In today’s fast-moving payments landscape, knowing where money comes from is more important than ever. Whether it’s an online purchase, a deposit in a trading account, or a high-value financial transaction, businesses need to verify that the funds they receive were obtained through legitimate means.
This is where Source of Funds (SoF) checks come in. By verifying how a specific consumer has acquired funds, SoF checks help protect businesses from introducing illicit funds into the financial system, i.e., funds from fraud, money laundering, and other financial crimes. They also help manage financial risk, detect unusual or suspicious transaction behaviour and determine if a consumer’s activity aligns with their known financial profile.
At the same time, consumer expectations are changing. Consumers now expect instant, seamless payments and account creation, not lengthy forms, manual document uploads, or multi-day verification processes. To keep pace, businesses are turning to modern, data-driven approaches that make SoF verification faster, more accurate, and less intrusive.
In this article, we’ll explore what Source of Funds is, why it matters, and how SoF checks have evolved in the UK and Europe. We’ll also cover the regulatory landscape, including AML and PSD3, how open banking (and open finance) is reshaping verification, and how new open banking solutions can combine SoF checks and payments into a seamless flow.
What is Source of Funds (SoF)?
The term Source of Funds (SoF) refers to the origin of the money used in a financial transaction. In practice, a Source of Funds check verifies how the consumer acquired the funds, i.e. if such funds were obtained through legitimate means and not from illicit activities.
Unlike basic identity checks, which confirm who a consumer is, SoF checks focus on how they acquired the money they’re using – whether that’s salary payments, savings, business income, investments, or other lawful sources. This distinction is critical in regulated industries where understanding the flow of money is required and just as important as verifying identity, such as:
- Financial Services (Payments)
- Online gaming
- Designated Non-Financial Businesses and Professions (DNFBPs) such as for high-value goods.
Source of Funds checks are typically carried out as part of broader Know Your Customer (KYC) and anti-money laundering (AML) processes. They help payment providers and merchants assess financial risk, detect suspicious activity, and ensure compliance with regulatory requirements.
As payments become faster and more digital, Source of Funds checks are increasingly expected to deliver the same speed and convenience – without compromising on security or compliance. This shift is driving new approaches to SoF verification, particularly through open banking and real-time financial data.
Why are Source of Funds checks so important?
Source of Funds checks play a critical role in keeping payment ecosystems secure, compliant, and trustworthy. As digital payments continue to accelerate, so too does the risk of financial crime – and understanding where money comes from has become essential, not optional.
At the regulatory level, SoF checks help businesses meet AML and KYC requirements, ensuring that illicit funds don’t enter the financial system. They’re a key defence against money laundering, fraud, and the financing of criminal activity. Without effective SoF verification, payment providers and merchants face significant regulatory, financial, and reputational risk.
But the importance of SoF goes beyond compliance alone. For regulated industries such as online gaming and financial services, Source of Funds checks also support responsible consumer management.
They help businesses:
- Identify unusual or suspicious spending behaviour
- Assess affordability and financial risk
- Determine if a consumer’s activity aligns with their known financial profile.
From a commercial perspective, getting SoF right can directly impact the consumer experience. Lengthy document requests, manual reviews, and repeated checks create friction at moments when consumers expect speed and simplicity. In some cases, this friction leads to abandoned registrations, delayed payments, or lost revenue.
Ultimately, Source of Funds checks are about balance: protecting businesses and consumers from risk, while enabling smooth, secure payments. The challenge for modern payment providers is delivering robust SoF verification without slowing consumers down or compromising the user journey – a challenge that’s reshaping how SoF checks are approached across the industry.
How SoF has evolved in European and UK payments
Source of Funds checks have changed significantly over the past decade, driven by faster payments, tighter regulatory supervision, and rising consumer expectations. What was once a slow, manual process is now being reshaped by real-time data and digital infrastructure.
The traditional approach: Manual and document-led
Traditionally, SoF checks in Europe and the UK relied heavily on consumer-provided documentation, including:
- Bank statements
- Payslips or proof of income
- Tax returns or savings records
These checks were typically reviewed manually by compliance teams. While this approach helped meet regulatory requirements, it often resulted in long verification times, high operational overhead, and friction during onboarding or withdrawals.
Changing consumer expectations and increased regulatory focus
As instant payments and digital-first services became mainstream, consumers began to expect faster onboarding, minimal form-filling, and fewer interruptions during key moments. However, traditional SoF processes struggled to keep pace, creating a growing disconnect between payment speed and compliance checks.
At the same time, regulators across Europe and the UK placed greater emphasis on:
- Risk-based and proportional SoF checks
- Continuous monitoring rather than one-off verification
- Greater transparency into consumers’ financial behaviour
This shift meant businesses needed more than static documents: they needed ongoing visibility into how funds are generated and used.
Open banking as a turning point
The rollout of open banking frameworks, including PSD2 and UK Open Banking, marked a major evolution in SoF verification. With consumer permission, payment providers could:
- Access real-time bank account data
- Verify income sources more accurately
- Identify unusual or high-risk patterns earlier
This transformed SoF from a snapshot in time into a dynamic, data-driven process.
Today, Source of Funds checks are evolving into a core part of modern payments infrastructure, designed to be faster and more scalable, more accurate and contextual, and less intrusive for consumers.
This evolution is laying the groundwork for smarter, more seamless SoF experiences – particularly when combined with open banking–enabled solutions.
SoF, AML, and PSD3 regulations in payments
Source of Funds checks don’t exist in isolation. They sit at the intersection of AML regulation, regulated services legislation, and evolving supervisory expectations across Europe and the UK. As payments become faster and more digital, regulators are placing increasing emphasis on how effectively businesses, as varied as iGaming to Financial Services, can verify and monitor the origin of consumer funds.
The role of SoF in AML compliance
Under anti-money laundering (AML) frameworks, obliged entities, such as payment service providers (PSPs) and brands which service regulated services, are required to take a risk-based approach to consumer due diligence. Source of Funds checks are a key part of this, helping businesses to:
- Identify and prevent money laundering and financial crime
- Detect unusual or suspicious transaction behaviour
- Assess whether consumer activity aligns with their known financial profile
Rather than being a one-time requirement, SoF is increasingly expected to support ongoing monitoring, particularly for higher-risk consumers, sectors or transactions.
European and UK regulatory expectations
Across both the EU and the UK, regulators expect obliged entities to demonstrate:
- Clear visibility into how their consumers’ funds are generated
- Proportionate SoF checks based on risk level
- Strong audit trails and evidence to support compliance decisions
Failure to implement effective SoF controls can result in regulatory fines, operational restrictions, and reputational damage, underscoring the need for robust verification as a business-critical capability.
PSD3 and the future of payments compliance
The upcoming PSD3 regulation, alongside open finance and FIDA regulation, represents a significant step forward in Europe’s payments framework. Building on PSD2, PSD3 aims to:
- Strengthen fraud prevention and consumer protection
- Improve consistency across EU payment regulations
- Support secure data sharing and open banking innovation
For SoF checks, this signals a move towards greater transparency, real-time verification, and stronger data controls. As regulators push for faster payments with higher security standards, manual and document-based SoF processes are becoming increasingly difficult to justify.
What this means for payment providers and merchants
Taken together, AML requirements and PSD3 are raising the bar for Source of Funds verification. Businesses are expected to deliver SoF checks that are:
- Accurate and risk-based
- Efficient and scalable
- Aligned with real-time payment flows
Meeting these expectations requires modern, data-driven approaches – particularly those that can provide reliable insights without adding unnecessary friction for consumers.
How long does a Source of Funds check take?
The time it takes to complete a Source of Funds check can vary widely depending on the method used. Traditional approaches – like collecting bank statements, payslips, or other documentation – can take several hours to several days, particularly if consumers delay providing the necessary paperwork or if compliance teams need to manually verify each detail.
Even with dedicated compliance teams, manual reviews are prone to bottlenecks – especially during periods of high transaction volume. For merchants and payment providers, this delay can slow onboarding, frustrate consumers, and even result in lost transactions or abandoned registrations.
In contrast, modern, data-driven approaches – especially those leveraging open banking – can dramatically reduce verification times. By connecting directly to consumer-permissioned bank accounts, providers can confirm income sources, account activity, and fund origins in near real-time. What once took hours or days can now often be completed in minutes, creating a faster, smoother experience for both businesses and consumers.
The takeaway is clear: the speed of SoF checks is no longer just a convenience: it’s a critical factor in ensuring compliance while keeping consumer journeys seamless and friction-free.
How open banking helps make SoF checks easier
Open banking has transformed the way payment providers approach Source of Funds verification, making checks faster, more accurate, and less intrusive. By giving businesses secure, consumer-permissioned access to financial data, open banking enables real-time insights that were previously difficult or impossible to obtain.
How does a Source of Funds check work?
An open banking-powered SoF check performed via a solution, such as Brite Data Solutions, typically proceeds like this in practice:
- The Consumer logs in to their bank account with their secure credentials and grants the PSP access to the account/transaction history.
- The PSP consolidates incoming transactions, highlighting the source of the incoming funds as per the bank statement.
- The Merchant receives such consolidated information and can base their assessments on the given factual information.
Today, this check is performed almost instantly.
What are some of the ways open banking improves SoF checking
Some of the key ways open banking makes SoF checks easier include:
- Instant verification of income and account activity: Instead of waiting for documents to be uploaded and manually reviewed, providers can access customers’ account information in seconds, confirming where the customer received the funds from.
- Reduced friction for consumers: Users no longer need to dig through statements or manually submit documents, improving the overall onboarding and payment experience.
- Improved accuracy and risk assessment: Real-time data enables businesses to detect unusual patterns and potential risks immediately, rather than relying on static historical documents.
- Ongoing monitoring capabilities: Open banking enables visibility into consumer accounts, helping businesses meet regulatory expectations for ongoing due diligence.
- Scalable compliance: SoF verification via open banking reduces the burden on compliance teams, enabling them to handle larger transaction volumes without slowing down operations.
By leveraging open banking, payment providers can strike the perfect balance: meet regulatory requirements, reduce operational costs, and provide a smooth, seamless consumer experience. It’s this combination of speed, accuracy, and convenience that sets the stage for next-generation SoF and payment solutions – like Brite Data Solutions.
Conclusion
If you would like to find out more about Brite Data Solutions for assisting you when you perform Source of Funds checks, then visit our product page. Or if you would like to learn more about other Brite products, such as Brite Play for payment and account creation, then get in touch with our payment experts today. We are more than happy to talk to you about your payment needs and how Brite can assist you.
