As part of banks’ anti-money laundering (AML) programs, KYC in banking can help stop corruption, money laundering and terrorist financing. Creating and maintaining KYC programs is also important for regulatory compliance, reputation management and fraud prevention.
The three components of KYC in banking programs
Banks can largely determine how to set up their KYC and AML programs within the applicable regulatory guidelines. In the United States, KYC needs to happen when banks initially onboard a new customer. But it’s not a one-and-done event—ongoing customer and transaction monitoring is also important.
1. Customer Identification Program (CIP)
Creating a robust Customer Identification Program (CIP) is an essential part of KYC. At a minimum, a bank’s CIP requires it to collect the following information from new customers:
Name
Date of birth
Address
Identification number, such as a Social Security number (SSN) or Employer Identification Number (EIN)
Banks' CIPs also have to use risk-based procedures to verify customers’ identities and form a reasonable belief that they know the customer's true identity.1 This might involve comparing the information from the application to the customer’s government-issued ID, other identifying documents and authoritative data sources, such as credit bureau databases.
Additionally, the bank's CIP will govern how the bank:
Retains the customer’s identifying information
Compares customer to government lists
Provides customers with adequate notices
Banks can create CIPs that meet all the requirements in various ways, and many use third-party solutions to quickly collect data, detect forged or falsified documents and verify the provided information.
2. Customer due diligence (CDD)
CIP and CDD overlap, but the CIP primarily verifies a customer’s identity while customer due diligence (CDD) helps banks understand the risk that each customer poses.
To do this, banks try to understand what various types of customers do, what those customers’ normal banking activity looks like, and in contrast, what could be unusual or suspicious activity.
Financial institutions can use risk ratings and scores to evaluate customers and then use simplified, standard or enhanced due diligence (EDD) processes based on the results. For example, customers who might pose a greater risk of laundering money or financing terrorism may need to undergo additional screenings and clarify the source of their funds.
3. Ongoing monitoring
Ongoing or continuous monitoring of customers’ identities and transactions is also important for staying compliant with AML regulations and stopping fraud.
The monitoring can help banks spot a significant change in the identity of the customer, beneficial owner or account, which may require a new KYC check. Unusual transactions can also be a sign of money laundering or fraud, and they may require the bank to file a suspicious activity report (SAR).
Why is KYC important in banking?
Understanding and implementing KYC in banking processes can be important for several reasons:
Regulatory compliance: Although the specific laws and rules can vary by country or region, many banks are required to have AML procedures, including KYC. The fines for violating AML regulations can be in the hundreds of millions— a few banks have been fined over $1 billion for lax AML enforcement and sanctions breaching.
Reputation management: In some cases, enforcement actions and fines were headline news. Banks that don’t have robust KYC procedures in place risk losing their customers' trust and respect.
Fraud prevention: In addition to the regulatory requirements, KYC policies and systems can also work alongside fraud management solutions for banks. Identity verification at onboarding can help banks identify synthetic identities attempting to open money mule accounts or take out loans. Ongoing monitoring can also be important for identifying long-term fraud schemes and large fraud rings.
KYC in a digital-first world
Modernizing KYC in banking is a key part of financial institutions’ digital transformation efforts. Part of that journey is updating the systems and tools in place to meet the expectations of customers and regulators.
Experian’s 2025 U.S. Identity and Fraud Report shows four in 10 consumers considered abandoning a new account setup midway through the process – rising to 50% among high-income earners – highlighting growing expectations for seamless digital experiences. The survey wasn’t specific to financial services, but friction could be a problem for banks wanting to attract new account holders.
Just as access to additional data sources and machine learning help automate underwriting, financial institutions can use technological advances to add an appropriate amount of friction based on various risk signals.
Some of these can be run in the background, such as an electronic Consent Based Social Security Number Verification (eCBSV) check to verify the customer’s name, SSN and date of birth match the Social Security Administration’s records. Others may require more customer involvement, such as taking a selfie that’s then compared to the image on their photo ID — Experian CrossCore® Doc Capture enables this type of verification.
Experian is a leader in identity and data management
Our identity verification solutions use proprietary and third-party data to help banks manage their KYC procedures, including identity verification and Customer Identification Programs (CIP). As a global leader in identity management and fraud prevention, we combine advanced analytics, rich data assets, and innovative technology to deliver secure, seamless identity experiences. Our comprehensive identity ecosystem enables organizations to confidently verify, authenticate and manage customer identities across the lifecycle—reducing fraud risk, improving compliance and enhancing the customer experience.By bundling identity verification with fraud assessment, banks can stop fraudsters while quickly resolving identity discrepancies. The automated processes also allow you to offer a low-friction identity verification experience and use step-up authentications as needed.
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