# Know Your Customer (KYC)

> Know your customer (KYC) is the regulatory process of verifying a customer's identity and assessing their risk profile before establishing a business relationship.

- **URL**: https://dodopayments.com/glossary/know-your-customer-kyc

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**What is Know Your Customer (KYC)?**

Know Your Customer (KYC) is a process through which businesses, especially financial institutions, verify client identity and assess associated risk profiles to prevent money laundering, fraud, and other illicit activities.

**Example of KYC**

A digital bank onboarding a new customer:

- First customer uploads scanned ID and proof of address. The system verifies authenticity via a third-party database.

- The bank then assesses risk. customer's location, occupation, and expected transaction volumes. If a high-risk country is involved, enhanced due diligence applies.

- The bank's system flags if a customer suddenly sends a large foreign remittance exceeding expected profile.

- The bank requests annual updated documents or confirms no material changes in customer profile.

**Why it Important**

**Compliance with Regulations:** Mandatory under anti-money laundering (AML) laws globally; non-compliance can lead to fines, legal penalties, and reputation damage.

**Fraud & Risk Mitigation:** Verifying identities reduces fake or stolen identities entering the system, lowering fraud losses.

**Enhanced Customer Trust:** Demonstrates to genuine customers that the institution maintains secure and transparent processes.

**Safeguarding Financial System Integrity:** Collective KYC efforts prevent criminals from layering illicit funds through multiple institutions.

## Learn More

- [MoR legal and compliance responsibilities](https://dodopayments.com/blogs/merchant-of-record-legal-compliance)
- [Tax compliance essentials for solopreneurs](https://dodopayments.com/blogs/solopreneurs-tax-compliance)
- [Global VAT and GST guide for AI SaaS](https://dodopayments.com/blogs/global-vat-gst-ai-saas)