The pause in the wave of stablecoin payments: Is U Card really a good business?

Author: Yue Xiaoyu

Is the U card really a good business?

From the very beginning with the Onekey Card, to the Infini Card, and now to the Morph Card, many well-known U Cards have been discontinued, yet there are still many projects continuously coming in to create U Cards, which can be said to be a constant influx.

The U Card makes logical sense and holds significant value: users can recharge stablecoins into the U Card and directly use it for daily consumption, addressing the pain point of small withdrawals in cryptocurrency.

However, during the actual operation of the U card, it will be found that the U card actually has many problems.

Let’s analyze this in detail.

1. First, from the perspective of the business model, only consider costs and revenues.

(1) The profit from the U card is minimal.

The U card itself is not a high-profit business; its business model consists of two parts: recharge and withdrawal fees, and earning commissions from consumption, with revenue around 1%-2%.

Overall, it is a business model of low margin and high volume.

However, Infini has created a new model: investing user funds for wealth management to earn capital management returns.

However, this also comes with new risk exposures, including funding management risks, the risk of external on-chain protocol theft, and the risk of internal malfeasance.

The result is: Infini has indeed experienced a theft incident, so the U card business can no longer operate and will focus on asset management business.

(2) The maintenance cost of U card is very high.

The costs of U Card services include technology maintenance costs, user support costs, compliance costs, and so on.

When the user base grows larger, it is necessary to maintain a customer service team to support refund and inquiry needs.

It is important to know that most users of U cards are actually retail investors. The majority of U cards are used to store hundreds of dollars in the medium to long term, but a large number of issues arise during the consumption process with these cards.

Christine, the co-founder of Infini, has publicly stated that the U Card business occupies 99% of the company's time and costs, yet it has contributed almost no revenue.

2. Let's look at the potential issues with the U card.

(1) First of all, there is compliance risk.

U card services need to comply with strict KYC and AML (Anti-Money Laundering) requirements.

U cards can easily be used for money laundering, telecom fraud, and other illegal activities. Once issues arise, card organizations and upstream banks typically pass all AML fines onto the project party, resulting in lighter penalties such as deductions from the deposit, or in more severe cases, direct termination of cooperation.

(2) The business model relies on traditional financial intermediaries.

The operating model of U Card heavily relies on traditional financial intermediaries, such as payment giants like Visa, Mastercard, and issuing institutions.

Many projects' U cards are actually not directly connected to the issuing institutions, but rather have secondary agents in between providing card issuance services.

The project party is at the very end of the ecological chain and lacks bargaining power with card organizations and issuers.

Once issues arise in the upstream sector, such as payment networks and banks cutting off cards or freezing accounts based on the “risk prudence principle”, project parties have to deal with a large number of customer complaints.

(3) In the long term, stablecoin payments will compress the U card space.

The U Card still belongs to the Web 2.5 product category, which is overall very centralized.

Users transfer stablecoins to the platform, and the platform gives you a card limit. When the funds deposited on the platform are large enough, the platform will have a strong incentive to abscond with the money or be targeted by hackers.

As some platforms gradually show a trend of directly accepting stablecoin payments, the usage scenarios of U Card will be directly impacted.

3. To summarize

From a business model perspective, the U card belongs to a low-margin, high-volume business, with low profits and high costs, requiring a focus on traffic.

From the perspective of potential risks, there are issues such as compliance risks, strong reliance on suppliers, and the compression of U card space after the popularization of stablecoins.

If we define a “good business” as sustainable, high-return, and low-risk, then the U Card clearly does not meet this criterion.

The U Card business is more suitable for large players with their own user traffic and ample resources, but for most startup projects, the returns are not proportional.

However, the cards issued by exchanges like Binance, Bitget, and CryptoCom are operating quite well. They collaborate directly with card issuers and even acquire upstream banks to solve the upstream bottleneck issue.

These major exchanges have core business support, and the U Card business can collaborate with the core business to attract new users or address some withdrawal needs.

Although stablecoin payments are very popular now, whether this new business can be developed still depends on the most fundamental business model, as well as whether the core business can be integrated to produce a 1+1>2 effect.

Of course, after diversifying the business, the common result is actually 1+1<2.

Stay cautious but optimistic.