Compliance & Regulation

Know Your Business

What Is Know Your Business (KYB)? Definition and How It Works

Definition

Know Your Business (KYB) is the process by which a financial institution or regulated payment provider verifies the identity, legal structure, ownership, and risk profile of a business customer before establishing a commercial relationship. KYB is required by anti-money laundering regulations and card scheme rules for merchant onboarding, and involves verifying the business entity, its beneficial owners, and its intended business activity.

How it works

KYB involves several distinct verification stages. Entity verification confirms that the business exists as a registered legal entity: checking company registration numbers against official registries, verifying registered addresses, and confirming the business name and legal structure (limited company, partnership, sole trader). This is typically automated through integrations with company registry data providers (Companies House in the UK, national trade registers in the EU).

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Beneficial ownership identification (UBO verification) identifies the individuals who ultimately own or control the business. Most AML frameworks require identifying all individuals who own more than 25% of the business directly or indirectly, and verifying their identities through document and biometric checks equivalent to individual KYC. This step is critical for detecting shell companies, nominee structures, and other mechanisms used to obscure the identity of ultimate owners.

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Business activity verification assesses whether the merchant's stated business model is consistent with their payment processing requirements: a merchant applying for high-risk MCC codes needs to demonstrate a legitimate business rationale; a business applying for elevated transaction limits should demonstrate consistent volume history. This step includes sanction screening of the entity and its directors and reviewing adverse media coverage.

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Ongoing monitoring supplements initial KYB: transaction monitoring for unusual patterns, periodic refresh of business information, and re-verification triggers when ownership changes or adverse media events occur.

Why it matters

KYB is a regulatory requirement for any entity onboarding merchants or business payment accounts under AML frameworks. Failures in KYB allow fraudsters, money launderers, and sanctioned parties to access payment infrastructure. Regulators impose substantial fines and operational restrictions for inadequate merchant due diligence: card scheme fines, AML enforcement actions, and in extreme cases, withdrawal of payment licences.

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For payment facilitators and platforms onboarding sub-merchants, KYB quality directly affects fraud and chargeback exposure. A sub-merchant onboarded without adequate identity verification can process fraudulent transactions or generate chargebacks that create liability for the platform. Robust KYB is therefore both a compliance obligation and a risk management investment.

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KYB friction creates a direct commercial tension: thorough identity verification takes time and requires business owners to submit documentation, creating abandonment risk during onboarding. Automated KYB solutions that complete entity and UBO verification in minutes through digital registry and identity verification integrations are the commercial response to this tension.

With PXP

PXP supports merchants and partners across the payments value chain. To talk through merchant verification and onboarding as part of your payment strategy, get in touch with our team.

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Frequently asked questions

What is the difference between KYB and KYC?

KYC (Know Your Customer) refers to the identity verification process applied to individual customers, typically involving document verification and biometric checks. KYB (Know Your Business) applies the same principles to business entities: verifying the legal entity, its ownership structure, and its directors and beneficial owners. KYB typically involves KYC checks on the key individuals behind the business as part of the beneficial ownership verification process.

What is a beneficial owner in the context of KYB?

A beneficial owner is an individual who ultimately owns or controls a business, typically defined as anyone holding 25% or more of the company's shares or voting rights, directly or indirectly. AML regulations require payment providers to identify and verify all beneficial owners as part of KYB. Where ownership is obscured through holding companies or nominee structures, the KYB process must trace through to the ultimate natural person who exercises ownership or control.

How is KYB typically automated?

Automated KYB solutions integrate with company registry APIs (Companies House, national trade registers), PEP (Politically Exposed Person) and sanctions databases, adverse media screening services, and identity document verification and biometric check providers for UBO verification. The automation compiles a risk assessment in minutes that would otherwise require hours of manual research. Higher-risk cases or those with incomplete automated results are escalated to manual review teams.