Balancing Security and Efficiency: The Role of AI in KYB

In today’s payments ecosystem, speed and security are often seen as competing priorities. While Payment Service Providers (PSPs) need to onboard merchants quickly to stay competitive, they also face the challenge of preventing fraud and ensuring compliance with evolving regulations. Balancing these two critical goals requires a solution that leverages both AI and human expertise to deliver efficiency without sacrificing security.

The Challenge: Trading Off Speed for Security

For many PSPs, traditional KYB processes present a dilemma: speeding up the onboarding process often means compromising the rigor of fraud checks, while stringent security measures lead to slower onboarding and higher prospect churn. As McKinsey points out, onboarding times that exceed just a few days can result in the loss of 30-35% of potential merchants​ (McKinsey & Company).

At the same time, Forrester highlights the growing sophistication of fraud tactics, from synthetic identities to deepfakes, making it imperative for PSPs to maintain strict fraud prevention measures . This creates a bottleneck where PSPs are forced to choose between speed and security, often sacrificing one for the other.

How AI Balances Speed and Security

AI-enabled KYB systems provide a solution by automating routine checks, allowing PSPs to speed up the onboarding process while enriching data to support human decision-makers. According to Deloitte, AI can process large volumes of data in real time, identifying risk patterns and inconsistencies that human reviewers might miss​. However, the strength of AI lies in its ability to assist—not replace—human decision-makers.

• Real-Time Risk Assessments: AI systems dynamically assess risk, flagging higher-risk merchants for manual review while automatically approving low-risk applications. This allows PSPs to onboard the majority of merchants quickly while focusing underwriter attention on the cases that require deeper scrutiny​ ​(Mastercard Services).
• Reducing Fraud without Delays: By automating identity verification and fraud detection tasks, PSPs can reduce onboarding times without compromising security. Mastercard research shows that AI-enabled KYB systems can improve fraud detection rates while significantly reducing onboarding delays​ (Mastercard Services).

Customizable Risk Controls

A key benefit of AI-enabled KYB systems is their ability to offer customizable risk controls. PSPs can define their own criteria for categorizing merchants as low, medium, or high-risk based on factors like transaction volume, geography, or industry. Forrester points out that this level of customization allows PSPs to tailor their fraud prevention efforts to their unique risk profiles​.

With AI handling the bulk of repetitive checks, underwriters can focus on enriching data for more complex or high-risk cases, ensuring that fraud prevention remains robust without slowing down onboarding.

The Impact on Compliance

AI-enabled KYB systems also play a critical role in helping PSPs maintain compliance with evolving regulatory frameworks. According to Deloitte, the regulatory landscape is becoming increasingly complex, and AI tools help PSPs stay compliant by continuously monitoring risk and ensuring that onboarding processes meet changing standards​. AI not only speeds up compliance checks but also enriches the data needed for accurate reporting, ensuring PSPs are prepared for audits or regulatory changes without slowing operations.

Conclusion

AI-enabled KYB solutions offer PSPs a way to balance speed and security in the onboarding process by automating routine tasks and providing enriched data for human review. This hybrid approach ensures that PSPs can onboard merchants faster without compromising fraud prevention or compliance. By combining AI automation with human expertise, PSPs can reduce prospect churn, improve security, and scale their onboarding processes efficiently.

To dive deeper into how AI can future-proof your onboarding processes, check out our next blog: "Future-Proofing Merchant Onboarding with AI: Scalability and Compliance."