KYC Models Become Boardroom Issue as Costs Climb

Compliance executives have traditionally evaluated identity programs by asking whether they satisfied regulators and prevented fraud.

But PYMNTS Intelligence research, done in collaboration with Trulioo, indicates that the way companies organize know your customer (KYC), know your business (KYB) and emerging know your agent (KYA) functions can affect operating costs, approval rates and expansion opportunities at least as much as traditional loss prevention.

As a result, identity operating models are becoming strategic business choices that influence conversion, customer experience and long-term growth.

Below are three trends that should inform KYC efforts:

The Cost of Keeping Identity In-House Is Becoming Easier to Measure

Companies that rely primarily on internal teams spend an average of $26 for each consumer KYC review and $51 for each KYB review. Hybrid organizations report average costs of $17 and $29, while firms relying on external providers average $11 and $20. The gap persists even among companies within the same revenue bands. Scale alone does not explain the difference.

Of course, identity verification is no longer an occasional event. Digital platforms continuously onboard consumers, merchants, gig workers, suppliers and marketplace participants. A modest difference in unit economics can translate into millions of dollars as volumes grow.

The data also complicates the assumption that spending more necessarily delivers better outcomes. Internal teams carry the highest review costs while simultaneously reporting greater operational challenges in several other categories. That raises questions about whether many organizations have optimized their compliance investments or simply accumulated complexity over time.

As institutions reassess technology budgets, KYC architecture should become a boardroom discussion.

False Positives Have Become a Customer Experience Problem

The second trend extends beyond expense and reaches directly into revenue generation.

Forty-three percent of firms operating internal identity teams report false-positive friction, substantially higher than organizations using hybrid or external approaches. Those unnecessary declines represent legitimate customers or businesses that encounter delays, additional reviews or outright rejection.

Every abandoned onboarding process carries acquisition costs that cannot be recovered. Every legitimate customer who leaves during verification creates an opening for competitors.

The research also shows internal teams reporting improving decline rates and elevated onboarding friction alongside their higher false-positive levels. Those patterns suggest that compliance decisions shape conversion performance.

As digital onboarding becomes the primary front door for banking and payments relationships, reducing unnecessary friction may prove just as valuable as detecting fraudsters.

Hybrid Models Are Opening the Door to New Partnerships

The third trend may have the broadest strategic implications.

Internal teams report a 53% KYA incident rate, while hybrid models report 28%, nearly cutting that figure in half. Although every operating model involves tradeoffs, the results suggest that combining internal expertise with outside capabilities may produce different performance characteristics than relying exclusively on one approach.

That possibility arrives as banks and FinTechs continue to deepen partnerships across onboarding, payments, embedded finance and digital identity.

Rather than viewing outside providers merely as vendors, institutions can treat them as components of a broader operating architecture. Hybrid arrangements allow firms to retain governance and policy oversight while drawing on specialized verification technologies, data sources and automation that would be difficult or expensive to build independently.

Identity decisions cannot be isolated from broader business strategy. A company selecting an operating model is making choices about customer acquisition, staffing, technology investment and future expansion at the same time.