KYC Explained

Know Your Customer (KYC) is the process of verifying the identity of your customers to prevent fraud, money laundering, and terrorist financing.

What is KYC?

KYC is a regulatory requirement for businesses in financial services, fintech, cryptocurrency, gaming, and other industries to:

1. Verify customer identities - Confirm customers are who they claim to be
2. Assess risk - Evaluate potential money laundering or fraud risk
3. Monitor activity - Detect suspicious behaviour and transactions
4. Maintain records - Keep audit trail for regulatory compliance

Why KYC Matters

For Your Business

Regulatory Compliance:

• Avoid fines (up to €20M or 4% of revenue under EU law)
• Maintain business licences
• Access banking and payment services

Fraud Prevention:

• Reduce account takeover fraud
• Prevent synthetic identity fraud
• Detect fake documents

Trust and Reputation:

• Build customer confidence
• Protect brand reputation
• Reduce chargebacks and disputes

For the Financial System

• Prevents money laundering
• Combats terrorist financing
• Reduces financial crime
• Protects consumers

When KYC is Required

KYC Verification Levels

Tier 1: Basic KYC

Requirements:

• Name
• Email
• Date of birth
• Country of residence

Verification: Email verification only

Use Case: Low-value transactions (<$500), non-regulated industries

VeriPlus Profile: N/A (no document verification)

Tier 2: Standard KYC

Requirements:

• Government-issued ID document
• Selfie (proof of possession)
• Address verification (optional)

Verification: Document + face match

Use Case: Most fintech, e-commerce, marketplaces

VeriPlus Profile: STANDARD (2 credits)

Tier 3: Enhanced Due Diligence (EDD)

Requirements:

• Government ID + selfie + liveness check
• AML screening (sanctions, PEP)
• Source of funds documentation
• Ongoing monitoring

Verification: Document + biometric + AML

Use Case: High-risk customers, large transactions (>$10,000), crypto exchanges

VeriPlus Profile: ENHANCED + AML (6 credits)

KYC Information Collected

Individual Customers

Personal Information:

• Full legal name
• Date of birth
• Nationality
• Residential address
• Contact details (email, phone)

Identification Documents:

• Passport
• National ID card
• Driver's license

Biometric Data (optional):

• Facial image
• Liveness detection

Risk Assessment:

• Country risk
• Transaction history
• PEP/sanctions screening

Business Customers (KYB)

Company Information:

• Legal entity name
• Registration number
• Incorporation date and country
• Registered address
• Business activity

Beneficial Owners:

• Individuals owning >25% of company
• KYC verification for each beneficial owner

Corporate Documents:

• Certificate of incorporation
• Articles of association
• Shareholder register
• Proof of address

KYC Process Flow

1. Customer Registration

User provides basic information (name, email, DOB)

2. Document Upload

User uploads government-issued ID document

3. Biometric Verification

User takes selfie for face matching

Optional: Liveness detection to prevent spoofing

4. Document Verification

AI checks:

• Document authenticity (not forged)
• Data extraction (name, DOB, document number)
• Expiry date (not expired)

5. Face Matching

Compare selfie to ID document photo (typically 85%+ match required)

6. AML Screening (if required)

Check customer against:

• Sanctions lists (OFAC, UN, EU)
• Politically Exposed Persons (PEP) databases
• Adverse media (financial crime mentions)

7. Risk Scoring

Calculate overall risk score based on:

• Document verification results
• AML screening hits
• Country risk
• Transaction patterns

8. Decision

• Approved: Customer verified, account activated
• Rejected: Verification failed, account blocked
• Manual Review: Uncertain results, human review required

KYC vs KYB vs AML

KYC Regulations by Region

European Union

Directive: 5AMLD (Fifth Anti-Money Laundering Directive)

Requirements:

• Customer due diligence (CDD) for all customers
• Enhanced due diligence (EDD) for high-risk
• Ongoing monitoring
• Record retention: 5 years

Thresholds:

• €1,000 for occasional transactions
• €150 for prepaid cards

United States

Law: USA PATRIOT Act, Bank Secrecy Act (BSA)

Requirements:

• Customer Identification Program (CIP)
• Beneficial ownership (FinCEN CDD Rule)
• Ongoing monitoring
• Record retention: 5 years

Regulator: FinCEN (Financial Crimes Enforcement Network)

United Kingdom

Regulation: Money Laundering Regulations 2017

Requirements:

• CDD for all customers
• EDD for PEPs and high-risk
• Ongoing monitoring
• Record retention: 5 years

Regulator: FCA (Financial Conduct Authority)

Cryptocurrency (Global)

Standard: FATF Travel Rule

Requirements:

• KYC for all customers
• Share customer data for transactions >$1,000
• Crypto wallet screening (KYT)
• Ongoing monitoring

Effective: 2020+ (staggered implementation)

Common KYC Challenges

1. Customer Friction

Problem: Long verification processes lead to drop-off

Solution: VeriPlus completes verification in 30-90 seconds

2. False Positives

Problem: Legitimate customers rejected due to poor document quality

Solution: AI-powered verification with 98% accuracy

3. Global Coverage

Problem: Supporting 200+ countries with different document types

Solution: VeriPlus supports passports, national IDs, driver's licences worldwide

4. Deepfakes and Fraud

Problem: Fraudsters use AI-generated documents and faces

Solution: VeriPlus deepfake detection (image + video + liveness)

5. Regulatory Changes

Problem: Regulations constantly evolving

Solution: VeriPlus updates compliance rules automatically

KYC Best Practices

1. Risk-Based Approach: Apply stricter KYC for high-risk customers
2. Periodic Re-verification: Re-verify customers annually or when risk changes
3. Ongoing Monitoring: Monitor transactions for suspicious activity
4. Document Everything: Maintain audit trail for regulators
5. Use Technology: Automate verification to reduce costs and friction
6. Train Staff: Ensure compliance team understands regulations
7. Data Protection: Comply with GDPR and data privacy laws

VeriPlus KYC Capabilities

VeriPlus provides complete KYC compliance:

ROI of KYC Automation

Manual KYC (in-house team):

• Cost per verification: $5-15
• Time per verification: 10-30 minutes
• Accuracy: 85-90%
• Scalability: Limited

Automated KYC (VeriPlus):

• Cost per verification: $0.50-1.50 (1-3 credits)
• Time per verification: 30-90 seconds
• Accuracy: 98%+
• Scalability: Unlimited

Savings: 70-90% cost reduction, 95% time reduction

Next Steps