The Cost of KYC Compliance and How to Eliminate It

Key takeaways

KYC compliance costs can be substantial, especially for SMEs and startups.

Hidden costs of KYC include drop-offs in customer onboarding and opportunity costs.

Didit offers a free, unlimited, and forever KYC solution to make identity verification accessible to all businesses.

The future of KYC lies in reusable credentials and zero-cost solutions.

Complying with Know Your Customer (KYC) regulations has become a critical process for companies, which must confirm the identity of their customers as a preliminary step to preventing financial crimes, such as money laundering. However, KYC costs have become a real headache for many organizations, especially SMEs and startups, which do not have the resources of large multinationals.

The external costs associated with KYC compliance are varied, with impact on financial, operational, and regulatory aspects. This is particularly evident in the banking and financial sector, where some companies can invest between $1,500 and $3,000 to complete the KYC review of a single client and one in five spends more than $3,000 per verification.

But is there a KYC solution that complies with regulations and doesn't burden the bottom line? The answer is yes. At Didit, we believe that in this digital era, with the advancement of generative artificial intelligence and other types of fraud, identity verification is a fundamental right of individuals; charging for it goes against the principles of inclusion and equality. It's time for a new paradigm, in which KYC is free, unlimited, accessible to all businesses, and forever.

KYC Costs for Companies

For many companies, the cost of KYC can be substantial, directly impacting their bottom line and operational efficiency, especially in sectors related to finance and the economy. According to some sources, the average cost of KYC for financial institutions reaches $60 million per year, with some of the major banking entities exceeding $500 million annually.

But when talking about the cost of identity verification for companies, we refer to more aspects than just the economic one, for example:

• Personnel cost. Companies need to hire staff and have them specialize in different legislative frameworks to control KYC processes, which can be costly in time and money.
• Technological costs. Implementing and maintaining the necessary technology to comply with KYC, such as identity verification tools and databases, can involve significant expense.
• Opportunity cost. Mainly referring to the costs derived from spending resources that would allow optimizing other parts of the business, such as product development or customer acquisition.

Other Hidden Costs of KYC

In addition to all these expenses (personnel, technological, and opportunity), there are other hidden costs related to KYC compliance that companies don't always take into consideration. For example, an excessively long identity verification process can lead to significant drop-off and, therefore, loss of profits. In fact, it is estimated that more than 60% of users have abandoned at some point a digital onboarding process due to the duration and complexity of KYC requirements.

Obviously, the costs of regulatory compliance will also depend on the size and nature of the company. SMEs and startups may sometimes have difficulties managing the costs derived from KYC, while larger companies can face higher expenses, mainly due to the complexity of their operations.

Factors That Can Increase Identity Verification Costs

There are different factors that can inflate the KYC cost bill for companies. Here we include some industry-specific regulations, geographic location, or regulatory issues, among others.

Industry Regulations

Each industry, such as the banking, insurance, or investment sector, faces its own regulations, which can vary in terms of complexity and demands. Complying with these regulations forces organizations to invest in specific systems and procedures, which can be truly costly.

Jurisdictional Requirements

Depending on their geographic location, the legal requirements that organizations must comply with can significantly affect the cost of regulatory compliance. Those multinationals that operate in different legal environments must move smoothly through a complex network of compliance requirements, which leads to an increase in costs (team specialized in local regulations, salaries, and different onboarding processes that allow compliance with regulations).

Potential Fines

Failing to firmly comply with regulations can lead to significant fines. Different regulatory bodies can impose severe sanctions on institutions that fail to comply with KYC regulations or fail in some critical aspects.

Personnel and Tool Costs

As we saw earlier, personnel expenses as well as investment in advanced tools that allow verification can represent significant costs for companies' bottom lines.

A New Paradigm: Free, Unlimited, and Forever KYC

In this digital age, where generative artificial intelligence and other types of identity fraud are commonplace, identity verification should be treated as a fundamental right: access to many online services, such as banking, health, or education, increasingly depends on the need to prove one's identity.

However, when companies charge for these types of services, they exclude those that cannot afford the cost of paying for identity verification services.

This pay-to-play model contradicts the principles of inclusion and equality that should prevail in a free and fair society. That's why at Didit we believe there is a different way to do identity verification: we are pioneers of a new paradigm in which KYC is free, unlimited, and accessible for all businesses, forever. By eliminating the costs of this service, we remove the barriers that have prevented many businesses from offering safer and more inclusive services.

Why Does Didit Offer a Free Identity Verification Service?

Our approach is based on the belief that identity is a fundamental right in this digital era. Just as access to basic services (health, education...) should be available to everyone, we believe that the ability to prove one's identity online should be a basic right. In this blog article, we explain more.

However, while we extend our commitment to KYC, we understand that companies need to be responsible when it comes to preventing financial crime, such as money laundering or terrorist financing. That's why we offer our AML (Anti-Money Laundering) services alongside our free KYC solution.

By charging for AML regulatory compliance, we can provide companies with the necessary tools to comply with anti-money laundering regulations and protect themselves against financial crimes, while ensuring that identity verification remains free and accessible to all. In other words, zero-cost KYC.

The Future of KYC is Free and Accessible

Our focus is on the long-term future of KYC compliance, developing an inclusive, equitable, and technologically advanced environment. Much of this weight will be covered by reusable KYC credentials, which reaffirm a commitment to the basic right of identity verification.

That's why we say that the future of KYC is bright... and free. The question, therefore, is not whether companies can offer a free identity verification service, but whether they can afford not to.

In an increasingly digitalized world, where trust and accessibility are paramount, zero-cost KYC is a necessity.

Do you want to optimize your operational costs derived from KYC and AML regulatory compliance? You're in the right place. Click on the banner below and contact our team. We'll answer all your questions!