Know Your Customer (KYC) checks verify a person, while Know Your Business (KYB) checks verify a company and the people who own or control it. Platforms use both of these customer identity verification checks in different circumstances.

Below, we'll go over when KYC versus KYB checks apply, what information each collects, and what goes wrong when platforms misjudge which one a seller needs.

Key takeaways

• KYC verifies individual sellers, while KYB verifies registered businesses and traces their ownership back to actual people.

• Both processes support ongoing Anti-Money Laundering (AML) monitoring.

• Misclassifying a seller, or applying the wrong depth of verification, creates compliance gaps that often surface later.

KYC vs. KYB: How they work for platforms and marketplaces

Platforms use KYC when a seller signs up as an individual and KYB when they sign up as a registered business. Marketplaces often run both checks in different proportions, depending on who actually shows up to sell. Any platform that pays outside sellers or service providers runs into both KYC and KYB because some users are individuals selling on their own account, and others are incorporated entities with employees, bank accounts, and a registered agent.

KYC checks an individual's identity, including legal name, date of birth, residential address, and a government-issued identification (ID) number, screened against sanctions and watch lists. KYB checks a business's legal existence and ownership, including registered business name, formation documents, tax ID, and the identities of the people who own or control it, each of whom then goes through a KYC check of their own. KYB adds a layer on top of KYC to ensure the person or persons acting on the business's behalf are identified.

When do platforms need KYC verification for individual sellers?

KYC applies whenever the seller is a natural person acting in their own name rather than through a registered entity. This is the case for a lot of platform sellers.

Here's what's involved in a KYC check:

• Collecting identity details: The seller's full legal name, date of birth, and residential address are obtained at sign-up.

• Reviewing tax identification: A Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN) in the US – or the local equivalent elsewhere – ties the seller to their tax reporting.

• Comparing the seller to their government-issued ID: A driving licence or passport, often paired with a liveness check, confirms the document matches the person presenting it.

• Conducting sanctions screening: Each seller is checked against the US's Specially Designated Nationals (SDN) list, the EU's Consolidated List, and other relevant watch lists.

• Verifying the seller's identity based on risk: A seller who never crosses a payment threshold might only need to provide a name and address, while a seller with higher sales volume or one that operates in a flagged category prompts a deeper check.

• Adhering to reporting thresholds: Once a seller crosses the US Internal Revenue Service's (IRS) Form 1099-K threshold, which is US$20,000 in more than 200 transactions, platforms need a verified tax ID on file to report earnings correctly.

• Performing enhanced verification as needed: Sellers who operate in regulated goods categories or who are flagged by fraud detection models usually face additional document requests, address confirmation, or a manual review before payouts start.

When does KYB verification apply to business sellers?

KYB is required as soon as a seller signs up as a registered entity rather than an individual. The platform needs to confirm the business exists as claimed and identify who stands behind it.

A KYB check includes:

• Verifying the legal business name: The seller's business name and any "doing business as" (DBA) names get matched against state or national business registries.

• Reviewing registration documents: Incorporation paperwork and a tax ID (e.g., an Employer Identification Number (EIN) in the US) confirm the entity is real and active.

• Obtaining the business address: Regulators require a genuine operating address, not a mail drop or a virtual office with no activity behind it.

• Determining the entity type: A non-profit, a partnership, and a corporation carry different ownership disclosure rules; the platform needs to know which one it's dealing with.

• Assessing beneficial ownership requirements: Under the US Corporate Transparency Act, foreign-formed entities registered to do business in the US with non-US person owners must identify and verify individuals who own 25% or more of the business. The EU's Anti-Money Laundering regulation, which takes full effect in July 2027, also requires identification and verification of any individual who owns 25% or more of a business.

• Tracing ownership: A business owned by a holding company, which is itself owned by a trust, requires tracing that chain until an actual person is found.

• Performing enhanced due diligence as needed: Businesses in higher-risk categories, such as money services businesses or companies based in jurisdictions with weaker corporate transparency rules, generally face additional documentation, more frequent rescreening, and sometimes a manual review of the ownership structure before the account goes live.

How do KYC and KYB fit into broader AML compliance?

KYC and KYB are important pillars of Anti-Money Laundering (AML) compliance that apply specifically to onboarding. KYC and KYB act as the gate, and AML monitoring begins once a seller passes those checks. Regulators generally expect platforms to treat the two as connected.

Once a seller passes initial verification, three things run in parallel:

• Sanctions and watch list rescreening: These happen on an ongoing basis because a name can land on a watch list well after an account is already active.

• Transaction monitoring: This watches for patterns that don't match what the seller claimed at sign-up, such as a sudden spike in volume, payments structured to stay just under reporting thresholds, or transfers flowing to or from high-risk jurisdictions.

• Ownership and entity monitoring: These monitoring levels catch changes nobody disclosed, such as a new majority owner stepping in or a business that silently dissolves and reincorporates under a different name.

What are the risks of getting KYC and KYB wrong?

Under- and oververifying carry real costs when platforms get KYC and KYB wrong. Here's what you need to know.

Underverifying

Underverifying exposes a platform to sellers who shouldn't be there. When this surfaces, the consequences land on the platform as much as the seller. Regulators can take enforcement action and fine platforms and their banking partners for inadequate KYC and KYB programmes. Losing a banking relationship over compliance failures is often more disruptive than the fine itself. Card networks can also penalise platforms that facilitate transactions for sellers who should never have cleared verification in the first place.

Oververifying

Asking every seller, regardless of size or risk, for the same depth of documentation slows onboarding and can push legitimate sellers to abandon sign-up before they process a single payment. A risk-based approach, where a small individual seller clears a lighter check and a larger business faces closer scrutiny, tends to cut friction for the sellers who pose the least risk, without weakening the programme overall.

Which verification process does your platform actually need, KYC or KYB?

You can build your verification flow around the kinds of sellers who are actually going to be signing up. A platform built for individual freelancers or creators, for example, will lean almost entirely on KYC, with KYB reserved for the smaller share of sellers who incorporate. A B2B marketplace connecting buyers with wholesale suppliers sees the opposite: KYB on most sellers, with KYC layered in for the beneficial owners behind each one. A platform serving both individuals and registered businesses, which describes many general marketplaces, needs a flow that branches based on how the seller signs up rather than forcing everyone through the same form.

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