What Is a KYC process? A Quick Explanation

KYC stands for “Know Your Customer.” It’s a standard used to ensure companies interact with real, legitimate users, not fraudsters or those linked to illegal activities. Initially introduced in the US after 9/11, KYC is a core part of anti-money laundering (AML) and counter-terrorism financing (CTF) programs.

Although it started in banking, KYC now applies to other sectors—including telecom, fintech, and most online services—and is adapted worldwide. That’s why the term eKYC (electronic KYC) has become more common.

KYC requirements vary across different sectors, meaning KYC in crypto may differ from KYC in banking. The business location also matters, as local regulations can apply. 

However, the core components of the KYC process are usually the same:

First-time users must provide official proof of identity, like bank statements and government-issued documents. This includes basic personal information: full name, date of birth, address, and other details. This data is verified and stored in the company’s database for further processing.

There are particular regulations describing this part of the KYC verification process in some countries. For example, in the US, the Customer Identification Program is used as a main guideline.

Next, companies assess customer risk profiles, assigning each customer a certain risk level—low or high—depending on their occupation, source of funds, location, etc. In other words, Customer Due Diligence is (re)assessment of already verified clients, where their transactions and other activities under the account are logged and analyzed. 

A more thorough form of CDD, this policy targets high-risk customers or transactions which must go through extra checks. This involves a detailed examination of the customer's identity and financial background to detect any potential connections to money laundering or other criminal activities. Typically, EDD is applied to politically exposed persons (PEPs) and individuals from high-risk or sanctioned jurisdictions.

This step is mandatory for customers in all risk groups. Companies monitor all accounts, flagging unusual behavior or transactions. For instance, banks may track loan applications, incoming and outgoing transactions, credit history, and more. Typically, ongoing monitoring is automated, but suspicious activity is reviewed by human agents.

When performed online, the KYC process includes four steps:

A first-time user signs up for the service by filling out a form with their name, address, social security number (SSN), and other details. This step can be automated using identity verification (IDV) solutions like Regula Document Reader SDK, which supports data entry automation.

Next, the user scans a government-issued ID, such as a passport, ID card, or driver’s license, to confirm their identity. Many services also require biometric verification, where the customer takes a selfie or records a short video in real time.

All the data submitted by the user is verified either by IDV software or human inspectors. The software performs a series of authenticity checks to confirm that the document is real, verifies the selfie through liveness detection, and matches it to the portrait in the ID. This ensures the user has presented a valid physical document that really belongs to them. Human agents do the job manually, which can take anywhere from one to several business days.

Once the user’s identity is verified, the result is returned. If the verification is successful, the customer proceeds to the next step—onboarding in the service. In cases of manual verification, the user may be invited to a live video call with a human agent for an additional check. IDV software typically completes the verification within seconds.

The KYC verification process helps stop fraud, identity theft, money laundering, terrorism financing, and other illegal activities. In a world full of deepfakes and synthetic identities, knowing your customer is more important than ever.   

Still, there are several challenges related to the KYC process. One of the main KYC challenges is user experience, which can suffer when customers are asked to fill out lengthy forms or go through time-consuming manual verification checks.

Nevertheless, a robust KYC policy helps prevent financial and reputational losses, protects customers’ personal data, and supports global efforts in AML and counter-terrorism financing.