Definition
Know Your Customer (KYC) is a set of controls used to identify and verify a customer’s identity, understand the nature and purpose of the relationship, and support risk-based monitoring over time. In most regulated contexts, KYC sits inside anti–money laundering and counter–terrorist financing (AML/CFT) programs and is anchored in widely adopted international expectations (for example, the FATF standards). (FATF)
In the U.S., KYC is commonly implemented through a Customer Identification Program (CIP) (to form a reasonable belief you know the customer’s true identity) and Customer Due Diligence (CDD) controls (including identifying and verifying beneficial owners for certain legal-entity customers). (eCFR)
In the EU, KYC requirements are typically implemented through AML directives (and related “obliged entity” requirements) that define customer due diligence expectations across member states. (EUR-Lex)
How it relates to marketing
In regulated industries (financial services, fintech, crypto/virtual asset services, payments, gaming, some marketplaces, and other risk-sensitive verticals), KYC is a gating step in digital acquisition and onboarding. That makes it directly relevant to funnel performance, onboarding experience design, and lifecycle communications (for example, nudges to complete verification, or suppression of certain offers until verification is complete). (eCFR)
KYC also produces “verified” identity attributes (name, DOB, address, document checks, entity ownership details for KYB scenarios) that can improve customer data quality and reduce fraud and account-takeover exposure—useful inputs for segmentation and journey rules when handled under the applicable purpose, privacy, and retention constraints. Data minimization rules in privacy regimes are particularly relevant when marketers want to reuse KYC data beyond compliance and onboarding. (ICO)
How to calculate
KYC itself isn’t a single metric, but marketing and operations teams often track measurable KYC outcomes and friction points, such as:
- KYC start rate = (Users who begin KYC ÷ Users who reach the KYC step) × 100
- KYC completion rate = (Users who complete KYC ÷ Users who begin KYC) × 100
- KYC pass rate = (Users approved ÷ Users who complete KYC) × 100
- KYC abandonment rate = (Users who start but do not complete ÷ Users who begin KYC) × 100
- Time to verify = Median minutes/hours from KYC start to decision
- False reject / false accept indicators = Based on downstream appeals, manual review outcomes, and fraud loss events (definitions vary by organization and vendor)
How to utilize
Common marketing-adjacent KYC use cases include:
- Onboarding journey orchestration: Trigger reminders, in-app messages, or support outreach based on verification stage (started, stalled, needs re-upload, approved, rejected).
- Eligibility gating: Restrict product access, promotional offers, or transaction limits until KYC is satisfied (common in CIP/CDD-driven flows). (eCFR)
- Risk-tiered experiences: Apply “simplified vs enhanced” flows based on risk signals (where permitted), balancing conversion with compliance expectations. (FATF)
- Account-level confidence signals: Use verified identity status to reduce duplicate accounts, improve attribution confidence, and support customer support workflows (without treating KYC as a general-purpose demographic enrichment feed). (ICO)
- B2B onboarding (KYB-adjacent): Validate legal entities and beneficial ownership for account creation and sales-assisted onboarding (ties to beneficial ownership obligations in many regimes). (eCFR)
Compare to similar approaches
| Concept | Primary purpose | Typical scope | Where it shows up |
|---|---|---|---|
| KYC | Know and verify who the customer is; support risk-based relationship management | Identity verification, risk profiling, ongoing checks | AML/CFT programs, regulated onboarding (FATF) |
| CIP (Customer Identification Program) | Establish a reasonable belief of true identity at account opening | Identity data collection + verification procedures | U.S. banking/covered institutions under BSA/Patriot Act implementations (eCFR) |
| CDD (Customer Due Diligence) | Understand customer risk, nature/purpose of relationship; beneficial ownership in some cases | Identity + risk understanding + monitoring | U.S. CDD Rule; broader AML/CFT controls (FinCEN.gov) |
| KYB (Know Your Business) | Verify business customers and ownership/control | Entity verification + ownership/control | B2B onboarding, merchant/payments onboarding |
| Identity Verification (IDV) | Prove a person matches presented identity evidence | Document + biometric/liveness + data checks | KYC toolchain; also used in account recovery |
| Sanctions/PEP screening | Detect matches to restricted parties or politically exposed persons | List screening and ongoing monitoring | AML/CFT controls; often paired with KYC/CDD |
Best practices
- Design KYC as part of the funnel (not an afterthought): Put clear expectations, status visibility, and retry paths into the onboarding UX.
- Apply risk-based depth: Align “how much verification” to the product, transaction, and geography risk posture, consistent with AML/CFT expectations. (FATF)
- Minimize and compartmentalize data: Collect what is necessary for the stated purpose; separate KYC evidence stores and restrict access; define retention and deletion rules. (ICO)
- Instrument the journey: Track step-level drop-off (document upload, selfie/liveness, address checks, manual review) so marketing and compliance can reduce avoidable friction.
- Plan for exceptions: Include manual review workflows, appeal handling, and customer support scripts (because “computer says no” is not a policy).
- Vendor governance: Validate vendor controls, auditability, and data handling, and ensure you can evidence decisions for regulators and internal risk teams.
- Ongoing monitoring posture: Treat KYC as a lifecycle control where required—customer risk can change after onboarding. (FATF)
Future trends
- Greater use of digital identity frameworks: Guidance for using digital ID systems in customer due diligence continues to mature, including risk-based reliability and independence considerations. (FATF)
- Reusable, wallet-based identity proofs: The EU’s digital identity direction emphasizes selectively sharing necessary documents/attributes from a wallet to support onboarding and verification. (European Commission)
- Harmonization and centralized supervision: The EU’s AML/CFT reforms include the establishment of AMLA as part of a broader framework evolution, which can influence how cross-border firms standardize KYC operations. (European Parliament)
- Continuous KYC: More programs shift from “one-time verification” to periodic refresh and event-driven review (address changes, unusual activity, ownership changes).
- Privacy-preserving verification patterns: Increasing focus on proving specific attributes (age, residency, eligibility) without exposing full raw documents—driven by data minimization and security expectations. (ICO)
Related Terms
- Anti–Money Laundering (AML)
- Countering the Financing of Terrorism (CFT)
- Customer Due Diligence (CDD)
- Customer Identification Program (CIP)
- Know Your Business (KYB)
- Beneficial Ownership
- Politically Exposed Person (PEP) Screening
- Sanctions Screening
- Identity Proofing
- Data Minimization