Know Your Business
Know your business is customer due diligence applied to a company: verifying that the business exists and is what it claims, identifying its directors, tracing its ownership to the natural persons who control it, understanding what it does, and screening all of them. It is harder than verifying a person — companies own companies across borders — and it is the gate every B2B fintech and payment facilitator onboards through.
- Also known as
- KYB, Business verification, Corporate KYC
- Used at
- onboarding of merchants by acquirers and payment facilitators, of business customers by neobanks and lenders, of counterparties by B2B platforms; refreshed on triggers and by risk
- Binding
- yes — the AML rules' customer due diligence applied to legal persons, including the beneficial-ownership requirement (25% ownership or control in the EU and UK; FinCEN's rules in the US); card-scheme rules for merchant underwriting add their own
- Typical steps
- registry check (existence, status, registered office, directors); beneficial-ownership tracing through the ownership chain, with registry data where it exists (the UK's PSC register, the EU's beneficial-ownership registers) and documents where it does not; verification of the directors and owners as individuals; industry and activity assessment; sanctions, PEP and adverse-media screening; website and trading evidence for merchants
- Typical friction
- automated KYB clears 60–80% of straightforward companies in minutes; the rest — foreign parents, trusts, nominee directors, new companies — take days and analysts
- Parties
- the fintech's onboarding and compliance teams, the KYB vendors and registry data providers, the business customer, and the regulator and card schemes who inspect the files
How know-your-business works in practice
A payment facilitator onboards a merchant. Its KYB flow pulls the company from the registry — incorporated, active, two directors, registered office; matches the applicant to a director; traces ownership — 60% held by a holding company in another country, whose registry shows one owner, a natural person; verifies that person and both directors; screens all three; checks the merchant's website against its declared activity and the scheme's prohibited-merchant list; and rates the risk. The straightforward case clears in minutes. The other case — the holding company is owned by a trust in a jurisdiction with no registry — goes to an analyst who asks for the trust deed and the trustees, and the merchant either supplies them or is declined.
The difficulty is structural. Ownership chains cross borders and registries of varying quality; 25% thresholds are gamed by holding 24%; nominee directors hide the real controllers; a company registered last week with a plausible website is either a startup or a fraud. So KYB is where the fraud and compliance functions meet: the same check that finds the beneficial owner for the AML file finds the merchant that does not exist for the fraud team, and a payment facilitator's losses are largely merchants it should not have onboarded.
For an acquirer of a B2B fintech the KYB files are the diligence sample: completion, beneficial-owner coverage, declines, and the backlog.
Example
A B2B payments platform onboards 3,000 companies a month. Automated KYB clears 68% in under ten minutes; 22% go to analysts for ownership tracing and clear in a median of two days; 10% are declined — 4% for failed verification, 3% for prohibited activity, 3% for ownership that cannot be traced. Its cost: €14 per automated file, €85 per manual one. A regulator's inspection samples 100 onboarded companies and finds beneficial owners identified in 97, with 3 gaps in companies owned through a foreign foundation; remediation of 240 files follows. The platform's fraud losses run at 0.02% of volume; a competitor with a 92% automated clear rate and no manual queue runs at 0.11%, most of it from merchants that were never real.
Common mistakes
- Verifying the company and the applicant, and never the owners behind the holding company. - Accepting an ownership declaration without a registry or document to test it against. - A 25% threshold read literally, so four 24% holders are nobody. - Onboarding merchants on the strength of a registry entry and a website, both created last month. - KYB done once; companies change owners, and the file does not know.