KYC (Know Your Customer)

KYC (Know Your Customer) is the set of procedures a company uses to verify a customer's identity, understand their activity and assess the risk they represent before doing business with them. It emerged in the financial sector as a regulatory requirement, but today it applies to any business that needs to trust who it is dealing with: fintechs, insurers, distributors opening a credit account for a new customer, or companies signing high-value contracts.

In practice, doing KYC means collecting and validating data (name or legal name, tax ID (CUIT), address, ultimate beneficial owner), checking it against official sources and risk lists, and keeping an auditable record of that verification. It is a document-intensive process: national ID card (DNI), tax registration certificate, financial statements, proof of address. That is why automating the capture, classification and validation of that documentation is part of what Arconte, the document and finance engine that organizes that evidence, takes care of.

KYC is not a one-time formality: it is complemented by ongoing monitoring of the customer's behavior and forms the foundation of the broader anti-money laundering process.

KYC is the answer to a simple but critical question for any company: do I really know who I am doing business with? Behind that question there are two motivations worth separating. The first is regulatory: in Argentina, the Financial Information Unit (UIF) requires "obligated parties" (banks, fintechs, exchange houses, notaries, insurers and others) to identify and know their customers under specific resolutions. The second is commercial and risk-related: even a company that is not an obligated party wants to know who it is giving a credit account to, who it is delivering goods to on 60-day terms or who it is signing a large contract with, so it does not end up trying to collect from a ghost or a serial defaulter.

What a well-built KYC process includes

A KYC program is usually structured in layers that are applied according to the customer's risk:

• Customer identification (CIP): collect the minimum data (name or legal name, ID document or tax ID, address, date of birth or incorporation) and validate that the identity is real.
• Document verification: check the declared data against supporting documents and official sources (registries, ARCA (formerly AFIP, Argentina's federal tax agency), public records). This is where reading the DNI, registration certificates and powers of attorney comes in.
• Ultimate beneficial owner: identify the individuals who ultimately control or benefit from a company, a key point for avoiding structures that hide the real owner.
• Risk assessment and classification: assign a level (low, medium, high) based on country, activity, expected volume and whether the person is a politically exposed person (PEP).
• Ongoing monitoring: review activity over time and update the customer file when the customer's profile changes.

The risk-based approach

Not every customer warrants the same level of control, and that is precisely the principle behind good KYC. The idea is to scale the friction to the real risk: a low-risk customer gets simplified due diligence (the minimum data, automatic validation), while a high-risk one is required to go through enhanced due diligence (additional documentation, approval from higher levels, more frequent monitoring). Applying the same heavy paperwork to everyone scares off good customers and, paradoxically, dilutes attention on the cases that really matter.

Why it matters

Weak KYC is costly on every front. On the regulatory side, UIF fines and the reputational cost of being associated with money laundering are severe. On the commercial side, opening the door to customers who are not properly verified translates into fraud, bad debt and contracts with counterparties that do not exist. And on the experience side, a poorly designed KYC process (asking for the same papers five times, taking a week to approve an account) is one of the main causes of abandonment in digital customer onboarding. The fine balance of KYC is verifying properly without slowing down the business.

A concrete example (Argentina / Latin America)

An Argentine fintech that offers accounts and cards needs a new user to complete sign-up in minutes from their phone. Its KYC flow asks for a photo of the DNI (front and back) and a selfie for liveness detection, and validates the CUIT against the registry. The system reads the DNI data with OCR, compares it with the selfie using biometrics, checks the name against sanctions and PEP lists, and assigns a risk score. If everything matches and the risk is low, the account is approved automatically; if an alert comes up (for example, the name partially matches a list), the case goes to human review before it is enabled. The design here is a fine balance: a threshold that is too strict blocks legitimate customers, and one that is too loose lets fraud through. That same digital file stays stored and auditable for when the UIF asks for it. At a B2B distributor the logic is similar but what gets verified changes: instead of a selfie, the company validates the tax registration certificate, the financial statements and who signs on behalf of the business, before granting a credit line.

Monitoring does not end at sign-up

A frequent mistake is to think of KYC as a snapshot taken on sign-up day. In practice, a customer's profile changes: they show up on a new list, their transaction volume spikes, their ownership structure changes. That is why the customer file is a living document, and keeping it organized and traceable is what makes it possible to respond quickly when an audit arrives or when you have to justify why you kept doing business with someone.

Common mistakes

• Treating KYC as a single sign-up event and never looking at the customer again; risk changes over time.
• Applying the same friction to everyone: asking a low-risk customer for the same heavy paperwork as a high-risk one scares off the good ones and does not catch the bad ones. The way out is the risk-based approach.
• Confusing KYC with AML: KYC is identifying and knowing the customer; it is one component of the broader prevention program.
• Keeping documentation scattered (emails, folders, loose photos) instead of a traceable digital file, which makes it impossible to respond quickly to an audit.

How it differs from AML

KYC and AML are often mentioned together, but they are not the same. KYC is the "who", AML is "what that who does with the money". KYC feeds AML: without knowing the customer well, it is impossible to later detect a suspicious transaction.

To go deeper into the prevention layer, see AML (anti-money laundering). And for the technology piece that reads and validates the documents in the file, see OCR and document validation.