The question “what is KYC verification?” has become one of the most important queries for businesses and customers alike. Know Your Customer (KYC) verification has become so important that businesses could be fined by regulatory authorities for not complying with fixed standards. In this article, we are going to discuss the meaning of KYC, the 3 pillars of KYC compliance,  and the entire KYC verification process as well as other related questions to KYC.

 

What is KYC verification?

 

KYC Verification Meaning:- What is KYC verification?

 

KYC verification simply refers to the process that a business undergoes to verify the identity of customers to ascertain their credibility and legitimacy. This process is often refereed to as KYC authentication or KYC identity verification. This is done to assess the risks associated with carrying out transactions with such customers and is part of the business's customer due diligence framework.

 

Although primarily used by banks, insurance and businesses in the finance industry, KYC procedures has become important across several industries and even mandatory for organisations in more conventional industries like eCommerce and gig economy platforms.

 

For example, KYC meaning in banking focuses on compliance, while other businesses use KYC verification online and KYC online verification to onboard customers digitally.

 

Why have KYC verification?

 

The KYC process was born out of a need to establish a system that is able to track money introduced into the economy. Some important tracking details include where the funds are from, where it is being sent to, the personnel involved and other necessary details depending on the peculiarity of the situation. By monitoring them, the government is able to identify and restrict illegal activities to protect stakeholders of the business.

KYC stands for compliance, but it also provides protection for businesses. For example, companies can screen out politically exposed persons (PEPs) or criminals using KC checks. 

 

Know Your Customer (KYC) processes have been in existence for a long time, precisely since the 90s. However, they have become more stringent today since the rise in terrorist attacks, identity theft, and other cyber-related frauds.

 

As a business owner too, you can easily identify your customer and know the appropriate action to take depending on the result. For example, businesses can identify criminals or individuals with a history of money laundering or currently listed on the anti-money laundering watch list. They can also identify Politically Exposed Persons (PEP) and take necessary actions depending on their findings. If you own a business, you wouldn’t want to transact with a wanted money launderer, would you?

 

This process has become a key part of the Customer Identification Program (CIP).

 

Recommended - Know Your Business (KYB) - Understanding the Fundamentals for Organisations Today

 

Why Does KYC Mtter? The importance of KYC

 

The major objective of KYC is to prevent financial institutions from being used as elements for money laundering and possibly terrorism activities, and fraud. However, it also helps banks/ financial institutions identify, assess, and understand their customers to better manage the risks associated with carrying out transactions.

 

Here are some of the most common reasons for mandating KYC verification in the business world today:

 

1. Identity Theft

 

Identity theft is a key major area that KYC addresses. Due to the lack of sophisticated systems in the past, criminals could simply use a fake name and address to transact with financial institutions. However, over time, technology that thoroughly carries out background checks was developed, forcing criminals to get smarter and use well-thought-out identity masks to escape checks.

 

However, KYC today is a thorough mix of both physical and digital identity verification, helping financial organizations detect identity theft from a mile. It ensures identity cannot be easily stolen or used under false pretence.

 

With KYC online verification and biometric checks, institutions can easily validate the identity of customers to assess risks, prevent the opening of fake accounts, and fake identities.

 

2. Money Laundering

 

Money laundering is another major act used by criminal activities to perpetrate their acts. The term basically refers to the process of transferring money illegally. This includes human trafficking, racketeering, narcotics, and more. With KYC verification online, criminal organisations make use of dummy accounts to save money in the bank, spreading it evenly across to avoid any form of suspicion. The money is then transferred via illegal means to subsequent offshore or local accounts for laundering.

 

A good example of this is money used to purchase stolen arts, jewellery, and gold. These items could alter be sold in exchange for money as a legal transaction.

 

3. Terrorist Financing

 

Terrorist financing became a major focus of the US and other governments around the world after the 9/11 incident that saw terrorists blow up the twin tower buildings in America. One of the major ways to crack down on terrorist attacks was to close down terrorist financing. Many terrorist attacks have been known to be funded by individuals in the country.

 

Like in the case of 9/11, it was later discovered that individuals and agencies were using funds generated in the U.S to sponsor the act. Basically, the money was generated by businesses in the country and then transferred to shell accounts of terrorists. With KYC the government was able to identify these accounts and their owners and stop subsequent money laundering activities.

 

As a business owner, KYC authentication can save you too from getting into business with the wrong customers.

 

4. Financial Fraud

 

Financial fraud is another activity that KYC has helped reduce greatly. Basically, it refers to other financial fraudulent activities beyond terrorist financing and money laundering. For example, before the proper implementation of KYC, perpetrators were used to setting up dummy accounts using fake IDs for carrying out criminal activities. Such an individual could use the fake account to apply for a loan, obtain it and dupe the back of the amount while leaving the account docile for good.

 

This is the reason why banks today are known for the most stringent KYC processes.  

 

What are the Three Pillars of KYC?

 

A strong KYC framework rests on 3 core pillars that every bank and business must implement to remain KYC compliant and reduce financial crime risk. Also called the 3 components of KYC, they include:

  1. Customer Identification Program
  2. Customer Due Diligence (CDD)
  3. Ongoing Monitoring.

Here is what each step involves and how Youverify helps banks in meeting their requirements:

 

1. Customer Identification Program (CIP)

The Customer Identification Program is the foundation of every KYC process. It answers two main questions: Who is the customer, and can their identity be trusted?

At this stage, institutions usually collect four information from the customers. They include:

  • Full legal name
  • Date of birth
  • Residential address
  • Government-issued identification number

In order to meet the global KYC and AML compliance requirements, the 4 details have to be verified using biometric or identity verification methods. With Youverify's KYC verification solution, banks and other businesses can verify the identities of their customers using thousands of document types across over 140+ countries including the South Africa, Kenya, Nigeria, UK, Canada, and the US.

Youverify's AI-powered ID verification solution supports documents and biometric checks that enables the instant fraud detection in ID documents.

 

2. Customer Due Diligence (CDD)

After a customer's identity has been verified, the next step is to carry out a customer due diligence. Customer due diligence is the process whereby institutions assess its customer's risk profile and ensures that high-risk individuals do not go without being scrutinized and verified.

Customer due diligence (CDD) includes:

  • Screening against global sanction watchlists, and PEP (politically exposed persons) database.
  • Evaluating any link to financial crime or suspicious activity.
  • Assigning a risk score (low, medium or high) to customers based on customer assessment.

When a customer is considered to be a high-risk customer, institutions must carry out enhanced due diligence. This involved reviewing the source of funds and source of wealth  , checking beneficial ownership structures or examining the customer's business connections.

Youverify automates AML screening and delivers real-time alerts, helping compliance teams detect any risk faster and act quickly so they can stay compliant with the constantly evolving AML requirements.

 

3. Ongoing Monitoring

KYC verification does not end at onboarding stage. Even if a customer passes initial KYC checks, their activity still need to be monitored continuously, as risk levels can change over time. This is known as Ongoing monitoring in AML.

Ongoing Monitoring involves:

Tracking transactions to spot unusual patterns (e.g., sudden spikes in transfers, frequent large payments)

Re-screening high-risk customers at set intervals

Identifying and flagging activities that breach AML thresholds

With Youverify’s AML monitoring tools, businesses benefit from continuous risk assessment that adapts to changing transaction behaviour.  Any suspicious activity is automatically flagged for review or reported to relevant authorities, protecting institutions from regulatory breaches and reputational damage. 

 

How is KYC verification done?

 

How does the KYC verification process work? Although primarily starting with banks and financial institutions, it is used by several businesses in other industries. This especially applies to online businesses. As a rule of thumb, organisations mostly design their KYC procedures using any of the following approaches:

 

  • Risk Management and KYC checks
  • Transaction Monitoring
  • Customer Acceptance Policy
  • Customer Identification procedure

 

KYC verification processes in organisations usually include the following:

 

  • Collecting, scrutinizing, and verifying personal identity documents provided by customers.
  • Matching ID documents against global money laundering and terrorism watch lists generated by international organisations.
  • Identifying and assessing risks associated surrounding business transactions with customers based on past history and behavioural analysis.
  • Observing and matching customer actions with expected behaviours during transactions.

 

Customer Acceptance Policy for KYC

 

Customer acceptance policy is the most foundational aspect of KYC that lays down the rules and regulations around a customer’s interaction with a business. Basically, the policy lays out the minimum requirements and other documentation necessary for the customer to provide.

 

These include personal identification documents (IDs), address verification, photo identity, and other documents requested by the organisation for proof of identity.

 

Customer Identification Procedures for KYC

 

After a customer accepts the presented KYC policy, the next step is for the organisation to proceed to identify the person through the documents he or she provided. On confirmation, a financial account can then be opened. The minimum KYC requirements for opening such an account include:

 

  • Name
  • Address
  • Date of birth
  • Identification number

 

However, the information is not limited to these alone. The exact requirements listed by a bank depend on the following:

 

  • The type of account a customer intends to open
  • The type of bank
  • The banks' procedure for opening an account
  • The bank’s size and customer database

 

This information is gathered and verified by the bank within a reasonable time as part of the KYC process. You can contact the best identify verifications service here. The verification process also involves comparing data from other sources like agencies and public databases to verify the customer’s claims. This helps the organisation satisfy AML and KYC requirements.

 

Read Also - What is pKYC? All You Should Know About Perpetual Customer Due Diligence

 

What are the methods of identity verification?

 

The various methods of identity verification include:

 

 

As a bare minimum, financial organisations request and verify government-issued IDs to determine the legal identity of the individual. Examples of this include driver’s licenses, NIN, BVN, passports, or more depending on the specific country.

 

These documents should also carry a picture of the individual as well as indicate the person's nationality as the bare minimum. The organisation could request one or more of these documents. This way, any doubts that arise from a document may be verified and therefore, mitigated in a supporting document.

 

What are the Advantages of a Robust KYC Process

 

KYV verification process was designed to protect financial institutions and businesses against money laundering, financial fraud, identity theft, and terrorism financing.

Our resource on the advantages of KYC   details the benefits of KYC in banks and different businesses.

 

What is Electronic identity verification for KYC?

 

Electronic Identity Verification (eIDV) or Digital Identity Verification was introduced to further fortify the KYC procedures without hard copy documents. Today, eIDV offers some of the most secure levels of risk identification and control.

 

The major verification method used is in matching the information provided by a customer with what’s available in government and public databases and other agencies. This makes the KYC process faster, creating a smoother overall customer experience.

 

Institutions could also carry out background checks on the customer and go through their financial statements, though this is slower than outright eIDV.

 

For a more secure KYC process, institutions combine both digital verification, document verification, and non-document verification approach to confirm identities.

 

Verifying customers with KYC

 

The Customer Identification Program (CIP) is very important for risk assessment and monitoring of business-customer relationships and transactions. As a small business owner or organisation, you can scrutinize every individual you do business with using an excellent identity verification service.

 

Achieving KYC onboarding is easy when using Youverify’s operating system or YV OS. This innovative software is Youverify’s flagship product that simplifies the whole Know Your Customer process for you. You can create automated forms that perform a preset action based on the KYC needs of your business after verifying the identity and credentials of potential customers.

 

 

 

You can now onboard customers and complete KYC using just their mobile phone numbers. Keep in mind that it has to be the phone number linked to their bank account and NIN. By collecting their phone numbers, our “Advanced Search” can help you retrieve other relevant information like their NIN, BVN and full data.

 

The implication is that businesses and organisations can now onboard customers with just their phone numbers and complete KYC with full compliance. This greatly transcends the current use of customers' phone numbers for only user authentication like OTP.  

 

 Advanced Search is available on our flagship product, YV OS, and is the only available to customers in compliance with the Nigeria Data Protection Regulation (NDPR).

 

Book a demo session today to see how YV OS can help automate your business’s KYC Due Diligence! Also, feel free to contact us here for any questions.

 

Important FAQ on KYC Verification

 

1. What are the requirements for KYC?

KYC requirements differ in several jurisdictions; however, customers must present a government-issued ID to verify their identity. In some cases, financial institutions may ask for 2 forms of identification, a passport, driver's license, birth certificate or social security card. 
In addition to verifying the identity of a customer, the address must also be verified, and this can either be done through the ID card if it contains it, the utility bill or the bank statement.

 

2. How Much does KYC cost?

Recent studies show that the cost of meeting KYC and AML requirements is growing fast. For example, in 2023 financial institutions across Europe, the Middle East, and Africa (EMEA) spent about US$85 billion on financial crime compliance.

Over in the U.S. and Canada, the cost hit roughly US$61 billion in the same period. Globally, spending on AML/KYC data and services is projected to reach US$2.9 billion in 2025 as more firms invest in tools powered by AI and machine learning.

 

3. What are KYC documents?

KYC documents are formal documents required for identity verification during the customer onboarding process. It includes a government-issued ID card, passport, utility bill, and driver's license.

 

4. What is the difference between AML and KYC?

KYC focuses mainly on verifying the identities of customers during the onboarding process, while AML focuses on a broader range of activities such as detection, monitoring, and reporting of suspicious transactions.

 

5. Can Youverify's KYC verification solution be integrated with our existing core banking system/CRM/other compliance tools?

Yes! Youverify’s  KYC software for banks and fintechs integrates seamlessly with your core banking system, CRM, or other compliance tools. We offer flexible APIs and SDKs, with a typical integration timeline of just a few weeks. Our team provides full support to ensure a smooth setup.

 

6. What is identity verification KYC?

Identification KYC is the process of verifying the identities of customers to meet KYC compliance requirements and build trust with customers.

 

7. Why is KYC important?

KYC is important for banks because it helps prevent financial crime, such as fraud, money laundering, and terrorist financing, by ensuring that customers are who they say they are. KYC also help to build trust with customers.

 

8. What is KYC in banking

KYC in banking is a mandatory process of verifying a client's identity to prevent fraud and comply with regulations like those from the FATF.

 

9. What KYC/AML regulatory requirements does Youverify's solution help us meet?

Youverify’s industry-leading KYC solution helps you comply with global and local regulations, including the KYC/AML Directive, FATF recommendations, GDPR, CCPA, and other regional requirements. Our platform is designed to adapt to evolving regulations, ensuring you stay compliant effortlessly.

 

10. What are the three components of KYC?

The three components of KYC, according to FATF, are Customer Identification Program, Customer Due Diligence and Continuous Monitoring.

 

11. What identity verification methods does Youverify offer?

Youverify's KYC verification solution includes ID document verification, ID Data matching, facial recognition, adverse media, address verification, biometric verification, bank account verification, consumer credit report, pep & sanction screening, domestic PEP, biometric authentication, liveness detection, and database checks. We tailor these methods to your risk profile and customer demographics, ensuring optimal accuracy and efficiency.