Every payments app has a leaky funnel, and the biggest hole usually sits in the same place. A customer downloads the app, enters an email and reaches the KYC screen. Then they meet a digital identity request for a passport photo, a selfie and proof of address. A large share of them close the app and never come back.
Marketing teams pay to bring those people in. Compliance teams, often without meaning to, send them away before they make any payments. I'm Vladyslav Kolodistyi, and I think this tension is the most expensive unsolved problem in consumer payments. The good news: better digital identity design can raise conversion and security at the same time, even as deepfake fraud grows.
The short version from Vladyslav Kolodistyi: KYC drop-off is a design problem, not a law of nature. Risk-based digital identity checks let honest customers through fast and save the heavy friction for signals of fraud.
“A payments app that loses half its sign-ups at KYC does not have a compliance problem. It has a product problem wearing a compliance badge.”
Vladyslav Kolodistyi
Why identity verification loses honest customers
Most KYC drop-off comes from a handful of moments. The camera will not focus on the document. Glare hides the date of birth. The selfie fails in a dark room. The app asks for a utility bill that the customer does not have on paper. Each of these digital identity moments costs payments firms customers who were ready to make payments.
Some friction is necessary. Regulators require payments providers to know who their customers are, and deepfake fraud makes the threats real. The Entrust 2026 Identity Fraud Report found that deepfakes now appear in one in five biometric fraud attempts, and deepfaked selfies grew 58% in 2025. Deepfake fraud is exactly why KYC teams keep adding steps.
The problem is that most KYC flows add the same steps for everyone. The student opening a payments account to split rent payments faces the same checks as a suspicious account created from an emulator at 3am. That is expensive for the student and barely an obstacle for the fraudster, who automates retries and never gets bored.
“Uniform friction punishes honest customers and barely slows deepfake fraud. Risk-based KYC does the opposite.”
Vladyslav Kolodistyi
Measure the funnel first
I always start with numbers. Where exactly do customers leave? How many start KYC, how many finish, and how long does each digital identity step take? Which devices and countries fail most often? Without this data, payments teams argue about digital identity friction in the abstract.
Funnel template by Vladyslav Kolodistyi. These are the metrics I ask payments teams to track for every digital identity step:
Faster eKYC onboarding with risk-based digital identity
Risk-based eKYC onboarding sorts customers by signals before it decides how much friction to apply. The device, the network, the email age, the phone number history and the requested payments products all feed the digital identity score. A low-risk customer who wants a basic payments account gets a light flow. A high-risk profile gets the full set of digital identity checks.
This is the sequence I recommend for payments apps that want higher conversion without extra risk:
- Score silently first. Use device, network and data signals before the customer sees a single KYC screen.
- Start light. Offer low limits on payments with minimal checks, where regulation allows it.
- Pick the fastest strong method. Chip reads, bank-verified identity or a digital identity wallet beat photo uploads on both speed and deepfake fraud resistance.
- Guide the capture. Auto-capture, live feedback on glare and clear examples cut retries sharply.
- Step up only when needed. Ask for more digital identity evidence when the customer wants higher limits or when payments behaviour looks unusual.
The second step, tiered limits, deserves more attention than it gets. Many rules allow a lighter KYC tier for small balances and low payments volumes. Letting a customer start with modest payments and complete full checks later can turn a lost sign-up into an active account.
“Let customers earn their limits. Tiered KYC turns the onboarding wall into a staircase.”
Vladyslav Kolodistyi
Reuse what is already verified
Many customers have already proven their digital identity somewhere else. Their bank verified them years ago. In some countries, bank-based digital identity schemes such as BankID let a customer confirm who they are with the same login they use for everyday payments. Where these schemes exist, payments apps that accept them see far smoother onboarding than apps that insist on a fresh photo.
Open banking adds another option. With consent, a payments provider can confirm that the customer's name matches the account holder of a real bank account. That check does not replace full KYC everywhere, but it strengthens digital identity confidence and helps with proof of address and future payments.
Reusable digital identity is the direction of travel. The customer should not have to rebuild trust from zero for every payments app on their phone.
“Customers already have a verified digital identity at their bank. Payments onboarding should borrow that trust, not repeat it.”
Vladyslav Kolodistyi
The wallet as a conversion tool
Europe is about to give payments firms a powerful shortcut. Under the revised eIDAS framework, every member state must offer a European Digital Identity Wallet by the end of 2026. The European Commission describes it on its European Digital Identity page. The wallet shares state-signed digital identity attributes with a single tap, ready for payments onboarding.
For KYC conversion, that is a gift. No document photo, no glare, no retake. The customer approves the share and the payments provider receives verified data in seconds. It also closes one of the easiest routes for deepfake fraud into payments, because the decision rests on a signature, not on an image.
“The fastest KYC is the one where the state has already done the checking. The wallet brings that speed to every payments app in Europe.”
Vladyslav Kolodistyi
Fast flows attract deepfake fraud
There is a catch. Every shortcut in digital identity checks attracts attackers. When a payments app advertises two-minute onboarding, deepfake fraud rings test it within days. They look for the path with the weakest liveness, the loosest device checks and the highest payments limits.
That is why speed and security have to be designed together. A fast path built on chip reads, passive liveness with injection detection or wallet credentials stays fast for honest customers and hard for deepfake fraud. A fast path built on a photo upload and a basic selfie simply becomes the preferred entry point for synthetic customers and mule payments.
I advise payments teams to red-team their own onboarding. Hire testers to try deepfake fraud tools against each digital identity path, including virtual cameras and emulators. Fix what breaks before criminals find it and start moving payments. The cost of a test is tiny next to a wave of fraudulent payments.
“Every fast path is a promise to honest customers and an invitation to deepfake fraud. Build it so only one of them can accept.”
Vladyslav Kolodistyi
Speed without leaks
Faster onboarding only works if fraud on payments stays flat. That is why I pair every conversion change with a fraud metric by approval path. If the light path starts receiving mule payments or deepfake fraud, tighten that path. Do not add digital identity friction to everyone.
Post-onboarding monitoring of payments makes this safer. First payments, payee choices and login patterns often reveal synthetic customers that passed KYC. A strong monitoring layer on early payments lets firms keep the digital identity front door smooth because they watch the hallway carefully.
“Watch the first week of payments as closely as the first minute of KYC. That is where synthetic identities show themselves.”
Vladyslav Kolodistyi
KYC without the drop-off is possible. It takes funnel data, risk-based KYC design and modern digital identity methods that resist deepfake fraud. Payments firms that get digital identity right will win customers and payments that their rivals lose at the passport screen.
“Every customer lost at KYC is a customer a competitor gets to onboard. Conversion is a compliance topic now.”
Vladyslav Kolodistyi
I'm Vladyslav Kolodistyi, and I write about digital identity, KYC and growth in payments. Connect with me on LinkedIn to compare notes on onboarding funnels.
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