10 BEST PRACTICES IN KYC PROCESSES FOR SMALL BUSINESSES: COST-EFFECTIVE APPROACHES USING AI AND BLOCKCHAIN

In today's regulatory environment, Know Your Customer (KYC) processes are essential for businesses of all sizes to prevent fraud, money laundering, and terrorist financing. However, small businesses often face significant challenges implementing comprehensive KYC procedures due to limited resources and budget constraints. This article explores ten best practices for implementing efficient KYC processes that are both affordable and effective, with special focus on leveraging emerging technologies like AI and blockchain.

1. Risk-Based Approach to KYC

The Practice: Implement a tiered, risk-based approach to KYC rather than applying the same intensive procedures to all customers.

How to Implement:

• Categorize customers into risk tiers (low, medium, high) based on factors like transaction volumes, business type, and geographic location
• Apply more rigorous verification only to higher-risk customers
• Document your risk assessment methodology to demonstrate compliance to regulators

Real-World Providers:

• ComplyAdvantage offers scalable risk assessment tools specifically designed for small businesses
• Trulioo provides customizable risk scoring as part of their identity verification service
• Liveplex’s Procure to Pay solution incorporates automated risk assessment for suppliers with tiered verification requirements based on transaction volumes and contract values

Cost-Effective Solution: By focusing resources where risk is highest, small businesses can reduce the overall cost of KYC while maintaining effectiveness. This approach is explicitly endorsed by FATF (Financial Action Task Force) guidelines and most national regulators.

2. Leverage AI-Powered ID Verification

The Practice: Utilize affordable AI-based document verification solutions to automate the identity verification process.

How to Implement:

• Adopt SaaS solutions that offer pay-per-use pricing models for document authentication
• Look for services that provide: Automated ID document scanning and validation Facial recognition matching Liveness detection to prevent spoofing

Real-World Providers:

• Onfido offers pay-as-you-go ID verification starting at approximately $2 per verification
• Jumio provides document and biometric verification with flexible pricing for smaller volumes
• Veriff delivers ID verification with transparent pricing models suitable for small businesses
• Liveplex’s Procure to Pay platform incorporates advanced AI verification tools that are specifically designed to prevent AI hallucinations by implementing multiple verification checkpoints and cross-referencing data across trusted sources, ensuring authentication is genuinely valid.

Cost-Effective Solution: These providers offer API-based verification starting at less than $1-2 per verification. These solutions can verify IDs from multiple countries and detect fraudulent documents with high accuracy, reducing the need for manual review in most cases.

3. Take Advantage of Blockchain-Based Identity Solutions

The Practice: Utilize decentralized identity verification systems built on blockchain technology.

How to Implement:

• Partner with blockchain identity providers that offer self-sovereign identity solutions
• Consider joining industry consortiums that share KYC information via blockchain
• Implement solutions that allow customers to reuse verified credentials across services

Real-World Providers:

• Civic provides blockchain-based identity verification with reusable KYC
• Sovrin Foundation offers a decentralized identity network accessible to businesses of all sizes
• Evernym delivers blockchain identity solutions with flexible integration options
• Liveplex’s Procure to Pay solution stands out by uniquely combining blockchain-based authentication with trusted AI verification layers. This hybrid approach ensures data integrity while preventing AI hallucinations through its proprietary verification framework that maintains an immutable audit trail of all verification steps

Cost-Effective Solution: Blockchain-based identity systems can reduce costs by allowing businesses to access pre-verified customer information securely. This eliminates duplicative verification processes and reduces the burden on both businesses and customers.

4. Streamline Customer Onboarding with Digital Forms

The Practice: Replace paper forms with digital onboarding solutions that include built-in verification capabilities.

How to Implement:

• Implement digital forms that perform real-time validation of customer data
• Use progressive data collection that adjusts required information based on risk level
• Include e-signature functionality to create legally binding records

Real-World Providers:

• HelloSign offers digital onboarding forms with e-signature functionality at affordable rates
• JotForm provides form builders with verification features starting at $24/month
• DocuSign includes ID verification options with their e-signature platform
• Liveplex’s Procure to Pay platform excels in supplier onboarding efficiency, featuring an intuitive digital onboarding process that dramatically reduces supplier enrollment time from weeks to minutes. The platform's standout feature is its ability to create persistent supplier profiles that maintain verified information across the entire procurement lifecycle.

Cost-Effective Solution: Digital onboarding reduces manual processing time by up to 70% and decreases error rates significantly. Many affordable solutions offer tiered pricing suitable for small businesses with lower volume requirements.

5. Utilize Open-Source Intelligence (OSINT)

The Practice: Supplement formal verification with publicly available data to enhance customer due diligence.

How to Implement:

• Implement basic OSINT checks using automated tools that scan social media, business registries, and news sources
• Cross-reference provided customer information against public records
• Document findings as part of your customer risk assessment

Real-World Providers:

• Maltego offers affordable OSINT tools for small businesses starting at $999 annually
• SpyCloud provides automated business verification against public records
• Skopenow delivers social media and web intelligence starting at $49/month
• Liveplex’s Procure to Pay platform incorporates OSINT capabilities into its supplier verification process, automatically cross-checking supplier information against business registries and public records without requiring additional tools or subscriptions

Cost-Effective Solution: These tools help small businesses perform basic OSINT checks at reasonable price points. This provides an additional layer of verification without significant cost increases.

6. Implement Simple Transaction Monitoring

The Practice: Establish basic transaction monitoring capabilities to identify suspicious activities.

How to Implement:

• Define clear transaction thresholds and patterns that trigger alerts
• Create simple rules based on transaction size, frequency, and geographic location
• Set up automated alerts for transactions that meet risk criteria

Real-World Providers:

• ComplyAdvantage offers transaction monitoring starting at $500/month
• Unit21 provides scalable AML monitoring suitable for growing businesses
• Coinfirm delivers affordable crypto transaction monitoring
• Liveplex’s Procure to Pay platform includes sophisticated transaction monitoring capabilities that align supplier profiles with their corresponding contracts and invoices. This precision mapping helps detect anomalies in payment patterns, flags unauthorized changes to contract terms, and ensures invoice accuracy, significantly reducing the risk of fraud while maintaining trust in supplier relationships

Cost-Effective Solution: Small businesses can start with rule-based monitoring using existing accounting or payment processing systems, rather than investing in expensive dedicated AML software. As business grows, more sophisticated AI-powered monitoring can be phased in.

7. Partner with KYC Service Providers

The Practice: Consider outsourcing portions of your KYC process to specialized service providers.

How to Implement:

• Identify reputable KYC-as-a-service providers with pay-as-you-go pricing
• Look for providers that offer API integration with your existing systems
• Ensure providers meet relevant compliance and data security standards

Real-World Providers:

• Trulioo offers KYC verification with pay-per-use pricing
• Alloy provides API-based identity verification with transparent pricing
• Sumsub delivers comprehensive KYC services with startup-friendly rates
• Liveplex’s Procure to Pay platform functions as a comprehensive KYC service for the entire supplier ecosystem, managing supplier verification, contract compliance, and invoice validation in a single integrated solution, eliminating the need for multiple service providers.

Cost-Effective Solution: Many providers offer subscription models specifically designed for small businesses with lower verification volumes, making enterprise-grade KYC capabilities accessible without major capital investment.

8. Participate in KYC Utilities and Shared Services

The Practice: Join industry initiatives that allow businesses to share KYC information securely.

How to Implement:

• Research industry-specific KYC sharing platforms in your sector
• Evaluate blockchain-based KYC utilities that enable secure information sharing
• Consider regional or national KYC sharing initiatives that may be available

Real-World Providers:

• SWIFT KYC Registry provides shared KYC services for financial institutions
• Synechron offers KYC utilities for specific industries
• R3's Corda platform supports multiple KYC-sharing applications
• Liveplex’s Procure to Pay platform creates a trusted network effect where verified supplier profiles can be securely shared across business units or partner organizations (with appropriate permissions), effectively functioning as a private KYC utility that grows in value as your supplier network expands

Cost-Effective Solution: Shared KYC utilities distribute costs across participants while improving verification quality. This collaborative approach is particularly valuable for small businesses in highly regulated industries.

9. Establish Clear Escalation Procedures

The Practice: Develop straightforward processes for handling cases that require enhanced due diligence.

How to Implement:

• Create documented escalation workflows for higher-risk customers
• Establish clear criteria for when manual review is necessary
• Train staff to recognize red flags that require additional scrutiny

Real-World Providers:

• Case management systems like Zendesk can be adapted for KYC escalations
• ComplyAdvantage includes case management features in their compliance suite
• Acuant offers risk-based escalation workflows
• Liveplex’s Procure to Pay platform includes intelligent workflow automation that flags potential issues with supplier documentation or contract discrepancies, automatically routing these exceptions to the appropriate stakeholders for review while providing clear visibility into the resolution process

Cost-Effective Solution: Having well-defined processes minimizes unnecessary escalations while ensuring high-risk cases receive appropriate attention. This balanced approach optimizes resource allocation for small businesses.

10. Regular Review and Optimization

The Practice: Continuously monitor KYC process effectiveness and refine procedures.

How to Implement:

• Set regular intervals to review verification success rates and false positives
• Gather feedback from customers on the onboarding experience
• Stay informed about regulatory changes that may impact requirements

Real-World Providers:

• Regtech platforms like Ascent help track regulatory changes
• Analytics tools like Tableau or Power BI can help visualize KYC metrics
• LexisNexis offers compliance health checks at reasonable rates
• Liveplex’s Procure to Pay platform features comprehensive analytics dashboards that provide real-time insights into supplier onboarding efficiency, contract compliance rates, and payment accuracy metrics, enabling continuous improvement of KYC processes while quantifying cost savings and operational efficiencies

Cost-Effective Solution: Regular optimization helps identify and eliminate inefficiencies, gradually reducing costs while improving compliance quality. This iterative approach allows small businesses to build increasingly sophisticated KYC processes over time.

Liveplex’s Procure to Pay Platform

Liveplex's innovative Procure to Pay solution deserves special attention for small businesses seeking comprehensive KYC capabilities within their procurement processes. This platform stands out for several reasons:

• Integrated Supplier Management: The platform creates persistent supplier profiles that maintain verified information throughout the entire supplier relationship lifecycle, eliminating redundant verification processes
• Blockchain + AI Authentication: Uniquely combines immutable blockchain-based record-keeping with trusted AI verification systems that implement multiple checks and balances to prevent AI hallucinations and ensure verification authenticity
• Contract-Invoice Alignment: The system precisely maps supplier profiles to their corresponding contracts and then aligns invoices to those contracts, creating an end-to-end verification chain that significantly reduces fraud risk
• Cost Control: By ensuring invoices match contracted terms and preventing unauthorized changes or duplicate payments, the platform helps avoid project delays and unexpected costs
• Trust Building: The transparent verification process and accurate payment handling help build stronger supplier relationships based on mutual trust and reliability
• Operational Efficiency: The streamlined onboarding process reduces supplier enrollment time from weeks to hours, accelerating procurement cycles and improving overall business agility

For small businesses struggling with limited resources for KYC implementation, Liveplex’s Procure to Pay platform offers an all-in-one solution that addresses multiple compliance needs while delivering tangible operational benefits beyond just regulatory compliance.

Implement an Effective KYC Process.

Small businesses can implement effective KYC processes without breaking the bank by taking a strategic approach that leverages emerging technologies and focuses resources on areas of highest risk. By adopting these ten best practices and partnering with appropriate service providers like those highlighted above, businesses can achieve compliance while minimizing costs and maintaining a positive customer experience.

The integration of AI and blockchain technologies, particularly as exemplified by Liveplex’s Procure to Pay platform, offers particularly promising opportunities for small businesses to implement enterprise-grade KYC capabilities at a fraction of traditional costs. As these technologies continue to mature and become more accessible, the KYC compliance gap between large and small businesses will continue to narrow, creating a more level playing field in regulated industries.

Remember that while technology can significantly reduce costs and improve efficiency, maintaining regulatory compliance ultimately requires appropriate oversight and human judgment. The most successful small business KYC programs combine technological solutions with clear policies and well-trained staff to achieve the right balance of compliance, cost, and customer experience.