Onboarding is just the start: Going Beyond KYB and KYC

Written by
Chris Downie
Oct 10, 2022
What is KYB and KYC?

'For every lock, there is someone out there trying to pick it or break in.’

David Bernstein, The Bernstein Agency.

Consumers shopping in-person at brick and mortar stores don’t question the authenticity of the outlets they visit, the goods being sold or the transactions taking place. The fact that they are in a physical store gives enough confidence that the seller is genuine, selling genuine products and there is somewhere to go if something goes wrong.

In the digital world, however, other checks are needed to verify who we are interacting with to give consumers the reassurance they need. As a platform owner, these verification measures are vital to your business as the first step to understanding who you’re letting onto your platform.


what is KYB and KYC

What is KYB and KYC?

KYB and KYC stands for Know Your Business and Know Your Customer. Traditionally applicable to businesses in the financial sector, the EU’s money laundering directives require businesses in the regulated sector to employ KYC and KYB checks as part of their anti-money laundering procedures. 

In relation to online platforms, KYB/KYC checks are like customer due diligence to verify the identity of a business or customer. A key part of the onboarding process, these initial checks authenticate customer information. Platform owners feel safer ‘knowing’ the identity of their third party sellers and consumers feel reassured having contact details for sellers. 

At the same time, however, id verification checks can sometimes cause friction with sellers during onboarding and could lead to increased abandonment rates. 

US INFORM Act set to make KYB and KYC mandatory

Last year, the US INFORM Act was introduced into the Senate for debate. If passed, it will require online marketplaces to collect and verify third-party sellers’ government ID, tax ID, bank account information and contact information. It will also require ‘high-volume’ sellers (those with more than $5,000 in annual sales) to disclose contact information, such as address and phone number details, to consumers for greater transparency and recourse. The current draft of the bill would also require marketplaces to verify the accuracy of this information annually, with the Federal Trade Commission being given the authority to enforce these requirements.

Why KYB and KYC is just the start of protecting your business

Consumers will likely welcome this news as anything that offers more reassurance or builds trust when transacting online makes for a smoother process. However, while providing some mutual reassurance to platform owners and consumers alike, let’s look at why these onboarding verification checks and greater transparency are just the start of measures to protect your platform.

what is KYB and KYC

Fraudsters create fake accounts

Motivated by money and without any morals, fraudsters continually look for ways to ‘game the system’, abusing your platform and scamming your users. Bad actors could deftly slip through the initial verification process, for example, using stolen identification. Once successfully through the onboarding process, if there are only annual checks, they have now found their way onto your marketplace and have a year to exploit both your trusted reputation and your trusting users before further verification takes place. Without daily ongoing monitoring of your platform, bad actors can undo all your initial hard work to guarantee users the safe and trusted experience you hoped to deliver.

Account takeovers exploit sellers and consumers

Bad actors don’t give up easily and exploit any loophole they can cunningly find. Consider the scenario of a genuine, verified user having their account taken over by a fraudster. They can then pose as the account holder and dupe your unsuspecting audience through multiple scamming methods (e.g. fake reviews and counterfeit goods), possibly even diverting them off the relative safety of your platform where your users have no protection and are left with a very negative, and potentially harmful, experience. The verified account holder may not even have any knowledge of the fraudulent actions being committed in their name.

Exceptions to transparency rules

The existing draft of the US bill has some important exceptions to its rules around disclosure. It proposes that if a seller does not have a business address and only has a residential street address, the platform need only disclose the country and region a seller is in. Similarly, if a seller only has a private phone number, the platform should advise consumers there is no available phone number and instead share their email address. Platforms will still need to do checks on the residential contact details provided, but it is likely fraudsters will be one step ahead potentially using fake information to take out short-term private rental agreements to pass the id process.

Publishing personally identifiable information is risky

There has also been debate around whether requiring marketplaces to publish personally identifiable information of sellers opens the door for new types of fraud and abuse. Amazon, for one, believes that requiring business phone numbers to be public could actually make its sellers more vulnerable to scams. 

what is KYB and KYC

Ongoing monitoring goes beyond onboarding

There are many points in a customer’s journey where there is potential for fraud to take place. Each time they make a change to their profile information, for example, or have to reset their password, there is a risk of fraudulent behavior. KYB/KYC verification methods are an important part of the onboarding process but the only way to really know your customers throughout their entire journey is through ongoing monitoring. It builds trust, enables growth and supports scale. However, even for a small- to medium-sized marketplace, manually reviewing every profile, listing and review is physically impossible. This is where AI technology can help.

AI technology handles volume and scale efficiently

Artificial intelligence is designed to process large volumes of data very efficiently, making AI technology monitoring solutions ideal for supporting growth and handling scale. Knowing that daily activity on your platform is automatically being monitored for suspicious or negative behavior reassures you that you’re keeping your users safe, are minimizing friction and can scale safely. 

At Pasabi, we use AI technology to help our customers decide who they can trust, identify patterns of negative behavior and eliminate bad actors, fake reviews and fake accounts. ID verification is just the start; we’re here for the rest of the journey.

Want to find out more? Check out how we can help platforms like yours to understand where your potential risks lie and how you can best protect your marketplace health as you scale.

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