KYB vs KYC: What's the difference and why they matter

Companies were hit with more than $263 million in fines in H1 2024 for non-compliance with anti-money laundering (AML) and Know Your Customer (KYC) regulations. It’s a reminder that fraud and financial crime are widespread—and it’s why businesses need to follow strict rules to verify the identities and activities of their customers.

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But what are Know Your Business (KYB) and Know Your Customer (KYC)? Simply put, they’re both regulatory requirements that ensure you’re doing business with the right people. Let’s dive into what that means.

KYC vs. KYB: Understanding the difference

KYB and KYC are both built around the ideas of verification and due diligence. The key difference is that KYC focuses on identifying individuals, while KYB focuses on verifying a business. Here are the distinctions between KYC and KYB in more detail:

What is KYC?

KYC stands for “Know Your Customer” or “Know Your Client.” It’s a regulatory requirement that banks, fintechs, and other financial institutions must fulfill by verifying the identity of their customers before opening an account or otherwise doing business with them.

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KYC verification helps financial services companies put a face and name to their customers, a central part of preventing online fraud and financial crimes and complying with AML regulations.

What is KYB?

KYB stands for “Know Your Business.” It’s the process of verifying a business’s existence, ownership structure, and business operations. While verifying an individual’s identity to meet KYC requirements is fairly straightforward, KYB is a lot more complicated.

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With KYB, businesses often need to vet and verify a range of corporate entities that can span across borders, tax jurisdictions, and regulatory environments. In practice, that can involve manually searching legal filings, chasing down documents from ultimate beneficial owners (UBOs), and cross-checking reams of financial statements.

When are KYB and KYC checks needed?

Finance companies need to run checks whenever they onboard a new customer. But in reality, KYB and KYC should be recurring activities. Businesses must constantly monitor their customers’ transaction activities and the various watchlists published by international regulators.

KYB and KYC regulations

Many countries have their own KYB, KYC, and AML laws and regulations. This cross-border complexity is why you see such a boom in KYB, KYC, and ID verification SaaS vendors.

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Here are several rules you may need to comply with, depending on your own business setup and geographic presence:

• United States: The Patriot Act and the Customer Due Diligence (CDD) Final Rule
• Canada: FINTRAC regulations
• Australia: AUSTRAC regulations
• United Kingdom: The Money Laundering Regulations 2017
• European Union: Anti-Money Laundering Directive (5th AMLD)

These regulations are prone to change—they sometimes even face legal challenges—so it’s wise for financial managers and lawyers to work together to understand how they might affect your business.

How to perform KYC and KYB compliance checks

Let’s put regulatory requirements and definitions aside and take a look at what you need to do when performing KYC and KYB compliance checks:

KYC verification process

Step #1: Gather personal identifiable information (PII)

First, collect personal information from potential customers during online account registration. This step lays the foundation of the entire KYC verification process. PII includes:

• First and last name
• Date of birth
• Phone number and email address
• Social Security number
• Driver’s license number
• Current credit status

Collect this data and ensure it’s safely stored under relevant local data protection laws.

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Step #2: Collect supporting documents

Ask the applicants to provide supporting documents to verify the PII they provided. This could be a passport, an identification card, a driver’s license, or a credit or debit card. The information from this document is extracted after identifying the type of document. This step is crucial because it helps you check that applicants are who they say they are.

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Step #3: Verify the provided data and documents

Verify the PII against the provided document to ensure the user entered the correct information. The data from these records are often extracted using optical character recognition (OCR) technology that can recognize typography and signatures in imagery. The data are then verified against the information the user has entered.

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At this stage, you should also check the PII data against lists of sanctioned individuals and politically exposed persons (PEPs) to identify any potential high-risk customers. These individuals would then go through an enhanced due diligence (EDD) process.

KYB verification process

Step #1: Collect business information

The first step is gathering key business details to verify its identity and legitimacy. This includes basic business information such as:

• Registered business name
• Legal business address
• Business registration number
• Company incorporation documents
• Nature of the business (industry, operations, etc.)

Nowadays, businesses can gather this data as part of the vendor onboarding workflow in their procurement software. Specialized SaaS vendors can also automate the collection of this information via API. No matter how you collect it, ensure the data is securely stored in compliance with the relevant data protection regulations.

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Step #2: Identify and verify ownership structure

The goal of the second step is to meet the requirements of the CDD Final Rule, which states that companies need to verify beneficial ownership based on “reasonable belief.” This involves collecting information on the company’s UBOs, including:

• Names of directors and shareholders
• Ownership percentages
• PII for all the UBOs
• Supporting documents, such as government-issued IDs or ownership agreements

This step ensures transparency regarding who controls the business and reduces the risk of hidden ownership.

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Step #3: Validate business documents and information

Finally, verify the accuracy of the data you collected against reputable sources like government business registries, corporate filings, and business credit bureaus. Cross-check information like:

• Incorporation certificates and licenses
• UBO identities and ownership details
• Proof of business address
• Compliance with sanctions, watchlists, and PEP status

If everything checks out, you can safely verify the business as a partner.

How to protect your business from fraud and money laundering

Unfortunately, fraud and financial crime are still a daily reality. Businesses of every size face common risks:

• Card-not-present fraud: When a criminal uses a stolen card to buy something online, over the phone, or through mail order
• Card-present fraud: When a stolen or illegally duplicated card is used in person to make a fraudulent transaction
• Counterfeit cards: When criminals use fake, ‘cloned,’ or illegally copied cards to make unauthorized payments
• Card identity theft: Phishing schemes, scam emails and text messages, and the physical theft of snail mail are just some of the ways criminals obtain card details and account information
• Card-not-received fraud: This kind of fraud happens when a new card sent to a customer is stolen

The types of fraud mentioned above are common in consumer-facing industries such as e-commerce. But money laundering and corporate fraud can be far more complex. It requires businesses to take more robust measures to protect themselves:

Automate spend analysis

Use modern expense automation software like Ramp to match and block transactions that don’t comply with set spending guidelines. With real-time payments on the rise, great financial software and modern corporate cards with spend analysis and vendor restrictions can boost your security.

Use trusted payment partners

B2B payments are being transformed for the better. While faster and more affordable payment processes are good for businesses, they open up new opportunities for fraud. Ensure your payment processing is integrated with fraud processing to whittle down the risks of established and emerging payment methods.

Use multi-factor authentication

For example, Ramp uses automated systems to prevent account takeover attempts and other malicious requests proactively. We require all accounts to opt in to multi-factor authentication and immediately verify suspicious activity with the business owner.

Only use trusted vendors

At Ramp, we verify that any third parties have adopted stringent security. Our legal officer ensures we have a rock-solid contract—and our security team must approve engagements.

Complete due diligence checks

Follow the KYC and KYB process outlined above and call on modern ID verification vendors to help you roll out checks at scale. Consider whether they can help you collect, vet, and store customer information in a common repository to reduce the manual burden of compliance.

Knowing your customers

We know what you’re thinking: KYC and KYB sound like a lot of work.

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It’s true; they place a significant burden on financial services businesses, even some of the largest banks in the world. But it’s a necessary evil to ensure your transactions and customer accounts aren’t connected with money laundering, terrorism, or sanctions. As we mentioned above, the fines for violating AML and KYC rules are severe.

Ramp helps you limit your exposure to fraud

Ramp takes fraud prevention, security, and data protection seriously. Visit our dedicated Trust Center to learn about the security measures we take for every account—and find out how we give our customers peace of mind with corporate cards linked to rigorous spend management software.