What Is KYC? The Complete Guide for Growing Online Businesses

KYC is the first line of defence for any online business operating in a regulated environment. As soon as you start onboarding customers, you step into a space where regulators expect you to know exactly who they are. And if you want to scale globally, you will need a clear identity verification flow.

The challenge is that many early-stage teams only have a rough idea of what KYC actually involves. They know it’s “document + selfie,” but not how the process works end-to-end or why it matters beyond compliance. That gap becomes expensive fast.

Identity fraud alone caused $23 billion in losses in 2023 (Javelin Strategy & Research). Small and growing companies are hit the hardest, because a single poorly vetted user can lead to chargebacks, locked accounts, or even problems with payment providers and regulators.

If you’re building a business in fintech, crypto, or you’re simply entering new markets where verification is mandatory, this guide will give you a clear, practical overview of how KYC works and what you need to get it right from day one.

What Is KYC?

KYC, or Know Your Customer, is the process businesses use to verify a customer’s identity before giving them access to a product/service. This step helps your business make sure you’re dealing with a real person, not a stolen identity or an automated fraud attempt.

In most cases, KYC involves collecting a few core pieces of information:

• a government-issued ID;

• a selfie or short video for biometric checks;

• basic personal data like name, date of birth, nationality, and address.

This gives the business enough verified information to evaluate who the customer is and whether there’s anything suspicious about the profile. However, the types of know your customer checks that need to be done depend on the target market and regulations involved.

KYC can be done in two ways: manually, where a compliance officer reviews documents by hand, or automatically, using dedicated software that performs checks in seconds. Manual reviews are still used for edge cases, but automated KYC solutions like Allpass.ai have become the standard because they’re faster, more accurate at scale, and significantly cheaper than maintaining a large verification team.

Who Needs KYC?

Any business that lets users move money, store value, trade assets, or interact in a way that could attract fraud or regulatory scrutiny is expected to verify customer identities. In some industries, it’s mandatory by law; in others, it’s simply the only way to operate safely.

1. Regulated Financial Services

Companies offering financial services must perform KYC under the law in almost every country:

• Banks and neobanks;

• Payment providers & e-wallets;

• Remittance and money transfer services;

• Lending platforms & BNPL;

• Brokerages, investment apps, trading platforms;

• Crypto exchanges, wallets, and on/off ramps.

If you fall into this category, KYC compliance is also the entry ticket to receiving a licence or maintaining banking/PSP partnerships.

2. High-Risk or High-Value Industries

These industries often face strict requirements or strong regulatory expectations because they’re frequently targeted by fraud, money laundering, or abuse:

• iGaming & betting;

• Real estate;

• Legal & accounting services;

• Precious metals, luxury goods, art marketplaces;

• Insurance providers.

3. Platforms that Rely on Trust Between Users

Here, KYC is less about regulation and more about preventing fraud, chargebacks, and platform abuse:

• Marketplaces (buyers/sellers, service providers);

• Gig-economy platforms (drivers, couriers, freelancers);

• Rental platforms (cars, equipment, property);

• Social, dating, or community platforms with safety requirements.

These companies often introduce KYC procedures because not knowing who their users are can hurt revenue, damage reputation, and put other customers at risk.

4. Any Business Scaling Internationally

Even if your home market doesn’t require KYC, entering new regions often changes the rules. Payment providers, banks, and partners will demand proper customer verification before allowing you to operate or process transactions abroad.

Why KYC Matters Beyond Compliance

For most businesses, having a KYC onboarding process is mandatory. But a clear identity verification flow is also one of the simplest ways to scale efficiently.

When your verification process is automated, you can onboard more users without increasing headcount. For example, companies that move from manual KYC to automated onboarding with Allpass.ai see onboarding speed increase by up to 3 times. See the cases from Manimama and Webport Technology.

Instead of building a large manual review team, you have KYC software handle most of the work. Compliance officers only step in to approve clients or when the system flags an issue. This keeps operational costs predictable, even as your user base grows.

KYC also helps protect your customers, especially if your product involves interactions between users, like a trading platform. When you reliably verify the identity of your users and monitor user activity, you create an environment where people feel safer and more confident using your service. That consistency builds trust, which directly strengthens the community around your product.

And finally, strong KYC signals to partners and investors that you take security seriously. It shows that you’re committed to running a responsible and reliable business.

Types of KYC Verification

There are many ways in which know your client procedures can be done. Different industries and markets use different approaches depending on their risk level, KYC regulations, and user experience goals.

Most modern companies use a combination of document-based and biometric checks delivered through KYC software, which is the standard for fast, scalable onboarding.

1. Document-Based KYC

This is the foundation of most modern KYC flows. The user provides a government-issued ID (passport, ID card, driver’s licence), and the business verifies it. It can be done manually or automatically.

2. Digital KYC / eKYC

The digital identity verification process happens entirely online. Users upload their documents and complete identity checks through a digital interface. In some countries, “eKYC” also refers to using official digital identity systems (like BankID, Aadhaar, or eIDAS).

3. Video KYC

Verification is completed through a live video call or guided video session. Some jurisdictions require it for high-risk users or as an alternative to in-person checks. India is the most well-known example where video KYC is fully regulated.

4. Biometric KYC

This method verifies the customer using biometrics, typically face match and liveness detection. It ensures the person is real, present, and matches the document. Today, biometric KYC is essential for preventing AI-generated fraud and deepfakes.

5. In-Person KYC

This is a traditional and quite outdated approach: the customer physically presents their ID to a branch or authorised agent. It’s slow and expensive, but some markets still require it for specific services.

The Core Components of a KYC Process

A reliable online identity verification procedure looks like a set of controls that work together to gather personal data, assess customer risk, and monitor activity over time. For most regulated companies, the process can be broken down into four main components.

1. Identity Verification

This is the starting point of every KYC flow. The goal is to confirm the person is real and the data they provide is legitimate. It typically includes such steps as:

• capturing an ID document;

• verifying its authenticity;

• taking a selfie or short video;

• running liveness checks;

• matching the face to the document;

• extracting the personal data in a structured format

Depending on the goal and the KYC platform you’re going to use, additional steps might be introduced. For example, you can add phone and/or email verification when creating a flow in Allpass.ai to reduce spam and bot accounts.

The KYC system organizes all the collected data and runs the actual checks. It compares the customer’s face to the document photo, evaluates whether the document is genuine, and confirms that the person in front of the camera is truly present and not a spoof or deepfake.

In most modern solutions, including Allpass.ai, these steps are powered by AI. This not only increases the accuracy of the verification but also saves a significant amount of time for compliance officers by reducing the number of cases that require manual review.

2. CDD (Customer Due Diligence)

Once identity data is collected, the company needs to understand how risky this customer is. Customer due diligence screens the user against:

• sanctions lists;

• PEP (Politically Exposed Persons) lists;

• watchlists;

• adverse media;

• high-risk jurisdictions;

• internal fraud databases.

This step is automated because doing it manually would take forever. No compliance officer can realistically check thousands of watchlists by hand. Allpass.ai runs these screenings across more than 3,000 global sources in minutes, and a human steps in only if the system finds a match.

3. AML Check and Ongoing Monitoring

KYC doesn’t stop after onboarding. Regulated companies must keep an eye on customer activity over time to spot behaviour that might indicate money laundering, fraud, or other illegal actions.

This includes:

• transaction monitoring (also known as KYT);

• alerts for suspicious patterns;

• periodic re-screening against sanctions and PEP lists;

• updating risk scores when customer behaviour changes.

KYT and re-screening are mostly done automatically as well. For example, in Allpass.ai, you can re-screen customers as often as you need — even daily, if your risk profile requires it. The frequency is fully configurable, so you can align it with your internal policies or regulatory expectations.

Allpass.ai also supports crypto transaction monitoring, which is a capability that most all-in-one KYC platforms don’t offer. This means you can track both user identity and on-chain behaviour in one place, without stitching together multiple tools.

4. Enhanced Due Diligence (EDD)

This is the higher level of scrutiny applied when a customer is considered high-risk. Enhanced due diligence requirements may involve:

• requesting additional documents;

• verifying the source of funds;

• more frequent monitoring;

• deeper investigation by compliance officers.

Most users never reach this stage, but for high-risk profiles, EDD is mandatory from a regulatory standpoint.

KYC Regulations Around the Globe (And What They Mean for Your Operations)

Most modern KYC requirements are built on recommendations from the Financial Action Task Force (FATF). FATF sets the international standard for:

• when you must do CDD;

• what “ongoing monitoring” should look like;

• how to treat high-risk customers and PEPs.

Countries then turn these recommendations into local laws. If you operate across multiple markets, you’ll see the same themes repeated — risk-based CDD, beneficial ownership, sanctions checks, monitoring — just with slightly different labels and expectations.

You don’t need to memorise laws, but you do need to design your onboarding around regulatory expectations of your target market.

1. European Union

The EU has a full AML/CFT framework: there’s the AML Package and the AMLA authority. Core operational requirements for obliged entities include:

• Customer due diligence at onboarding: You must identify and verify each customer using reliable, independent sources (docs, data, digital IDs).

• Beneficial ownership checks: for legal entities, you need to identify and verify the ultimate beneficial owners (typically at or below the 25% threshold, with stricter expectations in high-risk sectors).

• Ongoing monitoring: you’re expected to monitor transactions and re-assess CDD when risk changes or something looks suspicious.

• Mandatory use of tech is increasingly explicit: regulators explicitly encourage or require technological solutions for KYC, screening, and monitoring.

To sum up, to operate in the EU, you’ll need a documented AML/KYC program, risk-based CDD rules, sanctions/PEP screening, and audit-proof recordkeeping. Failures can result in multi-million-euro fines and forced remediation projects that stall business growth.

2. United Kingdom

In the UK, KYC/AML obligations are mainly defined by the Money Laundering Regulations 2017 (MLR 2017) and enforced by the FCA (or HMRC/others for certain sectors). The key expectations are:

• Customer due diligence on all clients: you must verify identity, understand the business relationship, and identify beneficial owners where relevant.

• Enhanced due diligence: required for PEPs, high-risk countries, unusual structures, etc. Firms must have procedures to identify PEPs and apply stronger checks.

• Ongoing monitoring & internal controls: you must monitor business relationships, flag suspicious activity, and maintain internal controls, staff training, and clear reporting lines

The FCA has not been shy about penalties. For example, Standard Chartered was fined over £100 million for repeated AML breaches linked to weaknesses in systems and controls.

To ensure KYC and AML compliance, you’ll need risk-based workflows by customer segment, a designated MLRO/compliance lead, monitoring rules, and a way to prove to the FCA (or relevant supervisor) that your controls actually work, not just exist on paper.

3. United States

In the US, KYC sits inside a broader BSA/AML framework: the Bank Secrecy Act (BSA) plus the USA PATRIOT Act and FinCEN’s CDD Rule. The KYC compliance for this region looks something like this:

• Written AML program: Policies, internal controls, a designated compliance officer, independent testing, and training — all mandatory.

• Customer identification & CDD: You must identify and verify customers and maintain CDD procedures appropriate to your risk profile.

• Beneficial ownership of legal entities: FinCEN’s CDD Rule requires institutions to identify and verify beneficial owners of legal entity customers (generally those owning ≥25% or exercising substantial control).

• Suspicious Activity Reports (SARs): You must detect and report suspicious activity and keep detailed records.

Expect heavy emphasis on documentation and audit trails. If you’re a fintech partnering with US banks, they’ll effectively “push down” BSA expectations onto your onboarding and monitoring systems. Weak KYC/CDD can kill bank partnerships quickly.

4. Asia–Pacific (APAC)

KYC and AML rules in APAC vary a lot from country to country, since this is a large region. However, if you were to operate in APAC, pay attention to these markets because they often shape expectations for the region:

1. Singapore (MAS): one of the most mature and clearly defined AML/KYC frameworks in APAC. MAS fully supports digital onboarding, but expects a risk-based approach, robust CDD, and strong internal controls.

2. Hong Kong (HKMA & SFC): similar structure to the UK: strict onboarding rules, strong emphasis on beneficial ownership, and clear expectations for ongoing monitoring.

3. Australia (AUSTRAC): covers a wide range of businesses, including digital currency exchanges and gambling platforms, with detailed AML/CTF requirements.

In other APAC markets, the level of maturity varies, but the trend is the same: regulators increasingly expect digital onboarding to include document checks, biometrics, sanctions screening, and appropriate monitoring.

5. Latin America (LATAM)

LATAM doesn’t have a unified KYC framework, but most countries follow FATF standards and have been tightening their AML rules rapidly over the past few years. Three markets usually set the tone for the region:

1. Brazil (Central Bank of Brazil / BACEN): one of the most advanced digital identity ecosystems in LATAM. Brazil allows fully digital KYC, expects strong identity verification, and requires clear CDD processes for financial institutions and fintechs. PIX adoption accelerated the need for reliable onboarding and fraud prevention.

2. Mexico (CNBV): strict AML laws for banks, fintechs, and crypto. Digital KYC is permitted, but high-risk customers may require enhanced checks. Mexico’s Fintech Law requires regulated entities to follow defined onboarding, CDD, and reporting standards.

3. Colombia (SFC / UIAF): detailed AML requirements for financial services and VASPs. Digital KYC is accepted, but businesses must apply a risk-based approach, monitor transactions, and report suspicious activity.

When entering LATAM, understand which industries are tightly regulated and which allow more flexibility in onboarding workflows. Digital KYC is common, but the acceptable methods can differ by country.

How to Choose KYC Compliance Software

The best approach is to choose a solution that covers all identity, risk, and monitoring needs in one place. Using multiple KYC tools quickly becomes expensive, inconsistent, and difficult to scale. It also makes it a lot harder to report to a regulator when the time calls for it. A unified system is easier to manage, easier to audit, and much more reliable as your user base grows.

To make the most out of KYC automation, look for a system that has the following:

• Regulatory fit: Make sure the provider supports the verification methods required in your target markets.

• Strong fraud detection: Choose a provider with reliable document checks, liveness, face matching, and deepfake protection.

• Customisable flows: You should be able to shape your verification flow and adjust the risk logic without heavy engineering work.

• Global coverage: Check that the provider supports a wide range of documents and has OCR that handles non-Latin scripts.

• Speed: Verifications should take seconds, not minutes. A slow flow kills conversion.

• Built-in AML screening: Sanctions, PEPs, watchlists, and adverse media should all run automatically in the background.

• Scalability: As your user base grows, the system must keep up without increasing manual review.

Allpass.ai was built around these principles: an all-in-one platform that combines automated KYC, CDD, AML screening, and crypto KYT. Flows are fully customisable, every verification method can be fine-tuned, and the system is priced so that early-stage companies can start strong without taking on enterprise-level costs. It’s a practical way to keep compliance tight while your onboarding stays fast and your team stays lean.

5 Best Practices for Getting KYC Right From Day One

A good KYC setup isn’t just about meeting requirements — it’s about building a process that works reliably, scales with your business, and doesn’t frustrate your users or your compliance team. Here are a few principles that make a real difference in practice.

1. Automate the Repetitive Work From the Start

Anything that can be objectively checked by a machine should be automated: document validation, liveness, face match, sanctions screening, and basic CDD. These tasks don’t need human judgement, and doing them manually becomes painfully slow as soon as onboarding volume increases. Automation keeps decisions consistent and frees your compliance team to focus on the cases where expertise actually matters.

2. Keep Humans for the Exceptions, Not the Entire Process

Human oversight is still important — just not for every single user. Compliance officers should only step in when something requires context: a potential sanctions hit, unclear biometrics, contradictory data, or a genuinely high-risk case. This balance keeps risk under control without turning your onboarding into a bottleneck.

3. Do Ongoing Monitoring, Even if the Regulator Isn’t Asking for It

A customer who looked fine at onboarding might become risky six months later because they appeared on a sanctions list or suddenly changed transaction patterns. Periodic screening and basic behavioural monitoring catch these issues early. It’s far easier (and cheaper) to prevent a problem than to clean one up.

4. Don’t Force Everyone Through the Same Tunnel

Not all users should go through the same level of checks. Give low-risk users a simple flow. Apply additional steps only where they actually add value: high-risk countries, large transactions, business accounts, or specific regulatory requirements. This keeps conversion high while still protecting your business where it matters.

5. Pay Attention to Real-World Onboarding Conditions

Chances are that users go through onboarding at random places and moments. Imagine someone in their kitchen at 11 p.m., using the camera on their phone with bad lighting.

That’s why your flow needs clear instructions, intuitive steps, and good error handling. These details dramatically reduce drop-offs and prevent unnecessary manual reviews. People expect to complete verification quickly, so test it yourself before serving it to your customers.

Build Solid KYC Compliance Without Blowing Your Budget

Now you have everything you need to build a solid KYC onboarding setup in your company. And if you want to move faster, Allpass.ai can help you get there. It integrates easily, takes minutes to configure, and saves you both engineering time and compliance overhead. You cut down on manual work from the start and onboard users up to 3x faster without stretching your budget.

Create a free account and test our KYC software.