Conversion is the problem. However, the solution is rarely “fewer risk checks.” More than 60% of fintechs have faced regulatory fines of over $250,000 due to missed vital Know Your Customer (KYC) checks while trying to expedite new customer onboarding processes. 

Manual processes don’t help when nine in ten asset managers take over a month as they painstakingly onboard new clients manually. When you add this up, across financial services, an estimated 63% of potential new customers never finish signing up. 

So, how do you get the best of both? Here are 11 practical tips.

11 practical ways to optimize your KYC process

1. Adopt a tiered, risk-based approach to KYC

Not every customer or product line carries the same level of risk. McKinsey, for example, estimates that high-risk clients usually make up less than 5% of potential new clients applying for accounts. The remaining +95% of customers have lower levels of risk. Baking this into the strategy, one way to optimize the process is by segmenting applicants according to their risk profiles. 

Instead of applying heavy compliance controls to every single new customer equally, one way to create smoother journeys for the majority is to only impose the extra checks on the riskiest. 

This risk-based approach is an efficient use of compliance professionals’ limited time and helps convert most customers quickly.  As of 2024, less than three in ten (29%) of asset managers use a tiering methodology. This is a great starting point for anyone who hasn’t already added.

2. Consider bite-sized onboarding

This concept, known as Leverage Tiered Verification (LTV), takes only what's needed and when needed. At initial sign-up, the strategy is to gather only essential details. Further verification steps can be deferred or conducted in the background if the customer's activity and transaction patterns remain low-risk. 

Employing a tiered risk-based approach in KYC verification reassures compliance veterans that stringent checks will still occur, but they will be strategically timed, reducing upfront friction.

3. Embrace smarter document verification that combines OCR and ML

OCR (Optical Character Recognition) is a process that converts an image of a document, like a passport or other form of identification, into machine-readable text.

While not new, the quality of OCR has improved dramatically in recent years, thanks to Generative AI models. Firms can combine OCR with ML and Generative AI-based forgery or image generation checks to maximize effectiveness. Completing two tasks simultaneously helps to keep customers engaged with the process within the precious 19-minute window. It can make record-keeping cleaner and consistent. 

4. Pre-populate onboarding forms with third-party data

Third-party data serves two purposes. 

1. It helps you screen out bad actors
2. It helps create user delight as you autofill their information

Third-party sources include government databases, credit bureaus, or identity verification services. Not only does this make the process much quicker for customers, but it also reduces the risk of mistakes. One study found that miscommunications between employees and new clients account for 2-5% of form mistakes. 

5. Use behavioral biometrics to spot suspicious actors 

Behavioral analysis begins even before the potential client starts the onboarding process. “Every fraudster has a tell,” and often these include irregular typing speed, mouse movements, navigation patterns, context switching, hesitation, and tracking the number of distraction events. 

It's ideal to pair this with always-on device intelligence. So, for example, if an account is being set up on an unrecognized device, in a different timezone, with unusual geolocation, mismatching IP address, or more, we can put extra checks or blocks in place. 

Of course, not all anomalies signal fraud. This intelligence-driven, adaptive approach ensures customers who pose minimal risk enjoy a straightforward process while potential fraudsters encounter robust defenses early on.

6. Progress bars and momentum

Knowing where you are as a user and feeling a sense of progress is half of the battle. Progress bars help you understand where you are in the journey. Less cluttered screens that are easy to “complete” create a powerful sense of momentum.

Compliance teams can lean into this natural psychology by adding a progress indicator. Along the same lines, instant feedback (for example, if a document upload fails) helps customers stay engaged. An excellent example is Duolingo, which quickly flags errors and rewards users with badges for correct answers. 

7. Make excellent customer service your differentiator

Fintech companies that excel in conversion, like Raise, Novo, or Chime, often report that upwards of 50 to 60% of new customers are organic and cost $0 in advertising to acquire. Customers can be your most powerful advocates, and a well-designed digital experience is the key to unlocking that “word of mouth” user growth magic.

The key, then, is to ensure good users don’t get stuck in manual review when they do try to onboard. Or if a customer hits support, they have a fantastic experience. 

What we've noticed is that when repetitive and manual tasks are automated for support teams, it frees up employees to spend a lot more time supporting customers, adding value, and boosting the firm's reputation. 

Our customer Raise was able to reduce manual reviews by 98% with this level of automation. 

8. Proactively identify and correct blocks in the KYC journey

A simple but powerful way of improving the onboarding journey is to pick out where the customers are dropping off and why. This sounds easy in principle, but can be tricky in practice. It could be common jargon or that customers don’t want to give their data to a new app they’ve never heard of before today.

Sharing data is a common blocker. Research uncovered that three quarters (75%) of customers will refuse to share data with a company they don't know if they can trust. At these junctures, compliance teams can consider if the data they are asking for is truly needed for low-risk customers, whether there is an alternative way of getting the same data, or simply offering a choice of different documents needed. 

Firms should be able to easily identify drop-off points in the journey. If you would like someone to show you in more detail, we'd be happy to help. 

9. Track conversion metrics and risk indicators

What doesn't get measured doesn't get managed. At a minimum, firms should track onboarding completion rates, average onboarding time, and user satisfaction. Keeping a close eye on this can spark ideas for improvements. Firms can also see if one influences the other, for example, if users are more satisfied when the process is faster. 

Sometimes the results can be surprising. For example, certain clients are reassured by little friction during onboarding. We suggest closely examining what's working and what isn't. 

To get the fullest picture, we also recommend cross-referencing these findings against risk metrics, such as the rate of false positives, SAR filings, and downstream fraud incidents. Getting a 360-degree view of the conversion journey helps to pinpoint weak spots and improve. 

10. Modernize your KYC flows

It’s a cliche that regulations, fraud patterns, and risks “constantly evolve,” but it's also true. If your systems are static and not easy to upgrade, you quickly lose customers at onboarding and other points in their journey as your experience quality degrades. 

Customers do not want friction at onboarding or when signing up for services that are linked to regulatory scandals. A bad headline can lead to fines and customer churn. The way to counter this is by continuously updating software for a smoother experience; firms should also have round-the-clock intelligence and regulatory checks.

11. Implement continuous customer feedback loops

Collecting customer feedback throughout the KYC process can help identify pain points and areas for improvement. Implement surveys or follow-up interviews to better understand the customer experience. By actively seeking user input, organizations can make data-driven decisions to refine their KYC procedures, ensuring they meet customer expectations while still adhering to regulatory requirements.

Services like Sardine provide this as standard. 

11 KYC optimization strategies, one mission

The tension is clear. Fraud, AML, and risk management are getting harder as the KYC experience becomes ever more streamlined and low-friction. Customers want excellent KYC experiences, not 19 minutes of painful signup. Finding the balance requires constant vigilance. 

For those who succeed, the benefits are immense. They can enjoy increased retention rates, repeat visits, and word-of-mouth referrals. But for those that fail, the consequences can be fatal for business. 

We've pulled together ten meaningful steps firms can take to improve KYC and onboarding. Some are simple but powerful, like adding a progress bar. Others require infrastructure changes, like adopting tiered risk approaches. While others come down to customer service and staff training. 

While these strategies are intended to be helpful, they are generic. Creating tailored solutions is what we do, so that every unique need is met. If you'd like a personalized analysis of how to bring your onboarding journey to the best level, we'd love to hear from you. 

Frequently Asked Questions (FAQ)

Will optimizing for conversion rates compromise regulatory compliance? Not when it's done correctly. Using a risk-based approach ensures higher-risk cases still undergo robust checks. Efficiency gains come from reducing unnecessary friction for low-risk applicants, not removing key controls.

How can we measure improvements in both conversion and compliance quality? Track onboarding completion rates, time-to-complete metrics, user satisfaction surveys, false-positive rates, SAR (Suspicious Activity Report) filings, and any subsequent fraud losses. A balanced dashboard helps ensure gains in efficiency don’t erode your risk management posture.

Are advanced technologies like OCR and behavioral analytics challenging to implement? Integration requires planning, vendor due diligence, and some technical investment. Start small with pilot programs. Many institutions find that these tools significantly streamline processes once integrated and pay off quickly in reduced manual work and improved user experience. For us, it's our bread and butter. We do this every day.

How often should we reassess our KYC process? Regularly, at least annually or whenever new regulations, technologies, or significant shifts in customer behavior arise. Continuous improvement keeps your process aligned with both market expectations and compliance requirements. At Sardine, we can do this for you with constant updates and suggestions for improvement. 

Can a more seamless KYC process strengthen customer trust? Yes. Users who feel that the verification process is secure and efficient perceive your institution as competent and customer-centric. Clear communication and timely approvals reassure them that their trust in you is well-placed.