Customer onboarding can be a hassle, especially for regulated businesses that are required to comply with both Know Your Customer (KYC) and Know Your Business (KYB) requirements when entering into new business relationships. Here, accuracy time and an overall wood impression are the driving factors of a successful onboarding process, which sets the tone of the next steps and determines if the client is interested in moving forward with your business. Yet, abandoned applications with poorly made questionnaires, never-ending forms and Excel sheets can cause headaches for the applicants, who, in this day and age of AI and automation, expect a near-perfect experience as a user.
To not treat customer onboarding only as a compliance requirement or an administrative hurdle, you need to tailor each onboarding experience depending on the industry, the exact client, the required documents, and other important things to consider. This is the number-one task if you don’t want to create unnecessary queues and backlogs. That’s why removing unnecessary friction and making sure that your customer onboarding practices are efficient and actually help you make a good first impression that can convert to revenue in the future is vital.
In this blog post, we review the most common onboarding mistakes and how to fix them, providing real-life examples and best KYC/KYB practices.
What is Customer Onboarding?
Customer onboarding is the process of welcoming new clients, whether they are other business or individual customers before allowing them to fully enter the contract or start using the platform’s services after the completing the sign-up process, which, in high-risk industries, such as banking, crypto or fintech, means collecting and verifying personal information to check if the customer is legitimate and isn’t forging any documents and using stolen details.
This helps ensure KYC/KYB compliance and prevents fraud, such as unknowingly becoming a channel for money laundering.
KYC Onboarding Requirements
A huge part of client onboarding is implementing KYC checks, also known as simply the process of identity verification, which includes:
- Checking ID documents, such as passports, ID cards, or driver’s licenses.
- Conducting biometric verification with liveness detection to confirm the person is live and present, and their face matches the photo on the captured ID document.
- Verifying address information via Proof of Address (PoA), such as a utility bill or bank statement, to see if the data is legitimate.
- Conducting database verification to cross-check collected identity data and other details, such as the customer’s Social Security Number (SSN), to compare it with another official database and see if any mismatches come up.
These steps help reduce identity fraud and prevent financial crime. That said, KYC onboarding goes beyond ID verification checks. It also ensures compliance with local and international regulations like Anti-Money Laundering (AML). In practice, this means additional security measures like implementing a risk-based approach and applying Enhanced Due Diligence (EDD) measures on high-risk clients or screening sanctions lists to prevent onboarding a sanctioned individual, which, in most jurisdictions, is illegal.
Related: KYC Verification [3 Main Components & More]
KYB Onboarding Requirements
This process is similar to KYC onboarding and consists of collecting and verifying documents, for example, however, since it revolves around business entity verification, it’s a more complex process, as both the company’s legal standing and basic details (such as website or address information) need to be assessed and all individuals linked to the business need to be verified, or KYC’d.
Ultimately, KYB onboarding helps ensure you’re working with a legitimate business through these steps:
- Collecting documents, such as the company’s licensing papers, tax IDs, certificates, or registry details.
- Verifying Ultimate Beneficial Owners (UBOs), which means verifying individuals who own or control the company by cross-checking their collected personal details with government registries and other legitimate sources.
- Screening sanctions and watchlists, as well as other important AML sources, for example, screening individuals against OFAC or UN sanctions lists, as well as Politically Exposed Persons (PEPs) lists and adverse media. This could go one step further with extra sources like criminal background checks to see if the individual doesn’t have ties to financial crime and other criminal activities negatively impacting the potential partnership.
- Applying risk-scoring by implementing risk assessment and determining the company’s risk level: low-risk companies go through lighter checks, while high-risk companies require extra due diligence measures.
All of these processes combined help you decide whether to approve the company as a legitimate client or reject them if the risks are too high.
However, risks and client risk profiles change over time, so ongoing monitoring and due diligence measures are required for both KYC and KYB clients to track updates and spot new red flags that could potentially lead to suspicious activity that needs to be addressed and reported.
Related: The Guide to KYB Onboarding
Why is Customer Onboarding Important?
Customer onboarding is important because it keeps your customers engaged right from the start, allowing your business to create and show value through the provided benefits or services. With a good first impression created at the initial onboarding stage, customers tend to keep coming back. For some businesses, this means more conversions and more chances of keeping trial users and turning them into loyal, paying customers.
Building a slow, complicated onboarding process, for example, by going back and forth when asking for extra documentation through multiple emails, slows down other elements of the onboarding, like user ID verification, which is simply not an industry standard, especially for high-risk sectors, like financial services. As a result, the risk of human error, customer frustration, and loss of satisfaction increases.
What are the Main Negative Effects of Onboarding Mistakes?
As a business, it sometimes costs more to have a poor onboarding experience than to build and maintain a proper client onboarding process. The lack of KYC measures in regulated sectors during the account creation stage can leave room for hefty non-compliance fines, operational delays, and, not to mention, poor brand image that slows down growth and affects plans to scale into new markets, for example.
It’s important to determine the risks of your industry and clients to adjust the strictness of the onboarding so that it doesn’t put all the weight on the customer with unnecessary hurdles. For example, too many steps can lead to drop-offs and abandoned applications that translate to lost value for the business. That’s why it’s always vital to cut out redundant steps, use automated KYC/KYB verification tools, and keep steps like data collection and document verification as smooth as possible.
Major Customer Onboarding Mistakes You Should Try to Avoid
Gaps in the customer onboarding process weaken the client’s trust before they even realize the benefits from your product or services. You should always track performance, ID verification results, and why they failed, for example, what sort of steps are most confusing for your clients, and how you can constantly refine and improve this process using standardized automation tools.
First off, to build a proper user onboarding, you need to know which mistakes to avoid. The most common issues that companies often face include cases like:
1. Not Adapting the Onboarding Flow Based on the Client
There’s no such thing as the same process for all of your clients, especially if you’re verifying both companies and individual clients. A one-size-fits-all approach doesn’t work because it forces low-risk customers to drop off or high-risk customers to slip through without extra scrutiny. To avoid this mistake, you need to adapt and build custom flows.
Otherwise, you risk bumping into challenges like:
- Poor risk management. Treating all customers the same makes it harder to detect suspicious behavior, especially when high-risk customers aren’t monitored or pre-screened before onboarding. Simple checks like 2FA via SMS verification at the account opening stage or using KYC blocklists to detect known fraudsters help reduce fraud without affecting the user experience.
Non-compliance. If you operate in different markets and countries, or deal with different industries and business structures, you need to comply with all relevant KYC/KYB requirements. The same rigid workflow might lead to you missing critical checks for high-risk clients. Streamlining access to various government databases helps save time and automatically detect risks using AI tools, such as iDenfy’s Company Data Crossmatch.
Ultimately, automated KYC/KYB software like iDenfy can help you create different workflows and set up various questionnaires for document collection based on pre-made templates that cater to high-risk industries and are designed to make the process more efficient so that you don’t need to code or put in extra effort into compliance-related tasks, like client onboarding. For example, you get separate onboarding tools for sole proprietorship verification on the same KYB platform, all in one place, despite different onboarding requirements for different business structures.
Related: How to Improve KYC Verification? Tips For a Frictionless User Experience
2. Not Focusing Enough on Risk Assessment
The most important mistake is overlooking red flags and missing suspicious signs that you might be onboarding a fraudulent account. Just as it’s important to adjust the onboarding workflow to a customer’s risk profile, it’s equally critical to collect the right information to build an accurate profile.
Common mistakes companies make when conducting risk assessments for customer onboarding include:
- Treating all clients the same, regardless of risk profile.
- Overlooking inconsistencies in customer information (such as mismatched names or addresses).
- Ignoring high-risk industries and other risk factors like complex corporate structures or cash-intensive businesses.
- Failing to continue to monitor clients after onboarding (for example, unusual transactions, or links to PEPs and sanctioned entities).
If the data is outdated or incomplete, you risk approving high-risk clients that don’t match your internal risk appetite and missing red flags that can later convert to regulatory penalties. Keep in mind that you should think about low-risk clients as well, as they shouldn’t be held or dragged through multiple steps if they don’t show any risk indicators, such as mismatches in KYC data.
Related: KYC Risk Assessment — Automation Rules & Key Risk Factors
3. Restricting Complete Access Unless the User Completes Their Verification
The user should be able to look through your product at least a bit. You should try to build a seamless user experience by allowing them to access certain features and informing them of all steps in the onboarding process. It’s important to build a business relationship that’s based on transparency and clear communication so that it lasts.
Pausing your onboarding workflow until the customer’s ID verification is finalized without clear instructions creates extra risks, like:
- Higher customer churn and regulatory scrutiny due to inefficient onboarding practices.
- Additional hassle for compliance officers, who risk missing key risk signals when onboarding approvals are rushed under pressure, especially with long waitlists and more complex, high-risk accounts.
If you completely shut down the client and lock your product off without clear instructions, demos, and policy explanations, especially about their personal data storage and security standards, they might get frustrated. For example, little UI details like using a progress bar with informational icons explaining what steps will be next during the ID verification part are vital; otherwise, customers tend to drop off.
4. Relying on Basic Documentation in High-Risk Cases
Using the wrong documents or unverified and outdated data sources for the identity verification part of the user onboarding process creates extra risks, leaving your business exposed to compliance breaches and financial crime. For example, collecting ID documents, such as passports or driver’s licenses, is vital, but relying only on these government-issued IDs isn’t enough because some regulated sectors require extra paperwork or checking extra data points to ensure security and compliance.
Common mistakes that companies make when dealing with this sort of issue include:
- Seeing document collection only as a tick-box task.
- Depending only on surface-level documents (like IDs or licenses).
For example, for loan and other financial service providers, beyond basic IDs, the client is asked to provide their source of funds (SOF) as a way to gain a deeper understanding of a client’s risk profile and ensure money isn’t coming from illegal sources. The same principle applies in other industries, including e-commerce marketplaces, where sellers need to provide their business licenses, tax registration numbers, like an Employer Identification Number (EIN) or VAT registration, to verify legitimacy and avoid onboarding fraudulent merchants. This also helps keep a compliant audit trail, improving ongoing due diligence measures.
➡️ However, don’t overburden your clients where it’s not needed. For KYB onboarding, a simple integration of a Secretary of State (SOS) API can do wonders and confirm if the company is in good standing, along with the option to verify other relevant details, like the entity’s legal status, which means requesting additional formation documents isn’t necessary.
5. Slowing Down the Process By Reviewing Low-Risk Accounts Manually
If your system cannot accurately detect risks, it can flag legitimate customers as fraudulent, creating an increased false positive rate that slows down onboarding and strains compliance teams. This not only frustrates customers but also increases operational risks. Consequently, compliance teams are required to manually review low-risk clients that could have been onboarded in seconds. It’s not a scalable approach to forward every flagged account to a reviewer and force manual checks when the customer doesn’t signal any fraudulent red flags during onboarding.
For companies like fintechs, this method is unacceptable, as industry standards are very high in terms of efficiency. This results in issues like:
- Spending hours manually collecting and verifying customer data, for example, by filling out forms, cross-checking various databases, and handling documents, can lead to human error and a higher inaccuracy rate.
- Making the backlog even bigger and then not allocating resources where they are needed, for example, for double-checking accounts with conflicting data and mismatches, or missing KYC details.
The best approach combines automation with manual review. This lets compliance teams correct software errors, such as approving identity verification checks that were mistakenly flagged as “Denied”. It works effectively when KYC specialists operate in real-time alongside the software, often 24/7, ensuring smooth, compliant onboarding, for example, like iDenfy’s software and the company’s dedicated in-house KYC specialists.
Bottom Line
With AI getting bigger and stronger, customer onboarding can be optimized with better efficiency and accuracy rate, detecting risks faster and improving the experience for every customer, no matter the industry or market. However, this can seem like an easy task in theory, but businesses still struggle to find the right balance between a good user experience and compliance with various regulatory requirements.
Still, using outdated practices, like multiple spreadsheets, is highly ineffective. RegTech platforms like iDenfy can optimize much of the KYC/KYB customer onboarding processes with no-code templates for faster workflow setups that are already designed for high-risk industries. This makes it easier to avoid onboarding mistakes without building the whole process from scratch. If that sounds like something that would benefit your business and your customers, try out our onboarding software for free.
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