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The 6 Most Common KYC Challenges and How to Overcome Them [Practical Guide for Compliance Teams]
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Key takeaways
Automating the KYC process reduces operational costs, minimizes human error, and streamlines new user onboarding.
The combination of artificial intelligence, machine learning, and human oversight is key to reducing false positives and false negatives.
A responsive solution focused on user experience significantly improves conversion rates and reduces abandonment during onboarding.
Having adaptable verification tools allows you to successfully navigate changing regulatory requirements across different jurisdictions.
What do compliance teams at fintech companies, crypto enterprises, and established institutions like banks have in common? The KYC challenges they face almost daily. Undisclosed costs, incomplete onboarding processes, and inefficient management of false positives or negatives are just a few of these hurdles. If you feel your compliance team spends too much time and resources solving these identity verification issues, you're not alone.
According to studies, between 70% and 90% of companies still have significant deficiencies in their KYC processes. This opens the door to regulatory fines and substantial costs (both human and financial) dedicated exclusively to addressing these problems.
In this article, we'll review the 6 most common KYC challenges that compliance teams face and how to overcome them. If you lead one of these compliance workgroups, this practical guide will help you overcome potential bottlenecks and optimize processes. It's no coincidence that we've helped more than 800 companies overcome these challenges with our identity verification technology.
Your KYC Relies Too Heavily on Manual Processes
Manual tasks within KYC processes are expensive, slow, and prone to human error. In other words: they're not cost-effective. Identity verification automation reduces or virtually eliminates all these tasks, which is essential especially when dealing with a large volume of users.
Take MyInvestor, for example. This neobank has over 500,000 users, and as Antonio Polo, Head of Compliance at the institution, told us, "any manual process that isn't strictly necessary should be eliminated or minimized as much as possible."
The truth is that manual processes during identity verification create unnecessary friction with end users, cause onboarding delays, and burden compliance teams, not to mention that the possibility of errors is much higher.
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How to Solve It Through Identity Verification Automation
Automating KYC processes offers many benefits for institutions (including enhanced security, improved user experience, and greater efficiency), and ensures that all security aspects are met without manual intervention.
For users, identity verification is as simple as capturing an image of their documentation and taking a selfie (depending on the proof of life method). However, behind the scenes, KYC software performs numerous checks, such as reading barcodes, NFC chips, or machine-readable zones (MRZ). All this is done to guarantee the authenticity of all processes.
False Positive/Negative Rates Are Too High
A high false positive or negative rate can damage your business reputation and, of course, the customer experience. But do you know what these concepts are? False positives in identity verification occur when a user manages to deceive the KYC system despite not being who they claim to be. False negatives, on the other hand, occur when legitimate users cannot access the service because they fail the identity verification process.
Various causes typically lead to an increase in these false positives or false negatives:
- Limitations of KYC software, whether due to technical issues or financial constraints that prevent access to more advanced solutions.
- The lack of automated verification systems can also contribute to increasing these indicators, especially when working on a more global scale.
- The inability to manually validate all documents, especially those from regions with different languages that cannot be translated in public translators due to regulatory reasons, such as GDPR.
Machine Learning, AI, and Human Expertise to Reduce False Positives
The combination of machine learning, customized AI algorithms, and the expertise of compliance teams is the winning combination against false positives in identity verification. Most KYC solutions already incorporate AI technology to validate user identity, which typically makes processes faster and more accurate in most cases.
New AI models and machine learning algorithms learn from each verification. This way, each KYC process is more secure than the previous one. And for those doubtful cases where human expertise from compliance teams is essential, it's necessary to properly configure risk indicators. Sessions requiring human validation should be placed under review so that a team of experts can correctly analyze the reasons why the session was not automatically approved, to either accept or decline it.
Your KYC Process Provides a Poor, Non-Responsive User Experience
Identity verification processes are the first point of contact with customers: a poor onboarding experience can lead to frustration, abandonment, and loss of potential users.
Today, immediacy is key. One extra second can mean one less conversion. That's why it's essential that KYC tools are fast, effective, and guide users through a simple and attractive interface.
It's also important to offer navigation adapted to different device types: computers, tablets, or mobile phones. A non-responsive verification experience could harm the onboarding moment.
An Identity Verification Tool Centered on People
Finding a balance between regulatory compliance and UX is essential in any identity verification program. Validation processes cannot be excessively complex or require complicated actions from users: tools must be centered on the people on the other side.
Users waiting hours to verify their identity is a thing of the past. Customers now demand speed, security, and validation processes that can be performed virtually in real-time or within seconds, and remotely. This requires identity verification solutions to be adaptable to any device and environment.
Regulations Change and Can Vary Between Jurisdictions
KYC and AML regulations are not static and vary over time. New forms of fraud and money laundering evolve, and regulations must continuously adapt to these new threats to respond effectively.
Nor are regulations the same across all jurisdictions. Although they have the same goal—combating money laundering and terrorist financing—regulations in different regions can even be contradictory in some cases.
This can become a problem for many compliance teams, who must stay up-to-date with new regulations and understand how to remain compliant with different regulations, especially during international expansion.
A Customizable KYC Tool is Key
KYC solutions can help make the transition between regulations much simpler. For this, it's essential that these tools allow customization of different verification flows to adapt to various regulatory realities at all times. All this, of course, without compromising security.
Monitoring the Validity of Verification Sessions
The validity of the documentation your customers use during the onboarding process will determine the expiration of the KYC session. Yes, because identity verification sessions also expire. Perhaps your team spends a lot of time manually reviewing all the dates on these documents to ensure regulatory compliance and prevent fraud. If so, they are not optimizing resources or you're leaving the door open to criminals.
Fraud related to KYC validity is often more common than it seems. Scammers take advantage of these loopholes to carry out their illegal operations and move funds that come from illicit activities. All this under the protection of institutions that have been unable to detect the expiration of this verification.
Continuous Document Monitoring Capabilities
Continuous document monitoring is the key. These tools are capable of tracking and validating user documentation until it expires. Such a proactive system helps institutions comply with regulations, reduce fraud, and ensure that the user base always remains valid according to their identity documents.
In this way, thanks to continuous document monitoring technology, if a user's documentation expires, so will the verification session. Thus, the user will have to go through this process again with valid documentation.
Automating these processes significantly reduces the workload for compliance teams, especially in those where this process is still done manually.
Costs Skyrocket With Your Current KYC Provider
Verification platforms usually offer a good service for validating users' identities. When it comes to verifying their costs, they tend to have more complications. Most KYC solution providers usually incur hidden costs, which end up affecting the bottom line of companies like yours.
These opaque systems are often widespread and affect all companies, regardless of size or sector. At the other extreme are providers who do advertise their prices, but whose cost is unaffordable for many companies.
However, startups and SMEs are usually the most affected, as they find themselves unable to make a more or less detailed forecast of compliance department costs due to this lack of transparency.
Finding a Provider That Offers Free Identity Verification
Currently, paying for KYC is the worst decision you can make. Alternatives are beginning to emerge in the market that offer identity verification services at no cost, such as Didit. We are the only company in the world that offers a free and unlimited KYC plan, ensuring that any organization, regardless of its size, can access the best solution, without hidden costs and forever.
We are at a time when fraud and deepfakes are threatening both companies and individuals. That's why we put our technology at the service of those institutions that need to verify the identity of their users.
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Create a Solid KYC Process With the Right Partner
Fraud never rests, and compliance trends in 2025 demonstrate this. For this reason, compliance teams must lay the foundations of a solid compliance program that can respond to all the threats that continuously arise, as well as comply with continuously changing regulations.
Choosing the best KYC solution on the market is essential and provides fundamental support for any compliance department. Among the features your identity verification partner should have:
- An automatic solution that reduces manual processes as much as possible.
- Customized AI algorithms and machine learning to reduce false positives and fraud.
- An intuitive interface, truly centered on users.
- The ability to customize onboarding flows (countries, documents, liveness detection methods...).
- Continuous document monitoring, so verification sessions automatically expire when documentation does.
- A free KYC plan and/or no hidden costs.
Didit's identity verification solution meets all these characteristics. More than 800 companies from different industries have already integrated our technology. And you can start by clicking on the banner below. You're just a few steps away from revolutionizing your KYC process thanks to cost-free identity verification.
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