Why Do Payment Companies Ask for My ID? The Hidden Cost of KYC

by PayFi · 5 October 2026 · Selling without permission

Identity checks exist for real reasons, but they are not free. Sellers and buyers pay for them in time, in sales that never happen, in people who are left out, and in personal documents stored in places that can leak. A payment tool that never holds your money does not need your passport.

The proof of address she did not have

Let's meet a seller we will call Mira. She is not a real person, but her afternoon is a familiar one.

Mira draws illustrated maps for weddings and travel blogs. A few clients have found her online, and she wants a simple way for them to pay. She signs up for a payment account. The form asks for her full name, date of birth, home address and a tax number. Then it asks her to upload a photo of her passport. Then a selfie holding the passport. Then a proof of address: a utility bill or bank statement in her name, from the last three months.

Mira lives with her parents. The bills are in their names. Her bank statements go to an old address from university. She uploads what she has. Two days later, an email says the document was not accepted. She tries again with a letter from her phone company. Another wait. Another email asking for "additional information".

A week later, she still cannot take a payment. Her first client, who wanted a map for a wedding in ten days, has found another illustrator.

Nothing about Mira's situation is unusual. Nothing about the payment company's process is malicious. It is following rules that exist for good reasons. But the process has a cost, and Mira just paid it, in time, in stress and in a lost sale.

This essay is about that cost. It is usually invisible, because it is spread across millions of people in small amounts: a week here, a lost customer there, a passport photo stored on a server somewhere. When you add it up, it is not small at all. And for one kind of payment, much of it is not needed.

What KYC is, and why it exists

KYC stands for "know your customer". It is the set of checks that financial companies run to confirm who their customers are. Typically that means collecting your name, date of birth, address and an ID number, checking a photo of an official document, and sometimes comparing a selfie with that photo.

These checks exist for real reasons. Laws in most countries require banks and many payment companies to make sure they are not helping people launder money, finance terrorism or commit fraud. If a company does not know who its customers are, it cannot tell whether money moving through it is clean. Identity checks also help protect customers from people opening accounts in their names.

So this is not an essay against rules, or against the idea that some financial services should know their customers. It is an essay about the price of those checks, who pays it, and when they are actually necessary.

What a typical sign-up asks for

It helps to see what "a few checks" looks like in practice. Take one of the most popular payment companies for small online businesses. For a sole proprietor in the United States, Stripe's published requirements include the person's legal name, date of birth, home address, at least the last four digits of their Social Security number or taxpayer number, an email address and bank account details. Businesses are also asked for a website or a description of what they sell (Stripe Support). Other countries have similar lists, adjusted to local documents, and many services add an ID photo and a selfie on top.

None of these items is hard on its own if you have it ready. The trouble is that each item is a gate. If your address on one document does not match the address on another, the gate stays closed. If you do not have a bank account the service connects to, the gate stays closed. If the website you listed is a social media profile and the reviewer wanted a shop, the gate may stay closed until someone asks you more questions.

And remember what the seller is trying to do at this point: get paid for one piece of work. The list above is the same whether you plan to sell one map a month or run a company with a hundred staff.

The first cost: time

The most obvious cost of KYC is time.

Filling in forms, finding documents, taking photos, waiting for a review, answering follow-up questions: all of this takes hours of the customer's time and days on the calendar. For a business with a long plan, a few days may not matter. For a freelancer with a client waiting, or a seller whose audience is excited today, it can decide whether a sale happens at all.

And the review is only the start. Even after an account is approved, the money takes time to arrive. Stripe, for example, says a new seller's first payout typically arrives within 7 to 14 days (Stripe Docs). PayPal says it may hold a new seller's first payments for up to 21 days while the seller builds a history and confirms their identity (PayPal Help Center).

That is the slow track the theater at the top of this essay shows. Not because anyone is lazy, but because each step exists to manage a risk, and each step takes time.

Time does not cost everyone the same. A large company that waits two weeks for a payment account has staff, savings and a launch plan that already counts the wait. A small seller often has none of these. Their buyers arrive when a post gets shared, when a friend recommends them or when a client needs something by Friday. Interest like that fades in days, sometimes hours. If the payment setup takes longer than the interest lasts, the sale is gone, and nobody records it as a loss. It simply never appears anywhere.

That is why this cost is quiet. A failed payment shows up in a report. A sale that never started because the seller was still waiting for approval does not show up anywhere. The seller just remembers it as the client who went somewhere else.

The second cost: people who give up

The time cost has a second effect: people give up.

Signicat, a company that provides identity checks to banks, surveys consumers in Europe about opening financial accounts. In its 2022 survey of 7,600 adults in 14 European countries, 68 percent said they had abandoned an application for a financial product in the previous year. Among the reasons were the time it took and the amount of personal information requested. The survey also found that 92 percent were concerned about how financial providers handle their personal data (Signicat).

Those are people in some of the best-served financial markets in the world, with easy access to passports and bank statements. If two out of three of them have walked away from at least one financial application in a year, imagine the effect on people with fewer documents and less time.

For sellers, abandonment works in two directions. Sellers themselves give up on setting up payment accounts, like Mira almost did. And buyers give up on checkouts that ask them for too much. Either way, a sale that both sides wanted does not happen.

The buyer side is well measured. The Baymard Institute, which studies online checkouts, asks shoppers why they abandoned a purchase. In its survey of US online shoppers, 18 percent said the site wanted them to create an account, and 17 percent said the checkout was too long or complicated (Baymard Institute). A checkout account is not full KYC, but it comes from the same habit: ask the person to identify themselves first, sell to them second. Every extra question at the door is a reason for someone to turn around.

The third cost: people who cannot pass at all

Some people do not give up. They simply cannot get through.

The World Bank estimates that about 850 million people around the world do not have an official ID. Most of them live in lower-income countries in Sub-Saharan Africa and South Asia. The World Bank also reports that around one in three adults without an ID said they had difficulty using financial services (World Bank).

Many more people have an ID but not the other documents KYC often asks for. A young person living with family, like Mira. Someone who rents informally, without a lease. Someone who moved recently. Someone whose name is spelled differently on two documents because of different alphabets. For each of them, the system that is supposed to confirm who they are ends up confirming only that they do not fit the form.

There is a wider picture too. The World Bank's Global Findex survey estimates that about 1.3 billion adults still have no account at a bank or mobile money provider, while 86 percent of adults worldwide have a mobile phone (World Bank). Most payment sign-ups end with "connect your bank account". For a large share of the world, that last step is a wall, even when the phone, the skill and the customer are already there.

These are not edge cases. They are the people for whom getting paid online could make the biggest difference: young people, people in informal work, people in countries where paperwork is hard to get. KYC, built to keep bad actors out, also keeps many honest people out.

The fourth cost: your documents in someone else's database

There is a quieter cost that most people only think about when something goes wrong: where your documents end up.

When you complete KYC, you hand over some of the most sensitive information about yourself: a photo of your passport or ID card, your address, your date of birth, often part of a tax number, sometimes a selfie. That information is then stored, by the payment company or by a separate identity-check company it uses. It has to be stored, because the law usually requires companies to keep KYC records for years.

Stored data can leak. In May 2025, the crypto exchange Coinbase disclosed that criminals had bribed overseas support staff to steal customer data. According to The Register, the stolen data included names, addresses, phone numbers, emails, the last four digits of Social Security numbers, masked bank account details and images of government IDs such as passports and driving licenses, affecting less than 1 percent of monthly transacting users. Coinbase expected the total cost to be between 180 million and 400 million dollars (The Register).

Coinbase is one of the largest and most closely regulated companies in its industry. It collected that data because it had to. And still, for some of its customers, their passport images ended up with criminals. That is not an argument against Coinbase in particular. It is a reminder that every copy of your ID in every database is one more place it can leak from, and that once a passport image leaks, you cannot change it like a password.

The Signicat survey's finding that 92 percent of people worry about how their data is handled (Signicat) is not paranoia. It is a reasonable response to how often this happens.

The fifth cost: money, passed on to you

Identity checks and the rest of financial crime compliance are expensive to run. LexisNexis Risk Solutions estimated in 2023 that financial institutions around the world spend 206.1 billion dollars a year on financial crime compliance (LexisNexis Risk Solutions). That figure covers much more than KYC at sign-up, including ongoing monitoring and reporting, but KYC is part of it.

That money does not come from nowhere. It is part of what financial companies need to earn back from their customers, through fees, spreads and minimum balances. Some of the percentage you pay on each card sale, and some of the fixed fee, helps pay for a compliance system that checks you, and everyone else, again and again.

The cost that repeats

Each of these costs would be easier to accept if you paid it once. Usually you do not.

A seller who wants to accept cards on their own site, sell on a marketplace and get paid by an international client may go through three separate identity checks, with three companies, each with its own list of documents and its own review queue. If one of them updates its rules, the seller may be asked to verify again. If a reviewer cannot read one document, the seller starts that part over.

Each check also creates its own copy of the seller's documents. The more services you use, the more databases hold a picture of your passport. You cannot see most of them, and you cannot delete your data from many of them, because the law often requires the company to keep identity records for years after you leave.

So the real cost of KYC is not one form. It is the same form, many times, plus a growing trail of copies that you no longer control.

Does all this checking stop fraud?

It is fair to ask whether all these costs at least buy safety. Partly, yes. Identity checks make it harder for someone to open an account under a made-up name, and they give investigators a trail when money is stolen.

But they are not a wall. Identity documents can be stolen, and the Coinbase case above shows one way they get stolen: from the very databases built to hold them. A leaked passport image does not expire when the breach is announced. It can be used to try to pass someone else's identity check, at another company, months later. The more places that collect ID images, the more of them there are to steal.

This is not a reason to scrap identity checks everywhere. It is a reason to collect identity data only where it truly protects someone, and not by habit at every step of every sale.

Why so many companies need to know you

Here is the question that turns this essay from a complaint into something useful: why does a payment company need to know who you are in the first place?

Mostly, because it holds your money and takes responsibility for it.

A payment company that collects payments into a balance and pays them out later is, for that time, holding other people's money. If a buyer disputes a card payment months later, the company may have to cover the loss. If a seller turns out to be a fraud and disappears, the company is left with the bill. If money passing through it turns out to be criminal, the company can be held responsible. Knowing who its customers are is how it manages all of these risks.

So KYC is tied to custody and responsibility. The more a company holds your money, the more it needs to know you.

What changes when nobody holds your money

Now consider a payment link that works differently.

When a buyer pays, the payment goes to an address made just for that order. The service checks the payment and, in one blockchain transaction, sends 99 percent to the seller's own wallet and 1 percent to the service, usually within about 20 seconds. There is a short moment during which the order address is controlled by the service, while the payment is checked and split. After that, the service holds nothing for the seller. There is no balance, no payout schedule and no account.

Blockchain payments are also final once confirmed. There is no card network through which a buyer can reverse a payment months later. So the service is not exposed to disputes it would have to cover with its own money.

With no balance to protect and no disputes to cover, most of the reasons for knowing the seller disappear. That is why a payment link like this can ask for only two things: a wallet address to receive the money and a link to the product. It does not ask for a passport, a selfie, a proof of address or a tax number. It does not store documents, because it never collects them. There is nothing to leak, because there is nothing there.

For Mira, this would have meant creating a link in a few minutes, sending it to her wedding client and being paid the same afternoon. No utility bill in her name required.

What KYC still applies to

It would be wrong to suggest that identity checks disappear from the picture entirely. They move to the places where they are truly needed.

Buying digital dollars with a card or bank transfer. When a buyer turns regular money into USDT or USDC through an exchange or a card service, that company is usually required to check their identity. That check happens once, with a company the buyer chooses, under the rules of the buyer's country. The seller never sees the buyer's documents. The payment link never sees them either. This first purchase also costs something. MoonPay, for example, says its fee for card, Apple Pay and Google Pay purchases can be up to 4.5 percent, with a minimum fee of up to 3.99 dollars (MoonPay). Exchanges funded by bank transfer are often cheaper. Either way, it is a cost the buyer pays once to get started, not on every purchase.

Changing digital dollars back into local money. When a seller sells USDT or USDC for local currency through an exchange and sends it to a bank account, the exchange will usually check the seller's identity. Again, once, with a company the seller chooses.

Your legal and tax obligations. Not being asked for your ID by a payment tool does not change what the law expects of you. Income is still income. Rules about what you can sell still apply. A payment link that does not check you is not a promise that nobody ever will.

So the honest picture is this. Identity checks still exist at the edges, where regular money enters and leaves. They do not have to sit in the middle of every single sale, repeated by every service you sell through, with copies of your documents in each one.

What this means for buyers

Buyers carry their own share of KYC costs, and they are easy to miss.

Every new online store that asks a buyer to create an account and share personal details is one more place their data lives. Every checkout that demands a full address for a digital file is collecting more than it needs. Every new payment app that wants a selfie is another copy of their face on a server.

With a payment link that needs no account, a buyer pays without handing over their name, email or address to the seller or the payment page. If they bought their digital dollars from a regulated exchange, they shared their ID once, with that exchange. After that, they can pay many sellers in many countries without repeating it.

There is a trade-off, and it should be said plainly. With card payments, a buyer can dispute a purchase through their bank. With a stablecoin payment, a completed purchase is final. The same design that frees sellers from KYC also removes the bank in the middle that could reverse a payment. Buyers should buy from sellers they trust, and sellers should earn that trust with honest descriptions and products that work.

The principle underneath

There is a simple idea under all of this, and it is worth stating without slogans.

Collecting personal data should match the job being done. A service that holds people's money, lends it out or guarantees payments has real reasons to know its customers in detail. A service that only moves a payment from one person to another, holds nothing and takes no responsibility for later reversals has much less reason. Asking for a passport anyway would not make it safer. It would only create another database of passports.

That is the reasoning behind a payment link that asks for nothing but a wallet and a product. It treats sellers and buyers as adults who can trade with each other directly. It keeps only the minimal records needed to deliver products and settle payments: order status, amounts and the blockchain transactions involved, with no names, emails or ID numbers. And because it asks for no trust upfront, it keeps a public record of every payment it settles, so that anyone can check it did what it said.

Less data collected is not a loophole. It is a design choice with real benefits: faster starts, fewer people left out and nothing sensitive to leak.

A short checklist for sellers

If you are deciding how to get paid, a few questions can help you see the quiet costs before you pay them.

How long until I can take my first payment? Count from the moment you start the sign-up, not from approval. Include the review and the first payout delay.

What documents do I need, and do I have them all, in matching names and addresses? If the answer is "almost", expect delays.

Who will store my documents, and for how long? If you cannot find the answer in their privacy policy, assume it is for years.

Does this service hold my money? If it does, it will need to know you well and may hold payouts. If it does not, ask why it needs your ID at all.

What does my buyer have to do? Count the fields, the account steps and the redirects. Each one costs you some buyers.

None of these questions has a single right answer for everyone. A shop selling expensive physical goods with returns may be happy to trade time and paperwork for card payments and dispute protection. A freelancer with a client waiting may not. The point is to choose with the costs in view, instead of assuming that handing over your passport is simply the price of selling online.

Questions people ask

Is a service that does not do KYC legal? That depends on what the service does and where. Rules about identity checks usually apply to companies that hold or exchange customers' money. A tool that does not hold balances and only routes each payment directly to the seller sits in a different position. Your own obligations under the law where you live stay the same either way.

Does no KYC mean anonymous? Not completely. Payments on a public blockchain are visible to anyone, with wallet addresses and amounts. They do not show names. But if your wallet address is linked to your identity somewhere else, for example at an exchange where you completed KYC, the two can be connected. "No account, no KYC" is accurate. "Totally invisible" is not.

Will buyers trust a seller who has not been verified? Many do, when the seller shows good work, clear descriptions and a way to contact them. A payment link also gives buyers something verification does not: the product opens automatically when the payment is confirmed, and the payment is a public record they can point to.

What if I want to verify myself to buyers anyway? You can. You can show your real name, your portfolio, your social profiles and reviews on your own page. The difference is that you choose what to share and with whom, instead of handing your passport to every payment service.

Back to Mira

Let's go back to Mira, a week into her account review, having lost her first client.

She decides to try a different way. She installs a wallet app, writes her recovery words on paper and keeps them somewhere safe. She creates a payment link for her next map commission, with a receipt that describes the job. Her next client, a travel blogger who already holds USDC, pays that evening. Mira has the money in her wallet within seconds, minus 1 percent. She never uploaded a utility bill.

Later, she changes some of her earnings into local money through a licensed exchange in her country. That exchange checks her ID once, as the law requires. It is one check, with a company she chose, at the point where her digital dollars meet the banking system. It does not stand between her and every client she works with.

That is the shift this essay is about. The old belief said that every way of getting paid has to start with handing over your documents and waiting. The more accurate belief is that identity checks belong where money is held and exchanged, and that a payment that is never held can skip them. For Mira, that difference was a week, a client and a passport photo that never had to leave her phone.

Sources

• Stripe Docs, "Receive payouts": docs.stripe.com/payouts
• PayPal Help Center, "New PayPal account – payments on hold": paypal.com
• Signicat, "The Battle to Onboard 2022": signicat.com
• World Bank, "850 million people globally don't have ID": blogs.worldbank.org
• The Register, "Coinbase extorted for $20M" (May 15, 2025): theregister.com
• LexisNexis Risk Solutions, "True Cost of Financial Crime Compliance" (2023): risk.lexisnexis.com