This article is reprinted with permission from Mankun Blockchain Legal Services, authors: Shao Jiadian, Chen Haoyang, copyright belongs to the original authors.
In the past two years, crypto payment has gradually transitioned from a niche concept to a global trend.
Its forms are diverse:
- Stablecoin payments (USDT/USDC settlement)
- Crypto debit cards (commonly known as U cards)
- Cross-border crypto salary payments
- On/Off-ramp gateways (crypto ⇄ fiat)
- Crypto versions of Stripe or PayPal
The common point of these projects is: using crypto assets to solve the slow and expensive nature of cross-border payments.
However, unlike pure trading platforms, crypto payments directly interact with cash flows, bank cards, bank accounts, and fiat clearing systems.
It is not "DeFi," but a hybrid of semi-financial and semi-technological.
Therefore, all "geographical risks" are magnified here.
Many teams, while excited about licensing structures, product experiences, and trading volume growth, overlook a seemingly technical question—who can use it?
This is not a market choice, but a compliance bottom line.
- Because every country is guarding its "payment sovereignty"
Legally, crypto payments are often regarded as: "electronic money issuance," "fund transfer services," and "payment clearing activities."
This means that as long as your system allows local residents to deposit, withdraw, or spend crypto assets, it may trigger local regulatory permissions.
For example:
- United States: Requires registration as MSB + Money Transmitter License (MTL).
- European Union: Requires CASP authorization under MiCA, and must establish a local entity in member states.
- Singapore: Regulated under the Payment Services Act, involving MPI + DPT licenses.
- Hong Kong: Requires MSO or the upcoming VA Dealing and Stablecoin issuance licenses.
If you do not have these licenses but allow local users to use your crypto payment features,
regulatory authorities will directly view it as "operating payment services without authorization in that jurisdiction."
- Because the international sanctions system is "joint liability"
Once the system allows users from sanctioned areas like Iran, North Korea, and Syria to register or trade, regardless of whether you are registered in BVI or Estonia,
as long as you use the international clearing system (banks, VISA, Mastercard, SWIFT), you may be seen as evading sanctions.
The consequences of being blacklisted are not fines, but the termination of financial life:
- Bank accounts frozen;
- Issuing channels immediately suspended;
- Clearing funds unable to settle;
- Sponsor banks terminate cooperation.
Practical advice: The system should implement a "three-tier filtering":
- IP blocking: GeoIP identification of access sources;
- KYC nationality verification: ID/passport country;
- Residence cross-verification: utility bills or bank letters.
This is not a formality, but a condition for survival.
The common point of these companies: "first zone, then expand."
It is not a single license that rules the world, but using multiple licenses and entities to isolate different risk areas.
The core logic of crypto payments is "regulatory geographical isolation."
Paxful (peer-to-peer payment platform)
Reason: Failed to effectively block users from Iran and Russia;
Consequence: Investigated by U.S. regulators, founder announced suspension of operations.
Bitzlato
Reason: Allowed users from Russia and sanctioned areas to trade.
Consequence: Sued by the U.S. Department of Justice as a money laundering platform, assets frozen.
A certain U card project
Model: Hong Kong MSO + overseas issuing API, but did not set up IP blocking;
Consequence: Sponsor bank discovered high-risk area user transactions, clearing account frozen, project immediately halted.
In summary:
Crypto payments without geographical compliance are not innovative products, but "violating financial services."
- Formulate formal policy documents
- Restricted Jurisdictions Policy
- Customer Acceptance Policy
- Geo-IP Blocking and Verification Process
- Implement a four-layer screening mechanism
- Nationality verification (KYC)
- Residence verification (Proof of Address)
- Login device IP & GPS detection
- Issuing or payment path tracking
- Strengthen partner review
Issuing institutions, sponsor banks, and custodians are required to ensure no clients from sanctioned areas.
→ Include "compliance guarantee clauses" and "ongoing screening obligations" in cooperation agreements.
- Dynamic update mechanism
Regularly synchronize with OFAC / FATF / EU / UN official lists,
and establish an internal list update schedule (recommended quarterly updates).
In the crypto payment space, the technical barrier is not high; the compliance barrier is the moat. The faster you can process payments, the faster regulators can freeze you; the more countries you serve, the steeper the risk curve becomes.
True globalization is not "anyone can use it," but "using it compliantly."
Geographical exclusion is not abandoning the market, but preserving the lifeline. In the world of crypto payments, the projects that can survive are not necessarily the fastest, but those that understand the boundaries of risk control the best.
Related: China accuses the U.S. of orchestrating a $13 billion Bitcoin (BTC) theft case
Original text: Mankun Research | The Hidden Pitfalls of Crypto Payments: Why You Must List "Restricted Regions"
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