KYC (Know your customer/client) is the process of verifying the identity of a customer/user. It helps to prevent financial institutions from being used by criminal elements for illegal activities. It also enables financial institutions to understand its customers and their financial dealings to serve them better and manage its risks prudently. 

KYC procedures are a critical function to assess customer risk and a legal requirement to comply with Anti-Money Laundering (AML) laws. Effective KYC involves knowing a customer’s identity, their financial activities and the risk they pose.

Financial institutions could face possible fines, sanctions, and reputation damage, if business is done with money launderers and other criminals. Typically, when users onboard or apply for a loan, they are required to upload a selfie. They are also expected to provide valid means of identification, address verification, etc. These are all KYC procedures.

KYC documents can determine a user’s tier. After a user onboards, the user is automatically on tier 1 . As the user provides the other required KYC documents, the tier level is increased.