Regulation
Know Your Customer
Also: KYC, KYB
Regulated identity-verification of the merchant (KYB) and, where relevant, the merchant's customers (KYC).
Know Your Customer (KYC) is a mandatory regulatory process used by financial institutions, including acquirers and payment service providers, to verify the identity and suitability of clients. Under anti-money laundering (AML) and counter-terrorist financing (CTF) frameworks, regulated firms must perform customer due diligence (CDD) at the point of onboarding and on a continuing basis. In a merchant services context, this often manifests as Know Your Business (KYB), where the acquirer validates the merchant's corporate structure, ultimate beneficial owners (UBOs), and identifies any politically exposed persons (PEPs) or sanctioned entities. For merchants operating in high-risk or regulated sectors like gambling or digital assets, KYC is also extended to the merchant's own end-users to ensure compliance with scheme rules from Visa and Mastercard. Effective KYC procedures mitigate the risk of fraud and financial crime, directly influencing the merchant identification number (MID) approval process and the specific risk parameters, such as reserve requirements or settlement delays, assigned by the processor.
Frequently asked
What documentation is typically required for merchant-level KYC?
Acquirers generally require government-issued identification for all significant shareholders, proof of corporate registration, and evidence of a physical operating address. Financial statements or bank letters may also be requested to assess the risk of insolvency and potential chargeback liability before issuing a MID.
How does KYC impact transaction monitoring and risk management?
The data collected during KYC establishes a baseline for expected transaction volumes and typical consumer profiles. If a merchant's processing patterns deviate significantly from the verified business model, the acquirer’s risk systems may flag the activity for manual review or trigger a request for updated KYC documentation to justify the change in risk profile.
Related terms
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