If you have ever opened a bank account or signed up for a digital wallet, you certainly encountered a series of verification steps. This is Know Your Customer (KYC) in action.
In simple terms, KYC is the process of verifying a person’s or company’s identity before allowing them to use financial services.
If we go deeper, Know Your Customer is a mandatory framework for financial institutions to verify their clients’ identities before establishing a business relationship. By design, it is the first line of defense against any financial crime like money laundering, ensuring that banks or payment providers know exactly who they are dealing with.
The core idea here is due diligence on customer identities, which, in theory, should prevent financial crime and identity theft, keeping illegal activities out of the regulated financial ecosystem.
We at Genome view KYC compliance not as a hurdle that delays onboarding or even ruins it, but as a commitment to security. Learn why KYC compliance is crucial below.
What does KYC mean in finance?
To understand why KYC is important for the financial industry, we must look beyond simple identity verification. It is a comprehensive process used by financial institutions to verify customer identities and support checks that funds originate from legitimate sources.
The customer identification process is required before opening accounts or starting a business relationship with a bank, payment provider, or any other financial institution, and for certain higher-value or higher-risk financial transactions.
And here comes the other important part – fraud prevention.
The primary goal of KYC verification is to prevent money laundering, terrorist financing, and other forms of financial fraud, such as identity theft.
That doesn’t mean money laundering used to be as easy as going to the store for milk, or that illicit funds freely moved from country to country before Know Your Customer (KYC) was introduced.
At that time, such customer due diligence was handled by financial institutions. Each bank manually created a risk profile for each customer, confirmed customer identities, and conducted ongoing monitoring of high-risk accounts, all by hand.
But today, KYC compliance is an industry standard required in most jurisdictions and adopted by financial institutions worldwide. It could vary widely depending on the strictness of KYC obligations, but most countries have at least some anti-money laundering laws that include KYC measures.
Summarizing, KYC involves:
Fraud Prevention: By confirming identity through document verification, institutions stop identity thieves from opening accounts in victims’ names.
AML regulations: KYC procedures are tightly linked with anti-money laundering (AML) and counter-terrorist financing (CTF) efforts. They help track the source of funds to ensure money isn’t being “cleaned” through the banking system.
How the KYC process works
The Know-Your-Customer process may look slightly different from one bank to another. Other financial institutions also have specific requirements, but the core steps are similar across the industry.
It generally combines three key components: the Customer Identification Program (CIP), Customer Due Diligence (CDD), and ongoing monitoring.
Typical Steps in the process
Customer Identification Program (CIP): This is the foundational step. Financial institutions must collect specific data to form a belief that the customer is who they claim to be. This involves collecting KYC documents such as a government-issued ID (or driver’s license if you don’t have one).
Address Verification: To further establish customer identities, proof of address (utility bills or bank statements) is usually required.
Biometric Checks: Modern KYC verification often involves a “liveness check” – scanning your face with a camera to verify it matches the ID provided.
Individual vs. business verification
The KYC requirements differ based on the user type:
Individuals: Focuses on personal ID, address, and basic risk profile.
Businesses: Requires a so-called corporate know-your-customer approach. This involves identifying the legal entity, verifying the company structure, and identifying beneficial owners. Financial institutions must understand the nature of their business to accurately assess money laundering risks.
A beneficial owner is the real person who ultimately owns, controls, or benefits from a company, customer account, or transaction – even if the business is legally registered under another name.
It is important not only to prevent financial crime and illegal activities but also to address sanctioned individuals and maintain control over frozen foreign assets.
Genome simplifies the KYC process significantly compared to traditional banks. How? The company was established with a “simplify it” mindset. We know customer due diligence very well and how to fix it.
No physical paperwork and branch visits, Genome utilizes digital onboarding. Users can upload their KYC documents and complete identity verification entirely online. This efficient workflow reduces the time it takes to establish new business relationships. Customer experience is our top priority.
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Types of KYC in finance
Not all customer relationships carry the same level of risk. Therefore, financial institutions apply different levels of due diligence based on the customer’s risk profile.
Simplified Due Diligence (SDD)
It applies to low-risk accounts or transactions, or to accounts with small transaction limits, where local regulations allow SDD.
At this level, banks and payment providers usually apply fewer or simplified checks because the risk of money laundering or terrorist financing is deemed low, not negligible.
Identity verification and minimal proof of address are usually all that is needed, along with basic ongoing monitoring.
Customer Due Diligence (CDD)
It is the standard due diligence process. This approach you will probably face most of the time.
It applies to most users opening an account. Customer Due Diligence (CDD) involves verifying the customer’s identity and understanding the nature of their financial activities to reduce the risk that they are involved in financial crime.
It includes appropriate personal document submission, data checks, and risk profile assessment based on a risk-based approach.
Enhanced Due Diligence (EDD)
Enhanced Due Diligence is reserved for high-risk accounts or customers. It includes:
Politically Exposed Persons (PEPs): Individuals with prominent public functions and, in many cases, their close family members and associates.
High-Risk Jurisdictions: Customers from countries with weak AML regulations. Enhanced Due Diligence requires a deeper understanding of the source of wealth and often involves senior management approval.
Businesses from a high-risk industry or activity, such as sectors with elevated AML or sanctions risk (for example, iGaming, gambling, adult industry, etc.), especially where there are unusual patterns like a significant number of chargebacks.
In Genome, we optimized the Know Your Customer procedure by assessing risk factors early. Genome applies the appropriate level of checks, ensuring regulatory compliance while respecting the user’s time.
We have a pretty robust KYC process, and it is more flexible than those of many other financial institutions.
KYC and compliance in fintech
KYC compliance is the law. The Financial Industry Regulatory Authority designed these rules to protect the financial institutions and the integrity of the global financial system.
The problem? KYC regulations aren’t perfect, and they require more effort.
The standards for Know Your Customer KYC are largely influenced by the Financial Action Task Force (FATF) and local directives like the EU’s Anti-Money Laundering Directives (AMLD).
In the US, the Customer Identification Program (CIP) requirements are outlined in the Bank Secrecy Act and the Patriot Act (often detailed in the Federal Register).
Sadly, there is no such thing as one successful compliance, and you’re done.
Compliance really doesn’t end at onboarding. Ongoing monitoring is crucial and, in most countries, required by the law. Financial institutions must continuously oversee financial payments to detect suspicious transactions, whether it ic KYC in gambling, for e-commerce, or for other client types.
If a transaction deviates significantly from a user’s normal behavior or matches a known pattern of money laundering, the system triggers an alert. It allows the institution to promptly report suspicious transactions to the relevant authorities.
As a licensed provider, Genome strictly adheres to KYC and Anti-Money Laundering regulations. In fact, any payment provider must follow these rules.
On our side, we implement rigorous Customer Due Diligence (CDD). This adherence ensures that we meet our KYC obligations and maintain a high bar of customer expectations.
Challenges and compliance risks
Even with advanced tools, KYC requirements remain challenging.
Common obstacles include:
Delays in document collection are among the biggest reasons onboarding can be slow.
Complex regulations in different countries.
Different regulatory requirements for high-risk users or industries.
Different price policy and no intention to work with high-risk businesses;
Fraudulent documents;
So-called KYC conundrum (maintaining good user experience while meeting KYC obligations);
Managing large customer bases with varying customer requirements.
Fintech companies must strike a balance between security and speed; it’s not easy, but it’s possible, so please do not be harsh on us.
Why KYC matters for Genome users
KYC is not just a regulatory checkbox – it directly protects Genome users and their money.
Benefits include:
Fraud prevention and protection from unauthorized activity;
Greater user trust thanks to verified transactions;
Transparent customer relationships;
Stronger platform credibility and safer financial transactions;
Assurance that Genome meets strict international standards;
Protection from illegal activities or risky counterparties.
Genome is an electronic money institution (EMI) licensed and supervised by the Bank of Lithuania. It means users can trust that their data is handled safely, their funds are protected, and the platform goes beyond minimal KYC obligations to ensure long-term data and payment security.
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The future of KYC and fintech innovation
KYC is rapidly evolving along with the rest of the fintech sector. The future will be shaped by speed, automation, and unified global standards.
What is behind these words?
Artificial intelligence will help detect document tampering, confirm identities faster, leverage customer risk profiles quickly, and automate large portions of the KYC verification flow.
Just to understand the scope of the problem, many payment providers now charge customers more for faster onboarding, and these are far from isolated cases.
Fingerprint, facial recognition, and behavioral biometrics will streamline onboarding and provide more accurate methods for confirming identity.
Besides this, biometrics have a strong security profile.
Despite political turbulence, the world has become an increasingly globalized economy, and the financial industry regulatory authority is working on unified international standards to simplify data exchange and onboarding across borders.
Financial providers actively invest in next-generation compliance tools, AI-based checks, and automated monitoring systems to stay ahead of evolving money laundering regulations and new industry demands.
