Top 11 strategies to improve KYC conversion rates
Staggering Fintech Fraud Statistics: Combating Fraud, AML, and risk management
In fintech and financial services, regulatory compliance is more critical than ever. 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.
Traditional institutions, however, tend to have the opposite problem. Nine in ten (93%) of asset managers take over a month as they painstakingly onboard new clients manually.
While the checks may be more robust (although not always, as human errors still happen), they're facing abandonment issues.
Across financial services, an estimated 63% of potential new customers never finish signing up.
Research shows that customers drop off when onboarding takes more than 19 minutes, and so today's financial services must aim for excellent KYC quality within that precious time frame.
11 practical ways to optimize your KYC process…….
1. Adopt a tiered KYC risk-based approach
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 onto 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 to convert the majority of customers quickly.
As of 2024, less than three in ten (29%) of asset managers use a tiering methodology. This could help explain why 93% take more than a month to onboard clients.
2. Consider bite-sized onboarding
Just the thought of doing an unfamiliar task can be daunting, which could explain why some customers put off self-service onboarding. With 95% of people self-diagnosing as procrastinators, it can also mean that the task never gets done. To help move things along, fintechs and financial services can implement a phased approach or bite sizebitesized onboarding.
This concept, known as Leverage Tiered Verification (LTV), takes only what's needed, when it's needed. At initial sign-up, the strategy is to gather only essential details. If the customer’s activity and transaction patterns remain low-risk, further verification steps can be deferred or conducted in the background.
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 intelligent document verification with Optical Character Recognition
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.
This simple step is a gamechanger for compliance teams. OCR can free up time, accelerate processes, and reduce customer frustration, depending on the firm, in many different ways. One study found that it saved 6,000 hours of auditing time.
To maximize efficiency, firms can combine OCR with other machine learning capabilities like automated checks for forgery. 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
When the forms are already half-completed, it saves valuable time and hassle for consumers. It can also help some neurodiverse customers complete the process in a more inclusive manner too. As one study puts it, “To save end-users from repetitive typing and increase composition productivity, it is critical to propagate and pre-fill user inputs to web applications”.
API (Application Programming Interface) technology bridges the gap between onboarding and integrating with trusted external data sources. These could include government databases, credit bureaus, or identity verification services. With APIs, customers can share their data, without having to share their passwords.
Not only does this make the process much quicker for customers, but it also reduces the risk of mistakes. One study found miscommunications between employees and new clients account for 2-5% of mistakes in forms.
5. Use behavioral biometrics to spot suspicious actors
Behavioral analysis begins even before the potential client starts the onboarding process. With advanced software, we scan a myriad of conscious and unconscious behaviors to determine if the customer is genuine or not. Some of these include irregular typing speed, mouse movements, navigation patterns, context switching, hesitation, and tracking the number of distraction events.
Its ideal to pair this with round-the-clock device tracking analysis. 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. Add a fast-moving progress bar
Progress bars are surprisingly powerful. One research paper found that participants are twice as likely to abandon a form if the progress bar is moving along too slowly in the beginning. However, the knowledge “cuts both ways", according to the study, as they are much more likely to complete the form when the progress bar is moving quickly.
Compliance teams can lean into this natural psychology by simply adding a progress indicator. Along the same lines, instant feedback (for example, if a document upload fails) helps customers stay engaged. An excellent example of this is Duolingo, which quickly flags errors and rewards users with badges for correct answers.
7. Make excellent customer service a unique selling point
Even in a digital-first process, customer services matter a lot. One study found that over two in five (42%) customers return following a good experience. Another more recent study found that nine in ten customers (90%) will return and recommend the service to their friends after a pleasant experience with support staff. But, on the other hand, when the customer service is bad, more than one in two (52%) will not return.
Customer service satisfaction is generally lower in financial services than other industries like hospitality. For firms who get it right, there is a unique opportunity to stand out from the crowd and grow their customer base.
Each firm will have its own unique process for training their support teams. What we've noticed is that when the repetitive and manual tasks are automated, it frees up employees to spend a lot more time supporting customers, adding value and boosting the firm's reputation. For example Raise was able to reduce manual reviews by 98% with this level of automation.
8. 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. After all, it could be something as easy-to-fix as a confusing instruction or piece of jargon.
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 a little friction during the onboarding process. 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. Build for a changing world
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 to sign 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 too.
11. Implement Continuous Customer Feedback Loops
Collecting feedback from customers throughout the KYC process can help identify pain points and areas for improvement. Implement mechanisms such as surveys or follow-up interviews to understand the customer experience better. 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 Fraud & Compliance Strategies: One mission
The tension is clear. Fraud, AML, and risk management are getting harder as the KYC experience is becoming 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 that 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, and user satisfaction surveys alongside 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 once integrated, these tools significantly streamline processes 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. If you'd like to learn more, we're just a few clicks away.
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. When users feel that the verification process is both secure and efficient, they perceive your institution as competent and customer-centric. Clear communication and timely approvals reassure them that their trust in you is well-placed.
