VCC and Compliance Risks: What Do Users Need to Know?

Rapid development in cross-border shopping and online subscription services has made what is VCC an increasingly common question. Virtual credit cards have become one of the preferred payment methods due to their convenience and flexibility. However, behind this ease, there are several legal risks that need to be considered—especially for issuers offering top-up features with virtual currencies like USDT.

How Does VCC Work?

Fundamentally, virtual credit cards function the same as traditional physical credit cards: card number, expiration date, and security code. The main difference is that VCCs are only available in digital data form within apps or online platforms, without a physical plastic card.

VCCs are issued by various institutions—from banks and large financial institutions to fintech companies. The VCC ecosystem involves several parties: the issuer managing security, payment platforms providing transaction channels (such as Alipay and WeChat Pay), merchants accepting payments, and of course, users conducting transactions.

Recently, some VCC issuers have attempted to integrate virtual currencies to attract a broader user base. The emerging operational model is: users top up digital assets like USDT into their VCC, the issuer converts these funds into fiat currency (for example, US dollars), charges a service fee, and then users can shop using their VCC balance.

Potential Legal Risks

1. Unauthorized Operations

The financial industry requires special licenses. Many VCC issuers only have licenses in their home country but operate in other regions without official approval from local authorities. This can be classified as illegal financial activity.

For example, in China, parties involved in payment and fund settlement businesses without approval from relevant authorities—if transaction amounts exceed 2 million yuan or illegal profits are more than 50,000 yuan—can face criminal prosecution. This is why some VCC cards are inaccessible when user IPs are in certain regions.

2. Fund Storage and Risks of Illegal Collection

When users top up their VCCs, the funds are stored on the platform as digital balances. This model is similar to regular digital wallets (e-wallets). However, VCC issuers controlling these stored funds risk engaging in high-risk investment activities, or in the worst case—fleeing with the funds.

If user funds are used for non-transparent investment purposes without approval, VCC issuers could be accused of illegal fundraising, leading to financial losses for users.

3. Anonymity Opens Opportunities for Money Laundering

Many VCC platforms do not effectively verify cardholder identities, allowing for anonymous use. When combined with top-up capabilities using virtual currencies, the level of anonymity increases significantly. This combination creates loopholes for money laundering activities and suspicious transactions.

4. Circumventing Foreign Exchange Controls

Some VCCs support cross-border conversions between local currencies and foreign currencies. For example, a user can top up in local rupiah using digital assets, then use it in US dollars for international transactions. This violates strict foreign exchange regulation requirements in many countries.

5. Data Security and Personal Information Risks

VCC platforms collect sensitive data such as identity information, financial data, and transaction history. If security measures are not strictly implemented, data breaches can occur, leading to identity theft, asset theft, and even serious crimes like extortion.

Recommendations for VCC Issuers

Faced with these regulatory complexities, serious VCC issuers should take proactive steps:

First, ensure proper licensing. Legal operations start with obtaining relevant financial licenses in each jurisdiction where the platform operates. National licenses must be obtained from central financial authorities, not just local permits.

Second, implement strict KYC and KYT procedures. Know Your Customer (KYC) ensures each user’s identity is verified, preventing fake accounts and illegal activities. Know Your Transaction (KYT) helps understand user transaction patterns to identify risks.

Third, develop comprehensive transaction monitoring systems. Automated detection of suspicious transactions—such as rapid IP changes, high frequency, or unusual patterns—can prevent money laundering before it occurs.

Fourth, build strong internal controls. Regular employee training on compliance, anti-money laundering awareness, and clear internal procedures prevent misuse of customer assets from within.

Fifth, prioritize data security and privacy. Implement encryption, limited access, periodic security audits, and transparent communication with regulators to ensure the platform remains secure and trustworthy.

Conclusion

VCC offers convenience, but that convenience comes with heavy regulatory responsibilities. Both issuers and users need to understand that integrating with virtual currencies like USDT does not eliminate the obligation to comply with local financial regulations. Platforms operating transparently and in compliance with the law not only protect themselves but also safeguard user assets and personal data. Meanwhile, users should choose platforms with proper licensing and international security standards for safe and protected transactions.