KYC Verification Process: 3 Steps to Compliance

KYC verification is often time-consuming, costly, and frustrating for customers — yet it remains surprisingly easy for fraudsters to bypass. This friction during onboarding leads to higher churn rates and demands significant resources to manage.

Globally, KYC standards are shaped by anti-money-laundering (AML) laws such as the Bank Secrecy Act and USA PATRIOT Act in the US, the EU’s AML Directives, and the UK’s Money Laundering Regulations. Despite regional differences, all aim to prevent money laundering, terrorist financing, and identity fraud through proper identity checks and continuous monitoring.

For banks, the average annual cost of Know Your Customer (KYC) checks exceeds $60 million, driven by the need for comprehensive verification, ongoing due diligence, and compliance. The process typically includes three components: Customer Identification Program (CIP), Customer Due Diligence (CDD), and ongoing monitoring.

What Is KYC Verification?

Know Your Customer verification is the process of confirming a customer’s identity to ensure they are who they claim to be. It’s a fundamental part of global KYC and AML compliance, helping financial institutions and online businesses meet regulatory obligations while protecting themselves from fraud.

During KYC verification, a customer’s personally identifiable information (PII) — such as their name, date of birth, and address — is validated against official documents like passports, ID cards, or driver’s licenses. Depending on the organization’s risk level, verification may also involve biometric checks, facial recognition, or database screening against sanctions and watchlists.

In short, KYC verification builds trust between businesses and customers by preventing identity theft, money laundering, and other financial crimes before they happen.

How Does KYC Verification Work?

To complete KYC verification, businesses must follow these key steps:

• Collect customer details – Request essential information like name, address, and date of birth.
• Obtain official ID documents – Ask for government-issued identification (e.g., passport, driver’s license).
• Cross-check information – Compare the provided details with the ID documents to ensure they match.

Cross-Checking Methods

The verification process can vary depending on automation levels:

• Automated checks – Some organizations use identity verification (IDV) software to scan and extract details from ID documents.
• Manual review – Others prefer human oversight, where documents are checked visually for inconsistencies.
• Hybrid approach – Combining software detection and human verification improves accuracy and helps spot tampered documents.

KYC verification is complete when the organization confirms the applicant’s eligibility and approves them for onboarding.

Why Is KYC Verification Important?

The KYC process is essential for businesses to maintain compliance and prevent fraud. In 2024 alone, over $3.2 billion in KYC and AML fines were issued in the banking sector, highlighting the high cost of non-compliance. Here are the key benefits of KYC verification:

1. Avoid heavy fines – Non-compliance can lead to massive penalties and legal troubles.
2. Reduce fraud – Verifying users helps block fraudsters and protects your platform.
3. Protect consumers – Preventing criminals from accessing your services reduces identity theft and scams.
4. Maintain business reputation – Compliance prevents PR disasters and builds trust with customers and regulators.
   

By using KYC software and authentication checks, businesses make it harder for criminals to operate, discouraging fraudulent activity before it even starts.

3 Components for a Successful KYC Verification

A successful KYC verification process involves three key steps: a customer identification program (CIP), customer due diligence and ongoing monitoring.

1. Customer Identification Program (CIP)

The CIP requirement stems from the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001. The Act’s goal is to deter and punish terrorist acts in the US and globally, including by strengthening anti-money laundering measures.

For financial institutions, this means verifying the identity of account holders. An individual can open an account with basic details (name, date of birth, address, and identification number). The financial institution must then verify those details, for example by checking the individual’s identity documents and/or looking them up on public databases, consumer reporting agencies, and similar.

2. Customer Due Diligence

The next step of the KYC verification process concerns assessing the customer’s trustworthiness. At the simplified due diligence end of the scale, it may be sufficient to verify the customer’s identity and location. Enhanced due diligence takes this further, including checking blacklists, watchlists and lists of politically exposed persons (PEPs).

Customer due diligence can also delve into an individual’s occupation, the types of transactions they make, their expected activity patterns, and more. The goal is for the financial institution to understand the particular risks associated with that individual while keeping detailed records of the checks undertaken.

3. Ongoing Monitoring

A successful KYC verification process is not a one-time activity. Monitoring must continue throughout a customer’s time with the financial institution in question. Ongoing monitoring flags changes in activity patterns: these could include unusual cross-border payments, higher-value transactions, changing payment methods, a higher volume of transactions and/or the addition of the account holder to a sanction list. The financial institution may need to file a Suspicious Activity Report if an account holder’s behavior changes sufficiently to warrant this.

Best Features for KYC Verification Processes

Digital Footprint Analysis

Digital footprint analysis starts with gathering key data points, such as email address, IP address and phone number. SEON then uses this data to build a detailed profile, drawing from over 200 signals from social media and online sources to assess whether a user behaves like a legitimate customer.

This analysis reveals valuable insights, such as a user’s number of online profiles and whether they’ve been involved in data breaches. A genuine user typically has five to six online profiles, while fraudsters often have minimal online presence, making them easier to flag for further scrutiny or outright blocking.

By analyzing these digital footprints, businesses can identify fraudsters early in the onboarding process, improving fraud prevention while ensuring a smooth customer experience.

Device Intelligence

Device intelligence goes beyond basic device identification by analyzing key data points across both desktop and mobile devices. It examines user behaviors, hardware and software configurations and real-time interactions to detect fraud patterns. With device intelligence, you can monitor:

• Whether a user has connected previously under a different username
• If the user’s actual location matches their stated one
• Suspicious device setups that may indicate spoofing attempts
• Use of common fraudster tools like Tor or mobile proxies

By leveraging thousands of real-time data points, such as device hashes, geolocation, network configurations and user preferences, device intelligence provides proactive fraud detection, ensuring secure online transactions and interactions.

How to Save on KYC Costs with Pre-KYC Checks

KYC checks can be expensive, with identity verification vendors charging anywhere from $13 to $130 per customer. These costs can quickly add up.

These costs can be significantly reduced by stopping fraudsters before they reach KYC verification. SEON’s solution, for instance, is implemented at signup and it acts as a traffic light system that filters out bad users early, ensuring that only legitimate customers make it to KYC.

In addition to saving on KYC costs, this proactive approach helps reduce fraud across your platform, making it much harder for fraudsters and money launderers to gain access to your products.

How SEON Can Augment Your KYC Verification

KYC risk assessment requirements are standard across your industry, but implementing them efficiently is key. SEON optimizes your KYC process, providing you with a competitive edge while ensuring a seamless experience for legitimate customers. Here’s how SEON can transform your KYC verification.

• Cut verification costs: Pre-screen users before full KYC to reduce manual checks.
• Detect fraud early: Identify fake or synthetic IDs using digital and device data.
• Enhance accuracy: Combine email, phone, IP, and behavioral signals for better decisions.
• Streamline onboarding: Approve legitimate users faster while maintaining compliance.

This also lays the foundation for expanding financial services capabilities. For example, loan providers seeking to implement alternative credit scoring through digital ID profiling no longer need to rely on traditional financial data. Instead, they can leverage digital footprint analysis to build their scoring models, bypassing the need for information from banks and financial institutions.

SEON enables you to onboard legitimate users quickly, applying minimal KYC checks while blocking fraudsters and requesting additional documentation only from suspicious users. Our solutions have empowered leading digital banks and fintechs to scale efficiently, serving more customers without compromising safety or compliance. By filtering out bad users pre-KYC, triggering exceptions for 3DS checks, reducing transaction fraud and minimizing defaults, SEON provides a secure, seamless experience from start to finish.

More About KYC Risk Checks Based on Industry

Explore how KYC and AML requirements differ across key sectors — and how SEON helps each stay compliant while stopping fraud early.

• KYC in Crypto: Exchanges must verify users under FATF rules. SEON automates checks to meet AML standards fast.
• KYC in Online Lending: Lenders must verify borrowers under AML laws. SEON screens applicants pre-KYC to cut risk and speed up approvals.
• KYC in iGaming: Gambling operators verify players to prevent fraud and meet AML laws. SEON enables instant, low-friction checks that keep platforms compliant.

Frequently Asked Questions

Sources

• Financial Crimes Enforcement Network. FinCEN.
• Accenture: Banking Consumer Study: Making digital more human
• World Bank: The Global Findex Database
• Merchant Machine: The Countries Most Reliant on Cash In 2021
• CNBC: 25% of US households are either unbanked or underbanked