Discover our latest AI-powered innovations around faster payments, smarter workflows, and real-time visibility.Learn more →
Know Your Business (KYB) is a set of verification procedures that helps companies avoid getting into business with criminals. KYB verification also confirms those businesses are following industry rules and standards, like Anti-Money Laundering (AML).
Regulated companies (like banks and insurance companies) follow KYB procedures to protect their business against bad actors. In short, KYB makes it harder for criminals to pass as legitimate businesses and make money illegally.
History of KYB
The origin of Know Your Business (KYB) dates back to 1970 with the Banking Secrecy Act (BSA). Under the BSA, U.S. financial institutions must keep stringent records and file reports on cash transactions over $10,000 as well as on any suspicious activity. At the time, the BSA aimed to make it hard to launder dirty money from drug trafficking—a hot topic during the War on Drugs.
The BSA served as the groundwork for several anti-money laundering (AML) regulations laid out in the 2001 USA Patriot Act, including Know Your Customer (KYC). Since KYC requires financial firms to verify that their customers are who they say they are, the flow of money to terrorist organizations is prevented.
Know Your Business was a loophole fix to KYC. Before KYB, banks didn’t have to identify the beneficiaries of the businesses they served. In other words, bad businesses could hide criminals’ identities and perform illegal transactions on their behalf. Today, KYB and KYC work together to promote transparency and shine a light on any potential criminal activity in regulated industries.
What Purpose Does KYB Serve?
KYB is similar to the Know Your Customer (KYC) verification standard. The goals of both are the same: to identify and verify a person or entity in a compliant way. The main difference regards the user being identified. Aptly, KYC looks at a regulated company's customers, and KYB looks at other business entities a company may engage with.
The end goal is to confirm that entities in business relationships are authentic and not being used to conceal the owners’ identities for nefarious purposes like funding terrorism, laundering money, committing tax crimes, or participating in other criminal activity.
What Does KYB Look Like in Action?
One of the key components of the KYB process is ultimate beneficial ownership (UBO). This transparency tool allows companies to understand who directly benefits from business profits. It also prevents criminals from trying to hide their identities through shell companies.
Let’s say a criminal wants to create an anonymous, off-shore business in a low-regulation country to avoid AML compliance scrutiny. Without Know Your Business procedures in place, a legitimate business could get mixed up with this criminal’s business, which could land them in hot water with regulators.
KYB also provides companies with other relevant information about the businesses they engage with. Following KYB protocol can shed light on whether a business or any of its employees have been exposed to political corruption, are subject to international sanctions, or are or have been the subject of investigations related to criminal activity. In other words, it confirms that companies—and their employees—are doing business aboveboard and fairly.
Try Modern Treasury
See how smooth payment operations can be.
Learn
Payment operations is an umbrella term that refers to the entire lifecycle of money movement for a company.
Bank reconciliation is the process of verifying the completeness of a transaction through matching a company’s balance sheet to their bank statement.
A banking API is software that facilitates a digital connection between a company and a bank.
The term "cash position" pertains to the quantity of cash or assets that can be readily converted to cash, held by an individual, company, or financial institution at any given moment.
Continuous accounting is the ongoing process of updating a business’s general ledger with reconciled bank statement transactions as soon as they become available.
Fiat money is a form of currency issued by a government and declared legal tender, though not backed by a commodity.
Financial reporting empowers businesses to make informed financial decisions by identifying trends and tracking performance. It also offers insights into a company's assets, liabilities, and debt management strategies.
The Flow of Funds is the movement of money in and out of bank accounts.
Gross merchandise volume (GMV), also known as gross merchandise value, is the total value of the goods or services retailers sell over a set period.
An invoicing API allows companies to create, send, manage, and reconcile invoices, as well as track related payments end to end.
Know Your Business (KYB) is a set of verification procedures that helps companies avoid getting into business with criminals.
Month-end close is a critical process where the accounting team reviews and records financial transactions to close out the month.
Payment operations is an umbrella term that refers to the entire lifecycle of money movement for a company.
While both are essential for managing online transactions, there are several differences between payment processors vs. payments gateways.
Two options for financial transaction settlement—differing in both speed and style—here, we’ll look at how both Net Settlement and Gross Settlement work in action.
Incoming payment details are notifications that a company is going to receive a payment it didn’t originate—meaning the receiving funds were not initially requested.
Payment controls help accounts payable (AP) departments avoid losing money due to fraud, late payment fees, and other errors. They are a necessary part of a company’s overall payment operations to keep payments secure, accurate, and authorized.
Payment rails are the underlying systems and networks that facilitate the movement of funds between parties in financial transactions.
Account-to-Account (A2A) banking, sometimes also called Me-to-Me banking, is the transfer of funds from one account to another account.
Implementing a multi-bank strategy is vital for companies looking to reduce risk exposure. In this article we explain how to reduce financial risk by implementing bank redundancy.
Batch processing is a method of processing various types of transactions. As the name suggests, transactions are processed in a group or “batch.”
In business terms, float refers to the time delay between the movement of funds from one account to another.
Know Your Customer or Know Your Client (KYC) is a set of guidelines for verifying the identity of a customer and gauging the associated risk of working with them.
Money transmission is the act of one party receiving currency for the purpose of sending it over to another party.
The 10-K is a comprehensive report mandated by the U.S. Securities and Exchange Commission (SEC) that publicly traded companies must file annually. This report provides a thorough overview of a company's financial performance over the past year.
A merchant’s bank account must pay an interchange fee to the card-issuing bank each time someone uses a credit or debit card to purchase something from their store.
Subscribe to Journal updates
Discover product features and get primers on the payments industry.