Why regulated actors pay for KYC on people who will never qualify
A zkKYC-style proof can act as a privacy-preserving, reusable pre-check that filters obvious KYC failures before they become billable, for lower KYC costs and better user experience.
KYC compliance costs European financial institutions billions annually: in 2025, Fenergo estimated the costs to to $72.9 million on average for a corporate bank. A meaningful share of that spend covers checks that fail not because the applicant is high-risk, but because they lack a valid document, hold a nationality on a restricted list, or don't meet basic age requirements.
The check fails at step one. The institution pays for it anyway. These costs are easily avoidable with proper user flows enabled by zero-knowledge proofs, in the form of zkKYC.
What KYC is actually checking
KYC for regulated institutions such as banks, payment infrastructure, and stablecoin issuers involves several distinct layers: document verification, identity matching, sanctions screening, risk scoring.
Some are institution-specific, and several are categorical. They establish minimum eligibility before any institution-specific assessment begins.
A person with no valid travel document will fail KYC at any institution. A person on the OFAC or EU sanctions list will fail KYC at any institution. These are binary gates, and yet, under current regulation, every institution verifies them independently, on every applicant, every time.
Introducing a proof-based pre-check
A passport-derived proof changes the identity management flow, saving institutions' money and users' time.
When a user initiates onboarding, they can produce a cryptographic proof that attests to a set of categorical facts: the document is valid, the nationality is on an allowlist, the bearer is over 18. The proof is generated fully locally on the user's smartphone and no personal data ever leaves their device. The institution sees only the validity of the attestation.
If someone can't produce this proof, they will not pass KYC. The institution learns this before the KYC check runs, meaning they can filter out categorical failures before they become billable KYC attempts. As for the people who went successfully through the pre-check, they qualify for the usual KYC process.
On Hyli, these proofs are generated once and verified at the network level. The institution doesn't run the passport check; it only reads a proof that the check is already valid, and this proof is valid for any institution building on Hyli. The users will only have to do this pre-check once and can re-run it at will, at no extra cost for institutions. The proof is created on the user's device at no cost for the providers; the cost of verifying it on Hyli is a fraction of a full KYC check.
What KYC pre-check changes, and what it doesn't (yet)
KYC pre-check is not a KYC replacement. Regulated institutions remain responsible for their own verification, risk scoring, and documentation.
What KYC pre-check does is eliminate the lowest-value portion of the failure rate. Institutions running large-scale onboarding already know that a fraction of applicants fail on categorical eligibility. Proof-based pre-screening moves those failures earlier, before a KYC provider invoice is generated, and allows users to only fail once instead of repeating a frustrating process across several institutions.
Each regulated actor is responsible for its own client identification under current AML frameworks. A proof-based pre-check doesn't touch that responsibility, and it doesn't replace institutional diligence, but it creates a smoother experience for users whose KYC will inevitably fail and it reducs costs for institutions that can now focus on paying KYC when it makes sense.
The medium-term use case is stronger. As proof infrastructure matures and regulatory frameworks evolve, the categorical checks that are identical across all institutions become genuine candidates for mutualisation. The constraints on KYC sharing apply to institution-specific risk assessments, not to binary eligibility gates. That distinction matters, and it's where the architecture is already positioned to move when regulation allows.
For now, the value is simpler: you stop paying for checks that were always going to fail.
If your institution runs KYC at scale, we can show you what the pre-check looks like in practice. Book a call with the Hyli team.