How to Use Alternative Data to Strengthen Digital KYC & KYB Processes

The world of KYC and KYB compliance is continuously evolving. As regulatory demands intensify and fraud techniques become more advanced, financial institutions are expected to adopt verification systems that are both robust and flexible. For many financial service providers, meeting these expectations has become a balancing act between security, cost, and user experience. And while smooth onboarding was initially a concern only for individual users, today’s expectations extend to business customers undergoing KYB due diligence as well. Whether it’s a challenger bank onboarding a new client or a payments platform vetting a digital storefront, the demand to identify high-risk sign-ups without disrupting legitimate users is higher than ever.

This article unpacks the essentials of the KYC and KYB process, outlines the global frameworks that govern them, and explores how alternative data points, particularly those sourced from users’ and businesses’ digital footprints, are enhancing traditional verification methods.

What is KYC and KYB compliance?

KYC, or Know Your Customer, refers to the process by which financial institutions verify the identity of individual customers. This typically includes collecting and validating information such as name, date of birth, government-issued ID, and proof of address. The goal is to ensure that a person is who they claim to be and does not present an elevated risk of money laundering or fraud.

KYB (Know Your Business) extends the same principle to legal entities. It involves verifying the legitimacy of companies, assessing the ownership structure, and determining whether the business is being used to mask illicit activity. For both processes, the responsibility falls on institutions that provide financial services, such as traditional banks, neobanks, insurers, lending firms, or payment processors, as well as on high-risk sectors more vulnerable to money laundering, such as cryptocurrency platforms and online gaming operators.

Compliance obligations vary by region but generally apply to any organization that handles money, credit, or assets on behalf of others. That might include fintech startups offering microloans or cross-border remittance apps, as well as e-commerce platforms that facilitate high volumes of transactions. The need for KYC and KYB screening begins long before any funds change hands; often during the initial account setup or onboarding phase.

Which laws govern KYC and KYB requirements?

KYC and KYB obligations stem from broader anti-money laundering (AML) and counter-terrorist financing (CTF) laws. The Financial Action Task Force (FATF), an intergovernmental body, sets the global standard with its 40 recommendations. These include the requirement for institutions to adopt a risk-based approach, which requires assessing customer risk profiles and apply different levels of due diligence accordingly.

In the European Union, these standards are implemented through a series of AML Directives. AMLD5 and AMLD6 introduce tighter controls on beneficial ownership, mandate the use of centralized registries, and extend requirements to cryptocurrency platforms and digital wallet providers. Financial institutions must also identify politically exposed persons (PEPs), monitor ongoing transactions, and ensure that corporate ownership structures are transparent.

In the United States, the Bank Secrecy Act (BSA) and the Customer Due Diligence (CDD) Final Rule form the core of KYC/KYB regulation. These require covered entities to collect and verify information about individuals and businesses, including Ultimate Beneficial Owners (UBOs), and to report suspicious activity to FinCEN. For fintech companies, meeting these standards often requires a mix of document checks, registry lookups, and risk assessments, all within a tightly controlled compliance framework.

KYC and KYB Steps: a side-by-side breakdown

The standard approach to both KYC and KYB relies heavily on document verification, database checks, and manual reviews. While functional, these methods are often resource-intensive and can be slow to adapt to evolving fraud tactics.

The table below illustrates the typical steps involved in traditional KYC and KYB processes:

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The KYB process is notably more complex. It often involves parsing layered ownership structures to uncover the real individuals behind a company, a step that can require registry access, legal expertise, and significant time investment. In contrast, the KYC process centers around authenticating a single person, although it’s increasingly vulnerable to synthetic identity fraud, especially when relying solely on document-based checks.

What both processes have in common is a heavy dependency on static data: scanned documents, declared information, and checks against registries or lists that can be outdated or incomplete. These limitations are precisely where modern approaches using dynamic data signals are gaining traction.

Can alternative data streamline KYC and KYB costs?

Traditional compliance methods are increasingly strained by operational overhead. Each new user or business onboarded requires a combination of identity checks, registry access, sanctions screening, and in many cases, human review. The result is a growing cost burden. According to multiple industry estimates, the average cost of customer onboarding can range from €20–€80 per individual and much higher for business entities, especially when Ultimate Beneficial Ownership (UBO) analysis and document sourcing from registries are involved.

What makes the situation more complex is that not every onboarding attempt justifies this level of scrutiny. Fraudsters frequently attempt to open accounts using synthetic identities, tampered documents, or shell companies, many of which can be filtered out long before official documents are requested. That’s where alternative data becomes essential.

Open-source intelligence (OSINT) and digital footprint signals offer a new layer of insight before the formal verification process even begins. Email addresses can be analyzed for age, breach history, and usage patterns. Phone numbers can be flagged as disposable or recently ported. IP addresses reveal geolocation anomalies and risk indicators tied to VPNs or proxies. These early signals help institutions make better decisions about which users or businesses warrant further due diligence, and which attempts can be deprioritized or blocked entirely.

What this means for compliance teams is a reallocation of resources. Instead of applying full-spectrum checks to every onboarding case, institutions can reserve intensive verification workflows for users or entities that pass an initial digital risk screening. This not only accelerates onboarding for legitimate applicants but also preserves budget and analyst hours for high-risk cases that demand deeper investigation.

How digital signals enhance the KYC process for individuals

The effectiveness of KYC checks depends not just on document checks, but on a compliance team’s ability to detect when a skilled fraudster is behind the submission. Document verification tools can confirm that an ID is authentic, but they rarely confirm whether it truly belongs to the person submitting it. Here is where digital signals step in, providing a layer of silent intelligence that helps verify the legitimacy of contact details before any ID is reviewed.

When a person signs up for a financial service, the first data points they submit with their name are often their phone number and email address. These identifiers, though seemingly basic, can reveal far more than what’s visible on the surface. For example:

• Email address analysis can surface:
  • Age of the email account (new emails are common in fake signups)
  • Presence in past data breaches (recycled or exposed accounts)
  • Consistency with the person’s name or declared identity
  • Connections to disposable email providers, known fraud patterns, or clusters of accounts used across multiple suspicious services

• Phone number checks can help identify:
  • Whether the number is virtual, prepaid, or disposable
  • If it has been recently ported — while this is sometimes linked to SIM swap fraud, it can also be a signal of a legitimate user switching carriers and retaining their number
  • Connection to online messaging apps that indicate recent or legitimate use
  • Association with P2P lending apps, betting services, or social platforms — the number being linked to these ecosystems helps validate identity consistency and long-term usage
• IP and device data can further refine trust signals:
  • Unusual geolocation compared to stated country of residence Use of emulators, headless browsers, or automation scripts Known VPNs, proxies, or TOR exit nodes used in past fraud attempts

Taken together, these signals allow risk & compliance teams to build a trust profile around the applicant before engaging in resource-heavy ID checks or video calls. If contact details fail even these initial digital tests, the system can flag the attempt for further scrutiny or halt it altogether. This helps reduce false positives and also ensures that genuine customers aren’t being unnecessarily slowed down by overzealous compliance procedures.

Instead of looking only at what a user submits (documents, selfies), this approach asks: What can be silently verified about the person before we even get to the document upload step?

What does OSINT reveal about a business?

For KYB compliance, one of the biggest challenges lies in verifying the legitimacy of a business entity beyond registry data. Official documents might confirm that a company exists on paper, but they often reveal little about whether the business is active, trustworthy, or even real. This is especially true for digital merchants, freelancers, and shell companies operating in low-regulation jurisdictions.
Open-source intelligence offers a powerful lens through which to evaluate an entity’s digital footprint, helping compliance teams detect inconsistencies or red flags early. These checks can include:

Domain intelligence:

• Age of the business website and registration metadata
• Whether the domain is hosted on free or temporary platforms
• Connections to other websites, marketplaces, or known fraud infrastructure

Website and online presence analysis:

• Consistency between the contents of the website and the claimed business sector
• Presence of contact info, product pages, privacy policies, and genuine web traffic
• Indicators of a hastily constructed or template-based site used for scams

Reputation signals:

• Online reviews and ratings across platforms
• Mentions in forums or on social media
• Past ad campaigns and whether they match the current declared activity

Digital behavior of associated emails and phone numbers:

• Cross-referencing signals from company contact details
• Reuse of the same email or number across multiple unrelated entities

Unlike registry documents, which are often static, this type of information updates in near real-time and can uncover businesses that exist solely for abusive or short-term purposes. It helps assess not only whether a company exists but also whether it behaves like a legitimate participant in the digital economy.
When used at the onboarding stage, this intelligence can help teams filter out entities that look real on paper but fail to meet the basic expectations of an operational or trustworthy business.

How can alternative data be integrated into KYC and KYB workflows?

Introducing additional verification steps doesn’t have to come at the expense of user experience. Alternative data sources can be embedded into existing onboarding flows without creating friction, delays, or new points of failure. Silent pre-screening is the key.

Instead of prompting users for more information, silent checks operate in the background. Once an email, phone number, or IP address is submitted, real-time APIs can enrich these signals instantly. This enables businesses to assign a preliminary trust score, trigger tailored verification steps, or block fraudulent attempts, all without requiring a human review.

For teams using onboarding orchestration platforms or custom-built workflows, these integrations can be configured with minimal development effort. Many risk platforms offer:

• REST APIs that return actionable risk signals in milliseconds
• Flexible rulesets to define thresholds for further KYC/KYB actions
• Audit trails for compliance teams to justify decisions and actions

Importantly, these checks do not replace formal compliance steps; they act as an intelligent buffer. For most institutions, this means filtering out malicious or irrelevant traffic, fast-tracking low-risk users, and focusing manual efforts only where they’re truly necessary. The result is a more adaptive, efficient, and scalable compliance operation, one that’s designed for modern onboarding environments rather than static regulatory checklists.

As KYC and KYB compliance evolves, the integration of alternative data provides a clearer, faster, and more cost-effective path to verifying identities and businesses. For companies operating in high-risk or high-volume environments, the ability to detect fraud indicators early, without adding friction, is a baseline expectation for sustainable and secure growth.

Rethinking compliance with Trustfull

If your current KYC or KYB process feels expensive, slow, or vulnerable to fraud, it may be time to rethink how much value you're extracting from the first few data points users provide. With Trustfull, companies can enrich onboarding flows using phone, email, IP, and device intelligence, delivering immediate risk insights without introducing friction.

Our platform was designed to integrate seamlessly into existing systems through real-time APIs, enabling compliance teams to assess trust before verification even begins. Whether you're screening individual users or vetting digital merchants, Trustfull provides the intelligence layer that lets you move faster, cut costs, and make smarter decisions from the start.

FAQs

What is the difference between KYC and KYB compliance?
KYC refers to verifying individual customers, while KYB focuses on validating the legitimacy of businesses and their ownership structures. Both are essential components of anti-money laundering (AML) and counter-terrorist financing (CTF) obligations across financial sectors.

How does alternative data help reduce the cost of compliance?
By using signals like phone and email risk, breach exposure, and IP intelligence, companies can screen out high-risk signups before deeper verification is needed. This reduces reliance on expensive manual checks, document validation, and third-party registry access.

Can OSINT tools detect synthetic identity fraud?
Yes, OSINT-based tools can flag signs of synthetic identities by analyzing digital inconsistencies, such as newly created emails or disposable numbers with no real usage history. These indicators often appear long before document-based checks begin.

Is it possible to run pre-KYC and pre-KYB checks without affecting the user experience?
Yes, silent screening can be integrated into onboarding flows through APIs that operate in the background without user input. This approach enables companies to assess risk in real time while maintaining a smooth and fast sign-up process.