but come at a high cost, especially for startups.
Choosing a custodian involves trade-offs: large firms charge premium fees; smaller ones may lack credibility. And if losses occur, users will hold the card issuer accountable—not the custodian.
2. Regulatory Ambiguity and Enforcement Gaps
Currently, enforcement against U-card issuers is limited:
- Many operate under offshore entities
- Cards are issued through licensed partners
- Transactions occur via standard payment rails
As long as users don't engage in illegal activities (e.g., money laundering), liability typically falls on the cardholder—not the issuer.
However, regulators can still disrupt operations by blacklisting card BINs (Bank Identification Numbers), effectively killing a project overnight.
3. Anti-Money Laundering (AML) as the Core Responsibility
The most pressing compliance obligation is AML/KYC enforcement. Fortunately, tools developed by major exchanges (like Coinbase, Binance, and OKX) offer robust frameworks using:
- On-chain analytics
- Risk scoring models
- Partnerships with AML compliance providers
While effective, implementing these systems requires investment in technology and talent—adding another layer of operational expense.
4. Expanding Services = Increasing Compliance Load
As U-card providers aim to expand into areas like:
- Direct fiat on/off ramps
- Integrated savings products (“crypto余额宝”)
- Merchant payment solutions
They inevitably enter heavily regulated domains governed by securities laws, consumer protection rules, and financial licensing requirements.
The more integrated with Web2 finance they become, the more they resemble traditional fintechs—and face intense competition in saturated markets.
“With great power comes great responsibility.”
— As the ecosystem grows, so does accountability.
The Path Forward: Survival First, Scale Later
Given these challenges, what should U-card businesses focus on?
Strategy 1: Pioneering New Models
Some will choose to innovate boldly—building proprietary infrastructure, securing direct banking relationships, or creating closed-loop ecosystems. This path offers high rewards but carries substantial risk.
Strategy 2: Mastering Niche Roles
Others may thrive by specializing in specific parts of the value chain:
- Risk management
- Community growth
- Compliance automation
- Liquidity provisioning
By becoming reliable partners rather than end-to-end providers, these companies can achieve stability and scalability with lower overhead.
Why Risk Management Is Non-Negotiable
At its core, the U-card business is about moving money securely. Every decision must prioritize safety:
- Is the code audited and free of backdoors?
- Can partners be trusted with custody?
- Can payroll be met during downturns?
Risk control isn’t just a department—it’s the foundation of survival.
Until regulations clarify and adoption widens, risk-first thinking must guide every aspect of operations.
Frequently Asked Questions (FAQ)
Q: Are cryptocurrency payment cards legal?
A: Their legality depends on jurisdiction. While the cards themselves often operate through licensed partners, the issuing entities may reside in offshore zones. Users should verify local regulations before use.
Q: How do U-cards make money if fees are low?
A: Revenue comes from transaction spreads, subscriptions, and limited yield on user funds. Profitability usually requires scale and tight cost control.
Q: Can I lose money using a U-card?
A: Yes—if the provider lacks proper custody safeguards or faces insolvency. Always research the issuer’s audit history and fund protection policies.
Q: Do U-cards report transactions to tax authorities?
A: Some do, especially those requiring KYC. Others may not—but users remain responsible for self-reporting taxable events.
Q: Will stablecoin cards replace traditional banking?
A: Not yet. They’re complementary tools for crypto-native users. Widespread adoption awaits clearer regulation and broader merchant acceptance.
Q: What happens if my U-card gets blocked?
A: You may lose access to spending functionality temporarily or permanently. Ensure you can withdraw your funds independently of the card interface.
Final Thoughts: Building Bridges in Uncertain Times
The U-card industry stands at a crossroads. Innovation is outpacing regulation, creating fertile ground for disruption—but also systemic fragility.
Success won’t go to those who move fastest, but to those who build safest. The winners will be companies that balance ambition with prudence, embracing compliance not as a burden but as a competitive edge.
As Web3 matures and stablecoin regulations take shape—especially anticipated legislation in 2025—the landscape will shift dramatically. Those who survive today’s challenges will lead tomorrow’s financial revolution.
For now, the mantra remains clear:
Innovate wisely. Control risk relentlessly. Survive first. Scale later.