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Using KYC Strategy for Conversion Rate Optimization

How to improve your user onboarding UX with identity verification

Introducing a KYC (know your customer) process to your product will inevitably affect conversion rates — but the effect can be positive if you implement effectively. Many FinTech companies operate under the assumption that doing KYC automatically reduces conversions and causes users to abandon the onboarding process. However, anyone who has ever opened a bank account or purchased insurance has been through a KYC verification process and crypto companies, including Binance and Gemini, now require KYC verification. These security measures are particularly important for businesses with younger customers, as research shows that 29% of millennial consumers will switch accounts after a single fraud incident with a financial service provider. Here’s what you need to know about implementing KYC and how you can improve conversion rates while protecting your business.

“When we removed Facebook and brought in ID verification, the conversions went up and it’s been smooth sailing for us since.” – Moiz Malik, CEO of Nooklyn

Myths About Adding Identity Verification

Arguably the biggest myth about adding identity verification is that it inherently adds friction and hurts conversion. While too much friction certainly isn’t good for your conversion rate, a well-designed user flow that is easy for customers to complete will not create noticeable enough friction to deter new customers. In fact, a 2021 consumer study found that users may care more about security than speed when it comes to how their personal data is handled online. So, far from being an item included only to comply with regulations, KYC verification can be an opportunity to provide better service for your customers.

KYC Stakeholders

KYC stakeholders venn diagram with three overlapping circles that include customers, regulators, and internal team members. The middle overlapping area has an inverted blue triangle.

There are three main stakeholders when it comes to KYC requirements, each of which has different goals. Regulators implement KYC requirements in order to prevent fraud, money laundering and potential terrorist financing. For regulators, the bottom line is the ability to prove users’ identities and have the right information on hand should suspicious activity occur. Consumers, on the other hand, are looking for a combination of security for their personal data and ease-of-use in the verification system. The third stakeholder is the company itself, which has many potential uses for KYC. Your compliance team needs to ensure regulatory compliance to protect the business. Engineering and IT will want a solution that is as easy to implement as possible. For this piece, we will focus on optimizing the experience for customers.

Ways to Optimize Conversion with Identity Verification

Help Your Customers Succeed

The first step in optimizing conversion rates in a KYC system is to help your customers navigate the KYC verification flow. A 2021 report from Cornerstone Advisors found that banks suffered abandonment rates of up to 90% during the account signup process. Understanding where new customers are hesitating or struggling helps teams working on conversion rate optimization (CRO) make adjustments, major and minor, to the user experience. For example, Linus automatically detects when a user has been on a page for longer than a certain period and has a chat prompt to ask if the new user needs help. Other ways to help customers succeed include adding hints on how to complete the process and nudges to make the signup easier.

Get Them Ready

Customers will be able to complete each step of the KYC verification flow if they know what they need to complete it. Making use of the landing page to let customers know what documents they need and how they should prepare will prevent needless friction. In addition, where possible, allowing users to create an account first and then proceed with identity verification to gain full access to your services will considerably reduce your abandonment rate. This helps new users experience the product interface before giving over their personally identifiable information (PII).

Educate Your Users

Being transparent with users and potential customers can also help your conversion rate by having them buy into your KYC process. Let customers know why you need their information, how it will be handled and how you use it to verify their identities. Contrary to popular belief, most customers will be more receptive when they understand the regulatory requirements and fraud prevention measures behind KYC processes. A 2019 Experian report found that 70% of consumers are willing to share more data online if there’s a perceived benefit for doing so, particularly enhanced online security.

Use Technology to Save Customers’ Time

While customers are generally willing to share data to enhance their security, they still want the verification process to be fast and convenient. Steps in the identity verification process can be used to replace traditional multi-step user signup processes, shortening the onboarding flow. Automatic document scanning, for instance, gives customers the valuable convenience of just taking a photo of their ID document — it saves them from laboriously filling out their information. Making the most of technological advancements in these areas such as document scanning and authentication reduces the steps and friction customers are used to at sign up and will ultimately bring down abandonment rates.

Apply Friction Wisely

The goal of CRO is not to remove friction entirely, but to have purposeful, smart, friction. Smart friction screens out bad actors, especially with the rising scale of fraud, while letting legitimate individuals pass through. Instead of making users create and answer security questions, for example, you can use facial recognition technology to verify users’ identities. Security questions are text-based and easy for machines to crack with brute force, but difficult for people to remember when there are dozens of accounts to manage. In contrast, facial biometrics are difficult to fake, and when users take selfie videos that require following instructions, liveness can also be used to detect fraud and remove pre-recorded or uploaded images. In fact, biometric verifications, like Face ID, are consumer-friendly because of their simplicity and security. The Experian Global Identity and Fraud Report cited earlier also found that consumer confidence skyrocketed from 43% to 74% when biometric security measures were used to protect accounts.

Speed is not Necessarily King At the end of the day, a successful KYC program is all about information and security — having reasonable assurance that your users are who they say they are, at signup and over time. While overly slow verification might rub your customers the wrong way, there are many ways to maintain good customer relationships. It’s more important to focus on managing customer expectations. While automated verifications with instant completion sound attractive, taking extra time to do additional checks, such as AML database and watchlist checks, is worth the investment. Instead, you can let customers know that their verification is being processed and allow them limited access to your applications while the background checks are happening. Once the verification is complete, alert them by email or text and allow them full access to their account. As long as your customers know what to expect and have an easy time submitting their verification documents, they will likely be satisfied.

Ultimately, optimizing your KYC conversion rate is all about keeping the customer at the center of the process. Understanding what customers want and creating an easy system for them to verify their identities will help boost conversions and consumer confidence in your company. Be sure to communicate thoroughly and provide ample support, all while making your security standards as transparent as possible. With good communication and some convenient modern technology, you can protect your business and provide a great customer experience at the same time.

The most modern identity verification systems use facial recognition technology to verify users with a valid ID and a video selfie. The same systems can automatically extract data from the ID, saving users the time of manual entry. With this technology, users can quickly move on with the onboarding process while the verification work occurs in the background. Learn more about the identity verifications Passbase provides and how we can help your business remain compliant with KYC requirements, while growing your customer base.

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Passbase is an identity verification solution that makes facial recognition, liveness detection, ID verification and KYC and AML compliance accessible through a suite of flexible developer tools. A zero-knowledge architecture ensures that companies using Passbase can securely verify users from over 190 countries without having to store their data. Built for developers, it can be integrated with just a few lines of code on iOS, Android, and Web.