Ever wondered why every fintech app or bank asks for your ID before you can even open an account?

That quick verification step we take for granted today wasn’t always this easy. In the early days, verifying customer identities was manual and slow, as real-time digital checks were a distant idea.

The evolution of KYC has transformed how businesses manage compliance, prevent fraud, and build customer trust. The history of KYC shows how modern verification tools improve compliance and why following proper procedures is crucial for any business handling financial transactions.

This article takes you on a journey through KYC across different decades, highlighting its origins, how regulations shaped it, and the technologies that have redefined identity verification in today’s fintech and banking world.

What Is KYC and Why Does It Matter?

KYC (Know Your Customer) is the process of verifying a user's identity before granting them access to financial products or services. Simply put, it means confirming that the person opening an account or making a transaction is exactly who they claim to be, using documents such as IDs, utility bills, or biometrics.

For financial institutions and fintechs, KYC isn’t just about compliance, it’s the foundation for secure onboarding and long-term customer trust. By verifying identities upfront, businesses can detect suspicious activity early, protect users’ funds, and build a trustworthy platform that meets regulatory standards.

How KYC Fits Into AML and Global Compliance Frameworks

KYC is a core part of global Anti-Money Laundering (AML) systems. It works by:

• Establishing customer identity: Collecting and verifying accurate customer data before onboarding.
• Assessing risk levels: Classifying users as low or high-risk based on their activity and background.
• Monitoring transactions: Continuously tracking user behavior to detect unusual or suspicious activity.
• Ensuring regulatory compliance: Helping financial institutions meet local and international laws set by bodies like FATF, the EU, and CBN.

The Origins of KYC: How It All Began

KYC didn’t start as the sophisticated digital process you know today. It began in the 1970s, when rising cases of money laundering pushed global regulators to tighten financial oversight. That same year, the U.S. introduced the Bank Secrecy Act (BSA), one of the first laws requiring banks to verify customers and report suspicious transactions. It marked the beginning of structured customer due diligence and laid the foundation for what we now call Know Your Customer (KYC).

Across Africa, similar conversations on financial transparency began taking shape decades later as economies grew and cross-border transactions increased. By the late 1990s and early 2000s, countries like South Africa and Nigeria introduced local regulations aligned with global standards, including Nigeria’s Money Laundering (Prohibition) Act of 2004 and South Africa’s Financial Intelligence Centre Act (FICA) of 2001. These laws made it mandatory for banks to identify and verify customers, signaling the start of Africa’s structured approach to financial compliance.

As these regulations took root, financial institutions began collecting customer information from ID cards to residential addresses to confirm user legitimacy and detect unusual activity. This helped banks, fintechs, and microfinance institutions build safer systems while reducing fraud, identity theft, and illegal fund transfers.

Over time, global cooperation strengthened. The Financial Action Task Force (FATF), formed in 1989, created unified AML and KYC standards that was adopted across Europe, Africa, and Asia. Many African nations later joined regional bodies like the GIABA to align with these frameworks.

Today, these collective efforts continue to shape how your bank or fintech verifies customers, balancing compliance and accessibility across borders.

Key Milestones in the Evolution of KYC

Let’s take a quick look at how KYC has evolved, shaped by global events and the growing need for financial trust:

1970s–1990s: The Rise of Global AML Frameworks

The 1970s marked the beginning of modern financial oversight as global governments realized that unchecked money flows could enable crime. The U.S. Bank Secrecy Act of 1970 and the creation of the Financial Action Task Force (FATF) in 1989 set the tone for global AML and KYC standards.

In Africa, countries such as Nigeria, Ghana, and South Africa also began improving their customer verification process as banking systems grew. If you worked in a bank at the time, compliance meant sorting through paper files, checking IDs manually, and spending days on account approvals. It was the start of building safer, more transparent financial systems.

Early 2000s: The Post-9/11 Regulatory Shift

After the 9/11 terrorist attacks, the world’s view of financial monitoring completely changed. The USA PATRIOT Act introduced tighter KYC and AML rules, pushing banks and fintechs worldwide to adopt more detailed customer verification processes.

Across Africa, regulators began strengthening AML frameworks to align with international standards. When opening a bank account at that time, you probably noticed more paperwork and questions about your identity. It was a period when KYC transformed from a simple rule to a global security requirement.

2010s: The Digital Banking Boom

By the 2010s, banking had gone digital, and KYC had to adapt. The rise of fintechs, mobile banking, and digital wallets introduced new ways to open accounts without ever visiting a branch. This shift gave birth to electronic KYC (eKYC), allowing customers to verify their identities using biometrics, government databases, or smartphone cameras.

If you used a fintech app or opened an account online during this era, you probably went through the eKYC process. It made onboarding faster, cheaper, and more inclusive, especially in African markets where mobile banking became a financial lifeline for millions.

2020s: AI-Driven and API-Based KYC

In the 2020s, KYC evolved with advanced technology. Artificial intelligence, machine learning, and API integrations have now made it possible to verify identities and detect fraud in real-time. Financial institutions can instantly pull data from multiple sources, flag suspicious activity, and stay compliant with both global and local regulations.

At the same time, stronger data privacy laws such as GDPR and Nigeria’s NDPR moved companies to handle customer data more responsibly. For modern banks and fintechs, KYC is no longer just a compliance step; it’s a key part of building user trust through fast, secure verification.

How KYC Has Transformed in the Digital Age

KYC has moved from slow, paper-based processes to fast, tech-driven verification with:

• The rise of eKYC and API-based verification – Users can now verify their identities online in real-time, while APIs link platforms to verification services for instant checks.
• Automation in fintechs and neobanks – Routine identity checks are handled automatically, cutting down manual work and speeding up account approvals.
• Biometrics and document verification – Fingerprints, facial recognition, and digital document scans ensure accurate identity verification and prevent fraud.
• African market trends – Initiatives like Nigeria’s BVN and national ID integrations are streamlining onboarding while keeping platforms compliant with local regulations.
   

Looking to automate your KYC workflow? See how Dojah helps banks & fintechs to onboard users in seconds. 

Challenges With Traditional KYC Processes

Despite the progress in KYC, implementing it effectively still comes with challenges for banks, fintechs, and other financial institutions. Here are some of the main hurdles:

1. Manual verification delays onboarding

Traditional KYC processes rely heavily on in-person document checks, physical forms, and human review. This slows down account opening, frustrates customers, and often leads to high drop-off rates, especially for first-time users expecting fast, digital experiences.

2.   High cost of compliance for startups

Meeting regulatory requirements requires dedicated compliance teams, secure data storage, and ongoing monitoring systems. For small fintechs or emerging banks, these expenses can be substantial, making it harder to scale operations or compete with larger institutions.

3.    Limited coverage in unbanked regions

Many people in Africa and other emerging markets lack formal identification, making it difficult to verify users through traditional means. This restricts financial inclusion, preventing millions of potential customers from accessing banking and digital services.

4.    Poor user experience and data silos

Outdated  KYC systems often involve multiple steps, repeated document submissions, and disconnected databases. Customers face friction during onboarding, while institutions struggle with fragmented information, slowing down decision-making and risk monitoring.

The Future of KYC: What’s Next?

 Looking ahead, KYC is set to become faster and more secure. Here are the key trends shaping its future:

1. Ongoing shift toward continuous KYC

KYC is moving away from one-time verification. Instead, businesses will monitor customer activity in real time, updating profiles as changes occur and identifying risks proactively. This approach reduces fraud, ensures compliance, and builds trust with users over time.

2.   Adoption of AI, blockchain, and digital identity wallets

 Artificial intelligence and machine learning are helping financial platforms detect suspicious behavior instantly. Blockchain ensures secure, tamper-proof identity records, while digital identity wallets allow users to control and share verified information seamlessly across platforms.

3.   Risk-based approaches by global regulators

Regulators are increasingly emphasizing risk-based KYC, where the depth of verification is proportional to the potential threat. This allows institutions to focus resources on higher-risk users while maintaining compliance and reducing unnecessary friction for low-risk accounts.

Simplifying KYC for Your Business

KYC started with paper forms and manual checks, but today it’s powered by intelligent automation and Dojah is leading this evolution in Africa.

To keep up with these changes, modern solutions are essential. Dojah’s identity verification solution helps you:

• Instantly verify IDs, passports, and national identity numbers across multiple African markets.
• Reduce fraud risks with AI-powered checks, biometric verification, and liveness detection.
• Automate AML screening and simplify onboarding, saving time while ensuring compliance.

Trusted by 500+ businesses and over 50 million verified identities, Dojah helps you stay compliant while building trust and scaling faster.

 Book a demo today to simplify your KYC process

Frequently Asked Questions on history of KYC

1. What is the history of KYC?
The formal practice of KYC began in the 1970s with the U.S. Bank Secrecy Act, which required banks to monitor and report suspicious transactions. Over time, global AML bodies like FATF pushed KYC adoption worldwide. 

2. What is the difference between KYC and AML?
KYC (Know Your Customer) is the process of verifying customer identity and assessing risk, while AML (Anti-Money Laundering) is the broader set of laws and controls aimed at preventing financial crime. KYC is a key component of an AML framework. 

3. When did digital KYC (eKYC) emerge?
Digital KYC started gaining traction in the 2010s as fintechs and mobile banking grew, allowing identity verification via apps, document uploads, and database lookups rather than in-person checks. 

4. Why is continuous or ongoing KYC becoming important?
Continuous KYC means monitoring customer behavior over time, not just at onboarding. It helps detect changes or suspicious activity early and keeps compliance stronger in evolving risk environments.

5. What challenges do businesses face with traditional KYC?
Some common challenges include slow manual checks, high compliance costs (especially for startups), limited coverage in regions with weak ID systems, and poor user experience due to disjointed processes.

6. How do modern identity verification platforms help?
They automate verification with APIs, use AI/biometrics to reduce fraud, and scale across markets. These platforms help businesses stay efficient, compliant, and user-friendly.