In recent years, with the rapid development of digital payments, virtual credit cards have become an important tool that cannot be ignored in cross-border payment scenarios such as online shopping and service subscriptions.
Virtual credit card platforms that provide such services are generally registered overseas and have obtained relevant qualifications (such as MSB licenses, electronic currency licenses, cryptocurrency-related licenses, etc.), but the platform's technical team, operations and promotion, customer service personnel, etc. are located in mainland China .
Although some virtual credit card platforms have been investigated by judicial authorities for illegal business operations , in the absence of clear legal provisions, whether such commercial activities can be characterized as illegal business operations needs to be analyzed in conjunction with the platform's specific business scenarios and cannot be generalized.
Author: Lawyer Shao Shiwei
0 1The past and present of virtual credit cards
"Previous Life"
In my country, virtual credit cards (VCCs) are not a new thing that has only appeared in the past two years. As early as around 2013, pioneers such as Trustbao began to try, but were quickly blocked due to domestic policy restrictions. Since then, commercial banks, consumer finance companies, and financial technology companies have also begun to explore and launch related virtual credit card products.
"this life"
In recent years, with the booming development of blockchain technology, cross-border e-commerce, artificial intelligence, etc., virtual credit cards have entered a period of rapid growth and have become a new payment tool for more and more user groups. The virtual credit cards discussed in this article refer to payment tools that can be used for online payments and shopping around the world, are compatible with mainstream payment networks such as MasterCard or VISA, and can be used on most merchants and e-commerce platforms around the world.
0 2What are the usage scenarios of virtual credit cards?
Although VCC is called a "credit card", it cannot be overdrawn. Users need to pre-charge before using it. Its main usage scenarios are as follows:
Cross-border shopping: Virtual credit cards are suitable for international e-commerce platforms (such as Amazon, eBay, etc.), especially when users need to avoid exchange rate fluctuations, foreign exchange controls or do not want to disclose real bank card information;
Subscription services and digital content purchases, such as Netflix, ChatGPT, Steam and other overseas subscription platforms;
Various online reservations such as car rentals, hotel reservations and travel;
Online advertising and marketing payments, such as Google Ads, Facebook Ads and other advertising platforms directly bind virtual cards to deduct advertising fees;
Foreign exchange transactions and cryptocurrency payments, virtual credit cards usually support multiple currencies, helping users bypass the foreign exchange controls of traditional banks and facilitate cross-border transactions. Some virtual credit cards support binding with cryptocurrency platforms (such as Coinbase, Binance, etc.), and users can recharge fiat currency to virtual credit card accounts and then use it to purchase cryptocurrencies, or convert cryptocurrencies into fiat currency for payment.
0 3Overseas entity + obtaining license qualification = legal operation?
Is it legal to set up a company outside of China and obtain relevant qualifications and licenses? This is a question that lawyer Shao is often asked by clients. If a company is located in a country or region outside of mainland China and has obtained the qualifications and licenses required by the relevant laws and regulations of these regions, can it conduct business in mainland China?
Sun Tianqi, Director of the Financial Stability Bureau of the People's Bank of China, said at the 2021 Third Bund Financial Summit[i] that "As a licensed industry, finance must be licensed. Financial licenses have national boundaries. It is illegal financial activity to conduct business in China with only a foreign license . He believes that foreign institutions are not allowed to operate in China in financial businesses that are prohibited to domestic and foreign investors, or financial businesses that are not open to the outside world. For financial businesses that have been opened to the outside world, foreign institutions must operate legally and in compliance with regulations with relevant domestic licenses. It is illegal for foreign institutions to engage in prohibited financial businesses that are not open to the outside world in China, or to conduct business in China with only a foreign license."
So, does the virtual credit card business belong to the " financial business that has been opened to the outside world "? Can the virtual credit card business obtain relevant licenses in China? This requires an analysis based on the "previous life" of the virtual credit card mentioned at the beginning of this article.
Previously, virtual credit cards were issued by banks or mutual financial institutions in my country in conjunction with banks. These virtual credit cards are no different from the traditional credit cards that we understand as overdrafts. The reason why they were stopped by regulators was that, in addition to increasing the trend of loan assistance, the regulators were also concerned about the following aspects[ii]:
Damage to user rights. For virtual credit cards that require real-name authentication, if criminals impersonate others to register or steal their identities for malicious consumption or cash withdrawal, how should users protect their legitimate rights and interests? There is no clear legal provision;
Anti-money laundering tasks are difficult to perform. The application process for a virtual credit card is simple, and users do not need to provide too much personal information. Criminals can exploit this loophole to open multiple virtual credit cards for money laundering activities.
These problems are also the problems that still exist in virtual credit cards currently issued overseas. For example, one of the selling points of some virtual credit cards on the market is that they do not require KYC certification and can provide users with higher privacy protection , which is obviously contrary to China's regulatory principles.
0 4Why does the virtual credit card business involve the risk of illegal business operations?
In addition to the above problems, there are still many problems with virtual credit cards that support cross-border payments. Judging from the legal risks of illegal business operations mentioned in this article, if the platform operates in my country and provides services to users in mainland China, it may involve illegal business operations of "payment settlement" or "foreign exchange trading". The following is an analysis:
1. Crime of illegal business operation in the field of “payment and settlement”
From the above analysis, we can see that even if a virtual credit card company with an overseas entity has obtained relevant licenses in overseas regions, it is still an illegal financial activity if it operates in mainland China. According to the following regulations, this business is considered "engaging in payment and settlement business without obtaining a payment business license."
Minutes of the symposium held by the Supreme People's Procuratorate on handling cases involving Internet financial crimes
18. Payment and settlement business (also known as payment business) is a monetary fund transfer service provided by commercial banks or payment institutions between payees and payees. Non-bank institutions engaged in payment and settlement business must obtain a "Payment Business License" approved by the People's Bank of China and become payment institutions. The act of engaging in such business without obtaining a payment business license violates the provisions of Article 4, paragraph 1, items (3) and (4) of the "Measures for the Prohibition of Illegal Financial Institutions and Illegal Financial Business Activities", undermines the payment and settlement business licensing system, and endangers the order and security of the payment market. If the circumstances are serious, Article 225, item (3) of the Criminal Law shall apply, and criminal liability shall be pursued for the crime of illegal business operations. Specific circumstances:
(1) Operating online payment services based on customer payment accounts without obtaining a payment business license. Unlicensed online payment institutions illegally open payment accounts for customers. Customers first pay funds to the payment account, and then the unlicensed institution settles the funds from the payment account platform to the beneficiary's bank account based on the order information.
2. Crime of illegal business operation of “buying and selling foreign exchange”
This situation refers to engaging in foreign exchange buying, selling, exchanging, trading and other activities without obtaining foreign exchange management or financial business related licenses in accordance with the law, which violates the foreign exchange management regulations and constitutes illegal business operations.
Virtual credit cards on the market can support recharges in RMB, foreign legal tender, and virtual currencies. Although the usage scenarios are generally online payments and consumption, there is still the possibility that users can withdraw cash through third-party platforms. For example, users are allowed to transfer virtual card funds to e-wallets such as PayPal and Skrill, and then withdraw cash to bank accounts through these platforms. If virtual credit cards support virtual currency recharges and withdrawals, some users may transfer funds to virtual currency wallets through virtual credit cards, and then convert them into legal tender for withdrawal.
Through these methods, users can bypass my country's foreign exchange controls and achieve the purpose of converting one legal currency into other legal currencies.
0 5Risk Prevention Suggestions
As an innovative payment tool, virtual credit cards have diversified usage scenarios and can indeed provide great convenience to users, with considerable development potential. However, if service providers operate in mainland China, they may face legal risks such as illegal business operations.
Therefore, it is recommended that virtual credit card service providers should focus their operations overseas when conducting such business. At the same time, they must ensure that strict compliance measures are taken during cross-border operations, such as completing reasonable KYC, KYB, KYT and other anti-money laundering procedures, improving user service agreements, setting card recharge and usage conditions, ensuring compliance with the laws and regulations of the countries and regions where they are located, and preventing potential legal risks.
[i] The Central Bank: Holding only a foreign financial license to conduct business in China is an illegal financial activity https://jrj.beijing.gov.cn/jrgzdt/202111/t20211101_2525489.html
[ii] 【Old article review】The causes and consequences of the emergency suspension of virtual credit cards https://mp.weixin.qq.com/s/oxFBqWZMH_ta-J7swsDaCQ
