Know Your Customers (KYC) verification is a process businesses use to confirm the identity of their customers.
The roots of KYC verification go back to the 1970s, when global concern over hidden financial networks began to spike. In 1970, the U.S. launched the Bank Secrecy Act (BSA), which required all banks to verify customer identities.
The process became more formalized after 2001, when the USA PATRIOT Act expanded identity verification obligations for all financial institutions.
But what is a KYC verification exactly, and how does it work? In this article, we answer that and discuss a lot more about it!
Let’s get into it.
Principaux enseignements
- KYC verification is a multi-layered identity defense system made to prevent fraud, money laundering, and financial crime under U.S. regulations.
- Many businesses have now shifted the KYC process from paper folders and in-person checks to real-time digital workflows.
- There are multiple ways to verify identity for KYC, such as traditional in-person reviews, eKYC, biometric identity creation, live video verification, and NFC-enabled document scan.
What Is a KYC Verification?
KYC verification, short for Know Your Customer, is the process businesses use to confirm the identity of their clients.
It is very useful against:
- Fraud and corruption
- Money laundering
- Terrorist financing
- Financial crimes
In the U.S., KYC compliance is a requirement as per the Bank Secrecy Act (BSA), the USA PATRIOT Act. It follows a set of guidance from the Financial Crimes Enforcement Network (FinCEN).
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The procedure includes:
- Customer Identification Program (CIP), which requires you to collect key personal information from customers (name, date of birth, address, and government-issued ID, etc.)
- Customer Due Diligence (CDD), i.e., risk assessment by evaluating customer’s background and previous transaction patterns
- Enhanced Due Diligence (EDD) applied to higher-risk customers with stricter checks
- Ongoing Monitoring to track all customer transactions and detect suspicious activity over time
KYC used to be a tedious, paper-heavy process with multiple steps. We fortunately have several solutions now that have made it a digital workflow.
TruthScan, for example, makes identity verification accessible through simple online processes and dashboards.
How KYC Verification Works
Now that you know what is kyc identity verification, let’s see how it actually works.
KYC verification follows a three-step workflow:
- Data collection: Businesses ask the customers using their smartphone to scan an official identity document, i.e., passport, national ID, driver’s license, or residence permit, etc. In some cases, the customers are also expected to record a live short video where they show both the front and side of their face.
- Verification: The information mentioned on the ID document is verified against the person presenting it. For example, TruthScan’s AI document analyzer and real-time verification engine compare the live video to the ID photo. Simultaneously, it extracts name, date of birth, nationality, document expiry date, and assesses if the document is real.
- Approval: You get a definitive outcome about the credibility of the customer. Either the document and face match, which confirms their authenticity, or the system flags an inconsistency.
See TruthScan’s automated KYC flow!
The Main Types of KYC Verification
The concept of KYC verification is to, somehow, ensure that your customers are who they claim to be and that you don’t end up being scammed.
Of course, there are several routes to it.
Traditional Verification
Traditional KYC verification needs human review at every step.
Businesses require customers to submit physical copies of their identity documents.
Once submitted, the documents are inspected manually for authenticity, i.e., a reviewer checks for the presence of watermarks, holograms, expiration dates, and other security features.
The employees compare the photo on the ID to the person presenting it in person. They may consult government records or financial databases to confirm ID details.
Digital and eKYC
Digital KYC, also called eKYC, allows customers to complete ID verification using their smartphones or computers.
They are expected to upload a photo of their ID documents remotely.
A liveness check is performed via online video that shows the customer’s face from multiple angles for facial recognition.
A system then extracts and validates data from the document while also checking its security features.
Digital KYC also uses real-time database checks to cross-reference government records or identify politically exposed persons (PEPs).
Biometric and Document-Free KYC
This type of KYC verification entirely eliminates the need for physical ID documents.
It requires customers to submit a live scan of their face or fingerprint for biometric data using their smartphone.
An algorithm creates a digital identity profile against that specific biometric info that can be verified from government databases.
To prevent any form of identity fraud in biometric-based verification, the algorithm is trained to differentiate subtle changes in skin texture or facial microexpressions.
Video KYC
Video KYC is a real-time verification method built upon digital KYC with a live interaction.
In this method, the customer is not expected to upload their ID documents anywhere. They are instead verified through a live video session with a trained agent.
During the video call, the customer presents their identity document to the camera, and you ensure that the person on the call is real.
Facial recognition and document verification happen simultaneously in real-time.
Automated and NFC KYC
NFC (Near Field Communication) is a short-range wireless communication technology that allows two devices to exchange data when they are very close.
It is the same technology used in contactless payment cards and smart ID documents.
NFC KYC is a modern method of ID verification built into some documents, e-passports, or smart driver’s licenses.
The customer’s ID contains an NFC chip that stores encrypted personal information. All a customer has to do is tap or hold the document near an NFC-enabled device for it to read the encrypted data from the chip.
The device then cross-checks the data from the NFC chip with the user’s live biometric input. It is much faster than any other type of KYC verification.
Why KYC Is So Important Now
Around the world, regulators are raising the bar on financial compliance.
Every industry that deals with money in any way, i.e., banks, fintech, service providers, all of them are required to confirm that their customers are who they claim to be.
The USA PATRIOT Act, the Bank Secrecy Act, and global anti-money laundering (AML) laws impose steep penalties on firms that fail to meet KYC standards.
D'après Corlytics quarterly report, global AML financial penalties hit $2.91 billion in Q2 2025 alone.
The primary reason for this strict regulation is fraud prevention. In the United States, every $1 lost to fraud costs financial services firms $4 in follow-up losses and remediation.
KYC combats the risks of all types of fraud as it prevents the creation of illegal dummy accounts.
Also, businesses now onboard customers across borders and time zones, many times without ever meeting them in person.
Digital KYC solutions like TruthScan authenticate identities worldwide using various different government-issued IDs and documents in multiple languages.
The AI-driven verification engine is the need of the day to meet authentication demands from around the world.
It detects fraud in real time and monitors transactions for AML compliance.
Stay compliant with TruthScan’s KYC platform!
Common Challenges in KYC Verification
Of course, KYC verification is prone to many real-world obstacles.
One of the fastest-growing threats to KYC systems is AI-generated deepfakes. Synthetic images and videos created using generative AI do appear convincingly human sometimes.
According to Gartner, 30% of enterprises will stop relying on identity verification and authentication tools in isolation by 2026.
Fenergo’s 2022 research found that manual KYC reviews still consume a huge portion of compliance teams’ time because 31–60% of tasks are handled manually in many institutions.
A single KYC review costs between $1,501 and $3,500 on average. There’s a huge need to digitize the process on a larger scale.
Even when digital KYC systems are functional, many of them do not work optimally.
A study by Bynn found that up to 30% of customers abandon the ID verification process because it is too complicated for them.
KYC systems must also walk a tightrope between keeping fraud out and letting real customers in. It is expressed as FAR (False Acceptance Rate) and FRR (False Rejection Rate).
- A high FRR means legitimate users are wrongly denied, which damages customer experience
- A high FAR exposes the business to risks of fraud
Bynn’s study showed that reducing one often increases the other. So, finding a balance between the two is a challenge for businesses.
How Technology Is Transforming KYC
Technology has made the document-heavy obligation of KYC verification a much faster, multilayered defense process for businesses.
There are a lot of verification tools today that capture data, interpret it, correlate it with multiple other databases, and validate it against multiple signals to determine whether an identity is genuine.
Such a multi-step process is a strong need today because AI has progressed sufficiently to bypass single-signal verification channels.
Current KYC technology can also process text, images, video, audio, and synthetic media.
TruthScan, for instance, uses computer vision and audio analysis to detect AI-driven manipulation.
It scrutinizes facial asymmetry, unnatural blinking patterns, incorrect lighting behaviors, and micro-expressions that don’t align with natural human movement.
On the audio side, it identifies classes of signs of voice cloning that include waveform distortions and mismatched speech resonance.
Enterprise-grade KYC platforms also run on SOC 2, ISO 27001, and GDPR-compliant infrastructures.
You could say that KYC is now a smart identity intelligence system rather than a check-the-box requirement due to tech!
Réflexions finales
I hope you now understand fully what is KYC/AML verification.
KYC verification is a regulatory obligation that every financial institution must meet to stay compliant with AML and data protection laws.
Compliance, however, does not have to drain your time and resources.
Fast-growing companies streamline their due-diligence operations through a reliable identity verification platform.
Just ensure that the tool adheres to both international and local regulations, supports GDPR-level data protection, and manages large volumes of customer information.
TruthScan delivers fully compliant and secure KYC verification with multi-signal fraud detection made for enterprise-grade infrastructure.
Our KYC verification suite of tools gives you everything needed to onboard legitimate customers and filter all the bad players out!
Sign up for TruthScan today!