Module 9: Onboarding, KYC/KYB, and Compliance in Payout Systems
Introduction
In payout systems, onboarding users is not simply about signing up accounts. It is about balancing:
Regulatory compliance
Fraud prevention
Liquidity protection
User experience efficiency.
Every payout product must operate within national and international financial regulations — particularly around anti-money laundering (AML), counter-terrorism financing (CTF), and sanctions compliance.
Product managers must design onboarding and compliance flows that are:
Legally sufficient
Operationally practical
User experience acceptable.
Ignoring or mishandling this area results in regulatory penalties, frozen liquidity, loss of banking relationships, or platform shutdowns.
Understanding KYC and KYB
| Term | Definition |
|---|---|
KYC (Know Your Customer) | Collecting and verifying personal identity information from individual users. |
KYB (Know Your Business) | Collecting and verifying legal and ownership information about business entities. |
Core Elements of a KYC Program for Individuals
Full legal name
Date of birth
Government-issued ID verification (passport, national ID, driver's license)
Proof of address (utility bill, bank statement)
Biometric verification (optional but recommended)
Sanctions list screening (OFAC, UN, EU, local lists)
Core Elements of a KYB Program for Businesses
Legal entity name
Business registration documents (certificate of incorporation, licenses)
Ownership structure and beneficial owners (ultimate beneficial ownership checks)
Business address verification
Sanctions and politically exposed persons (PEP) screening on directors and owners
Bank account ownership verification for payouts
Regulatory Expectations in Payout Products
Identify and verify users before or during payout initiation.
Monitor transactions for suspicious patterns after onboarding.
Maintain auditable logs of identity verification and payout transaction flows.
Report suspicious activity to appropriate regulatory authorities where required.
Implement tiered limits based on level of KYC/KYB completed (e.g., low-KYC users can only withdraw small amounts).
Best Practices for Building Onboarding Flows
| Practice | Reason |
|---|---|
Tiered KYC | Allow light KYC users small limits to onboard quickly, request deeper KYC as usage grows. |
Early Screening | Screen beneficiaries and senders during signup and before first transaction to avoid post-funding compliance blocks. |
Automated Document Verification | Integrate providers that can scan and validate IDs and documents automatically to reduce manual workload. |
Reverification Triggers | Initiate re-KYC for suspicious behavior, account changes, or after a set time period (e.g., annually). |
Clear Privacy Communication | Explain how user data will be stored, protected, and shared. Trust is critical in financial products. |
Handling Payout-Specific Compliance Scenarios
| Scenario | Best Practice |
|---|---|
Payout to Sanctioned Jurisdiction | Block payout before asset funding if possible, auto-refund if necessary. |
Beneficiary Fails KYC Mid-Process | Hold funds securely, notify user, request resolution steps. |
Structuring (multiple small payouts to avoid limits) | Flag for internal review, suspend further payouts until reviewed. |
Cross-border FX Controls | Partner with regulated entities and build payout corridor restrictions into product settings. |
Integrating Compliance Checks into the Product Flow
Conduct initial KYC/KYB at user registration or first payout initiation.
Conduct real-time sanctions and PEP checks at each payout initiation.
Monitor payout patterns dynamically for suspicious activity indicators (e.g., rapid multiple payouts, payouts just below reporting thresholds).
Design frictionless pathways for users to submit additional information during onboarding or upon compliance trigger events.
Examples of Tiered KYC Systems
| Tier | KYC Requirements | Limits |
|---|---|---|
Tier 0 | Email, phone verification | $100 daily payout limit |
Tier 1 | Government ID, selfie verification | $2,000 daily payout lim |
Tier 2 | Proof of address, source of funds declaration | Custom high limits subject to approval |
PM Action Checklist
Define minimum KYC/KYB standards for your users based on local regulations and risk appetite.
Select and integrate compliance tools (ID verification, sanctions screening, PEP screening).
Design onboarding flows that minimize drop-off while capturing required information.
Build operational processes for handling flagged users and delayed payouts.
Ensure audit logs are generated for every onboarding and payout event.
Closing Reflection
In payout systems, compliance is not just a legal requirement. It is a core enabler of financial trust, liquidity access, and long-term survival.
A great payout product is not one that ignores compliance. It is one that makes compliance invisible to legitimate users and unbearable for bad actors.
In the next module, we will address KPIs and Metrics for Measuring Payout Product Success.
