How to Build a Custom Know Your Customer (KYC) System for Your FinTech Product

Key takeaways:

• Know Your Customer (KYC) processes are critical for FinTech companies to detect and prevent fraud, identity theft, and money laundering.
• Many legacy KYC systems rely on outdated, manual methods that are inefficient, inconvenient for users, and vulnerable to modern fraud tactics.
• Automating and digitizing KYC processes improves both compliance and the user experience, enabling faster and more accurate identity verification.
• AI-powered KYC solutions, including perpetual KYC (pKYC) and re-KYC, offer dynamic, real-time monitoring that helps financial institutions stay ahead of emerging risks.
• Building an effective KYC system requires a thoughtful architecture, secure data handling, and seamless integration with internal and third-party tools.

A KYC mechanism helps FinTech businesses establish compliance, security, and trust. However, verifying customers’ identities and preventing fraud come at the price of friction during onboarding. 

Manual reviews, fragmented workflows, and outdated tools slow down onboarding, increase operational costs, and introduce compliance risks. Often, this leads to loss of customers and compliance issues. 

To stay competitive and secure, FinTech companies must rethink their approach to KYC. By adopting digital, automated, and AI-enhanced KYC solutions, you can streamline compliance, improve the user experience, and proactively detect risks.

From this guide, you’ll learn:

• What KYC system is suitable for your FinTech company — off-the-shelf, custom, or a mix of both
• Key components and functionality of a modern KYC system
• How AI enhances identity verification, pKYC, and fraud detection
• What you need to consider before building a KYC system so it’s secure and scalable
• How Apriorit can support your custom KYC software development journey

Why digital KYC matters in FinTech

Know Your Customer (KYC) is a standard regulatory requirement that helps FinTech companies verify that customers are who they claim to be and are not criminals using fake or stolen identities by: 

• Verifying customer identities
• Assessing and monitoring risks
• Keeping records of customers’ financial activity
• Reporting suspicious activity

It’s hard to overestimate the importance of KYC in FinTech, as it helps prevent illegal activities such as identity theft, fraud, terrorist financing, cybercrime, and money laundering. KYC is also essential for maintaining compliance with financial regulations, including anti-money laundering (AML) laws.

While KYC in FinTech is mandatory, companies have flexibility in how they implement it in practice — manually, digitally, or semi-automated. 

Many FinTech companies still rely on outdated solutions to manage KYC: a mix of internal tools, manual checks, in-person onboarding, spreadsheets, paper documents, etc. While this approach may have worked early on, it comes with its own set of challenges:

• Customer drop-off during onboarding. Slow identity verification directly hurts conversions. According to a study by Fenergo, 67% of global banks experienced client abandonment in 2024 during the KYC onboarding process, marking a significant jump from 48% in 2023. The reasons cited in the study include poor data management, slow and complex onboarding, and a poor customer experience.

• Operational inefficiency and compliance risks. Manual KYC reviews are resource-heavy and error-prone. One missed red flag or outdated record can lead to non-compliance and significant penalties. In 2024 alone, Starling Bank was fined nearly $37 million for financial crime failings, including poor onboarding and weak sanctions screening. The core reason for this was the rapid growth of Starling Bank’s customer base, which demonstrates that manual checks are not only error-prone but also challenging to scale.
  
• High costs. According to Fenergo, the average KYC review for a corporate client now costs $2,598. Even midsized FinTechs face steep expenses for personnel, tools, data sources, and reporting. Juniper Research predicts that spending on digital identity verification checks will reach $20.8 billion globally in 2027, up from $11.6 billion in 2022. That’s 80% growth over five years.

As your customer base expands and regulations become more stringent, KYC efficiency becomes more important, as each error can lead to increased risks and costs and cause you to lose customers. 

Digital KYC software solves these challenges by providing your FinTech business with a scalable, automated system that brings all KYC processes under one roof. Modern digital KYC software offers:

• Reduced onboarding time. Digital KYC for FinTech allows you to spend minutes on customer onboarding instead of days by checking identity through digital means like biometric checks, text recognition, liveness detection, and real-time database screening. 
• High scalability. Using cloud services that are easy and fast to scale, you can handle thousands of verifications at the same time. Your digital system can scale without overhead as your customer base grows during high-demand periods, then scale down dynamically as demand drops.
• Minimal human error. A KYC system can help your team avoid errors and ensure consistent checks across all users and risk levels.  
• Cost efficiency. While a digital KYC system can be expensive at first, long-term costs of compliance and scaling will be lower due to automation, simplified reporting, and elimination of manual reviews except for high-risk or challenging cases. 
• Better customer experience. Digital KYC systems allow your users to onboard remotely without in-person visits to the office or filling out paperwork. This reduces friction during onboarding and minimizes the risk of customer drop-off. 
• Adaptability to changes in regulations. Digital KYC systems are much easier to update than manual, paper-based processes. When regulations change or you enter a new market, you can adjust workflows, validation rules, and data handling policies through software updates without retraining entire teams or changing your paperwork. 

How can you go digital with KYC? 

There are multiple ways to integrate digital Know Your Customer tools into a FinTech product: you can use off-the-shelf SaaS tools, build a custom KYC module, or create a hybrid solution. Each option comes with tradeoffs in terms of control, flexibility, cost, and time to market.

In the next section, we compare these approaches and help you decide which one best fits your product and risk profile.

Choosing the right approach to digital KYC: Off-the-shelf vs custom solutions

Once you decide to go digital with your KYC process, the next question is how to implement it. Broadly, there are three options:

1. Use off-the-shelf KYC solutions from specialized vendors.
2. Build a custom KYC system tailored to your product and regulatory needs.
3. Combine both approaches in a hybrid solution. For example, you can use third-party tools for basic checks while building custom workflows or risk logic.
   

Each path has its pros and cons, and the right choice depends on your product complexity, growth stage, compliance risk, and technical resources. 

Let’s sum up the off-the-shelf and custom approaches and then discuss them in detail.

Table 1. Custom vs off-the-shelf digital KYC comparison

Criteria	Off-the-shelf KYC solution	Custom KYC solution
Cost	Low upfront costs, high ongoing per-user/API fees	High upfront investment, lower long-term costs at scale
Time to market	Fast deployment with minimal setup	Longer development and implementation timeline
Customization & flexibility	Limited customization; fixed workflows	Full control over workflows, UX, integrations, and regulations
Security & compliance	Depends on the vendor’s standards; limited visibility	Tailored security; full control and auditability of compliance
Maintenance & support	Vendor-managed; limited to vendor roadmap	In-house responsibility; full control over updates and fixes
Integration	May require workarounds or middleware	Built specifically to integrate with internal systems
Scalability	May incur higher costs as volume grows	More cost-effective at scale; easier to optimize infrastructure
Vendor lock-in	High – switching vendors is complex and costly	No lock-in; can replace or rebuild components over time
Regulatory adaptability	Slower adaptation to unique/local regulatory needs	Can be customized by market or jurisdiction
User experience	Generic UX with limited control	Fully customizable user journeys and branding
Use case fit	Best for standard, low- to mid-risk scenarios	Ideal for high-risk, complex, or non-standard use cases

Off-the-shelf KYC solutions

Off-the-shelf (or SaaS-based) KYC solutions are ready platforms that provide you with out-of-the box features for identity verification, AML screening, and continuous monitoring. Popular examples include Onfido, Sumsub, Trulioo, IDnow, and Veriff. These platforms typically offer:

• ID document and selfie checks
• Liveness detection
• Sanctions and watchlist screening
• Politically exposed person (PEP) and adverse media checks
• Compliance reporting and audit trails

The benefits of off-the-shelf KYC solutions include:

• Quick deployment. Most vendors offer ready-to-use SDKs and APIs that allow you to integrate them into your product in days.
• Lower initial costs. With ready platforms, you don’t need to build your own infrastructure or hire a dedicated compliance tech team. You can just pay for what you use as you go, without any heavy upfront investment. 
• Vendor support and updates. You can save even more time and money with an off-the-shelf KYC solution because you don’t have to handle ongoing maintenance, feature improvements, and updates in response to changes in regulations or fraud patterns.

However, ready-made KYC systems also come with their cons:

• Limited customization. It’s the vendor who defines your product’s onboarding flow, UX, and decision logic. Customizing risk thresholds, user journeys, or business logic can be hard or even impossible.
• Integration challenges. Depending on what technology your vendor uses, it can be hard to integrate it with your current system, especially if it contains legacy software or multiple third-party tools. You may need to still hire a development team to create integration modules or custom APIs to stitch everything together, which can be expensive and time-consuming in the long run.
• Vendor lock-in. Relying heavily on one provider can make your business dependent on that provider and means you will be directly affected by any changes the provider makes in terms of features or pricing. Switching vendors later may require re-verifying your user base or rebuilding core parts of your onboarding flow.
• High long-term costs. Most off-the-shelf KYC vendors charge per user or per verification — often with tiered pricing depending on volume, verification type, or geography. Additionally, vendors often charge extra for advanced checks, such as enhanced due diligence (EDD), AML screening, or PEP list monitoring. These add-ons can significantly inflate costs, especially for FinTech products operating in multiple jurisdictions or dealing with high-risk users.

Now, let’s look at how custom solutions compare to off-the-shelf ones.

Custom KYC solutions

A custom KYC system is fully built by your in-house team, by an outsourcing software development vendor, or by both, based on the unique compliance and onboarding needs of your FinTech company. With custom KYC software, you can build your own verification flows, onboarding experience, logic, data storage, etc. to perfectly fit your FinTech product. 

Building a custom KYC system doesn’t necessarily mean avoiding all third-party providers. In most cases, custom KYC systems are more like hybrid systems, containing a mix of ready-made modules and custom flows and infrastructure.

The main benefits of custom KYC solutions are:

• Customization and flexibility. Since you have full control over the software, you can build your own user flows, decision logic, risk scoring, and features. You can also gain a competitive advantage by integrating cutting-edge technologies like AI without waiting for your vendor to do it.
• Tailored security and compliance. With custom KYC solutions, you can store and process customers’ sensitive data in line with your exact legal and regulatory obligations. This is especially useful if you operate in multiple regions with different compliance requirements, or if you want to store the most sensitive data on private servers instead of in the cloud.
• Control over support and maintenance. You have full control over resolving issues in your software and responding to customer feedback without having to wait for your vendor to resolve tickets and update their system.
• Lower long-term costs for high volumes. As your user base grows, a custom solution can help you lower your per-user verification costs. While upfront investment will be higher, with custom systems, you can reduce reliance on costly API calls that can quickly add up as you grow.

Now, let’s talk about the challenges you need to consider before building a custom KYC solution for your FinTech business.

• High upfront costs. Custom development requires significant time, money, and cross-functional expertise across compliance, security, and engineering.
• Need for expert developers. Building and maintaining a secure, regulatory-compliant KYC system is challenging, so you’ll need dedicated specialists who understand compliance, technology, and security.
• Responsibility for security and updates. You’ll need to handle everything from system security and data privacy to keeping up with regulatory changes and fraud patterns. You’ll also need to maintain your KYC system from a technical standpoint, updating your software and improving its functionality when needed.

Building a custom KYC system: Key components and features

Although FinTech companies have flexibility in implementing KYC, regulations still define the core structure and components of a KYC system. To build an effective custom or hybrid KYC system, you need to know what components are essential and what technical solutions support each core component.

Let’s break down the underlying KYC structure and explore what technical solutions you’ll need to develop to support its components.

Identity verification (CIP)

Identity verification is the first step in any KYC process, focused on confirming a user’s identity. It involves collecting and verifying a customer’s personal details like their name, date of birth, and address, along with identification documents (passport, driver’s licence, bank statements, etc.). 

In the United States, this process falls under the Сustomer Identification Program (CIP) established in the USA PATRIOT Act, but this process also exists in other countries under different names and AML laws.

Key features for identity verification are:

• Secure API integration for ID verification providers
• Document capture (OCR) and liveness detection
• Biometric matching (facial recognition)
• Multi-language document recognition

Customer due diligence (CDD)

CDD involves evaluating customer data to determine a customer’s risk level before allowing transactions. 

Key features for CDD include:

• Risk scoring engine integration (internal or third-party)
• Behavioral profiling tools
• External database checks (e.g., credit history, company registries)
• Auto-decisioning workflows based on risk rules

Once a customer’s risk is determined, your system should apply the relevant type of CDD: either simplified or enhanced. Each comes with its own set of features.

Simplified due diligence (SDD) is applied for low-risk customers, allowing a FinTech company to accelerate the onboarding process by checking a minimal number of documents required for approval. Key features for SDD are:

• Pre-configured low-risk workflows
• Minimal required data fields
• Auto-clearance mechanisms for recurring low-risk patterns

Enhanced due diligence (EDD) is applied to higher-risk customers and usually involves checking their sources of funds and wealth. Its features include:

• Customizable data collection flows (e.g., source of funds/wealth)
• Upload fields for supporting documents (e.g., tax returns, ownership documents)
• Manual case handling with audit support

AML screening & ongoing monitoring

After a client’s identity has been confirmed, you need to run screening checks for sanctions, PEP status, and watchlists, even if the client’s risk is low. You need to do this initially during the onboarding process, but you also need to monitor each customer regularly, as circumstances and risk profiles can change over time. 

Ongoing monitoring of your customers can also help you detect suspicious activity like changes in transaction patterns that you wouldn’t be able to foresee during onboarding. 

To implement efficient AML screening and monitoring, you need these features:

• Real-time data ingestion and screening against global sanctions, watchlists, and adverse media sources (e.g., OFAC, UN, EU, HMT, DFT)
• PEP and adverse media database integrations
• Continuous real-time transaction monitoring
• Alert generation with priority tagging
• Anomaly detection (rule-based or AI-powered)
• Integrated case and workflow management

Custom KYC systems often combine in-house modules with third-party integrations. 

Identity verification (CIP) is typically handled by vendors like Veriff due to its technical complexity. Features like biometric matching, liveness checks, and document validation are difficult to build from scratch.

Meanwhile, it makes sense to build components like customer due diligence (CDD) and AML monitoring internally, for greater control over workflows and risk logic.

Many of the features mentioned above can be significantly enhanced with modern technologies like artificial intelligence and machine learning. In the next section, we explore how you can improve and automate your KYC processes even further. 

How to enhance your KYC with AI

As criminals come up with new fraud schemes based on AI-created deepfakes and synthetic identities, you need to enhance your KYC systems with AI as well. 

Other FinTech businesses and financial institutions are already considering powering their solutions with AI. For example, in Singapore, 38% of financial institutions plan to adopt AI to improve operational efficiency, and 30% aim to enhance data accuracy using AI tools.

AI is exactly the technology that can help you:

• Improve speed and precision of compliance tasks
• Reduce manual workloads
• Flag risks quickly
• Adapt to changing fraud patterns
• Perform advanced threat analysis

This not only cuts onboarding time but also improves risk scoring and ongoing monitoring, helping companies stay ahead of fraud and regulatory changes.

But what exactly can you achieve by implementing AI into your KYC system? Let’s see. 

Table 2. Use cases of AI in KYC

Use case	Key AI features
Fraud detection & risk scoring	Data analysis, anomaly detection, behavioral biometrics, dynamic risk scoring, geolocation, and device tracking
Customer onboarding	OCR, liveness detection, face comparison, document assessment
Enhanced due diligence	Adverse media screening, ownership analysis, fuzzy matching
pKYC	Behavior tracking, automated re-KYC, profile consistency checks

Fraud detection and risk scoring

AI can help you detect patterns and behaviors that human analysts may overlook, especially if you have a large user base. Often, anomaly detection systems create alert fatigue for compliance teams, as most alerts are false positives. AI can help with that by analyzing inconsistencies and assigning risk scores to customers in real time.

By continuously learning from new data, AI models can adapt to emerging fraud tactics, including synthetic identity creation.

Customer onboarding

AI-based KYC automation solutions for FinTech simplify the onboarding experience by automating document checks and identity verification. Using computer vision, AI can assess the authenticity of ID documents, extract key data, verify liveness through facial cues, and compare selfies to official photos. These tools significantly reduce manual review times and drop-off rates, making onboarding faster and more secure for both users and institutions.

Enhanced due diligence

EDD often involves analyzing lots of unstructured data, such as news articles and ownership records. This process can be complex and costly, but it can be partly automated by using natural language processing (NLP) to screen adverse media, watchlists, and PEP databases and draw connections between them. This allows FinTech companies to build more complete customer risk profiles and quickly react to new information on high-risk customers.

pKYC

Currently, most FinTech businesses conduct periodic reviews every 12 or 24 months, but during this time they can overlook suspicious and criminal activity. That’s where AI comes into play, allowing companies to conduct pKYC. 

pKYC continuously monitors data and assesses customer risk in real time. This allows institutions to detect inconsistencies in customer behavior and flag emerging risks as they happen instead of after the fact, strengthening compliance and customer trust. 

Simultaneously, you can use AI-powered periodic KYC update or re-KYC to ensure that customer information stays updated by triggering re-verification when your system detects changes or anomalies. This helps to automate manual reviews and conduct risk assessments at every stage of the customer lifecycle.

Whether or not you integrate AI for better automation, your KYC system should be supported by a reliable and well-connected architecture. In the next section, we discuss what you need to consider when building your custom KYC system so it’s secure and efficient. 

What to consider when developing a custom KYC system

Building a custom KYC system is quite challenging, even if you use third-party tools and vendors to cover some of its functionality. However, our Apriorit experts have built dozens of complex FinTech systems, so we know what your team needs to look out for before starting the development process. 

From our experience, these four steps are the most vital to successful KYC development:

1. Ensure seamless integration with existing systems

A KYC system is multi-component, so it’s vital that it’s compatible with other parts of your current ecosystem like core banking systems, CRMs, compliance tools, and third-party providers. 

If you build a system from scratch with a modern tech stack, compatibility is usually not an issue. However, if you deal with legacy infrastructure, you might need to spend extra effort on building custom APIs and integration modules to tie your system together. 

2. Plan for scaling from the start

FinTech products are at the greatest risk of non-compliance and KYC errors when their customer base suddenly grows. That’s why you need to ensure your system can handle high volumes of data and compliance rules from the very start, even if your customer base is currently stable. 

To make your KYC system inherently scalable, use a cloud-native architecture and microservices. They not only allow your system to grow without disrupting current modules but also simplify maintenance. 

3. Prioritize security and data protection

Cybersecurity incidents harm FinTech businesses in many ways, leading to hefty compliance fines and loss of customer trust. Protecting your customers’ data should be the first priority when you build KYC systems, as they deal with highly sensitive information every second. 

To achieve robust security, all data you handle has to be encrypted both in transit and at rest. Use protocols like HTTPS and TLS, and implement secure key management for stored data to protect it from malicious actors.

Your KYC platform should natively support compliance with regulations and laws such as the GDPR in Europe and the CCPA in California. This includes core capabilities like consent tracking, the right to be forgotten, data minimization, and clear data retention and destruction policies. 

You should also brace for internal threats and implement strict role-based access control based on the principle of least privilege. This is particularly important for EDD cases involving sensitive data like sources of wealth. 

Structured audit trails and tamper-proof logging help ensure traceability and support internal compliance audits.

Finally, your KYC system should regularly undergo security assessments that include penetration testing, vulnerability scans, and code reviews. This will allow you to catch and fix potential weaknesses before hackers are able to exploit them.

4. Implement robust case management tools

Automated and manual workflows must work in harmony. Your system should support structured processes for flagging, reviewing, and escalating cases, whether triggered by risk scores, document discrepancies, or adverse media hits.

To track all of these activities, you need to build a centralized dashboard that connects all your systems into one control center and helps your team handle cases and automatically create comprehensive reports for compliance and security audits.

How Apriorit can help you build a KYC system for your product

At Apriorit, we have all the experience and knowledge needed to build reliable, secure, and scalable KYC solutions tailored to the needs of FinTech companies and financial institutions. Our team can assist you at every stage of development.

• Designing a robust KYC system architecture – We can build a secure, modular architecture that supports your compliance workflows and seamlessly integrates with both legacy and modern infrastructures.
• Developing custom KYC software and modules – Get exactly what your business needs, be it standalone components such as document verification, biometric checks, or fraud scoring, or a full-scale KYC system.
• Auditing and testing existing KYC solutions – If you’d like to check the security and compliance of your KYC system, you can get a full report on your system’s security posture. It covers your software’s vulnerable spots along with recommendations for improvement from our penetration testers and security auditors.
• Providing thorough quality assurance – Ensure that your KYC software is reliable, efficient, and user-ready with our functional, performance, security, and integration testing services.
• Integrating your system with internal and third-party systems – Connect your system with government ID services, internal systems, watchlists, and third-party providers through reliable and secure custom APIs.
• Designing intuitive KYC UI/UX flows – Enrich your KYC system with user-friendly and compliant verification experiences for your customers that reduce friction, increase completion rates, and minimize user drop-off during onboarding.
• Supporting legacy system integration and migration – If your current system doesn’t sustain your KYC processes, we can help you integrate your new KYC solution into it and securely migrate data from older platforms without losing functionality or historical records.
• Enhancing KYC processes with AI – Our AI engineers automate tasks like identity verification, risk scoring, and anomaly detection, and prepare high-quality, domain-specific datasets to train and fine-tune machine learning models.
• Providing ongoing support and maintenance – We ensure your KYC system remains secure and effective over time through regular updates, monitoring, optimization, and regular compliance checks.

By partnering with Apriorit, you get a cross-functional team that understands the technical, operational, and regulatory demands of KYC systems. We’ll help you develop a custom, future-ready solution that keeps you compliant and competitive.

Conclusion

A well-designed KYC system allows you to automate your identity verification processes, reduce fraud, and achieve regulatory compliance. Off-the-shelf KYC systems are a great way to achieve these goals, but they become unsustainable and costly once your customer base grows significantly. 

Custom KYC systems give you the freedom to implement your own processes, create user-friendly onboarding flows that reduce customer drop-off, and implement advanced features like AI-powered risk scoring and anomaly detection. 

Apriorit will help you design, develop, and optimize KYC systems tailored to your goals. Our team of software engineers, AI experts, and QA specialists can build custom KYC modules, integrate advanced automation, and ensure a secure architecture.

Whether you’re building a KYC system from the ground up or looking to modernize and enhance the solution you already use, Apriorit can support you at every step, from architecture design to ongoing maintenance.