Digital banking has trained consumers to expect speed, simplicity, and instant results. Yet, when those same expectations reach the commercial side of the house, many financial institutions fall short—leaving business clients stuck in slow, manual onboarding journeys that drive up costs and frustration.

In a recent PaymentsJournal podcast, Penny Townsend, Co-Founder and Chief Payments Officer at Qualpay, and Hugh Thomas, Lead Commercial and Enterprise Payments Analyst at Javelin Strategy & Research, discussed the common challenges that often hinder commercial banking onboarding and explored how organizations can meet rising customer expectations while still maintaining compliance.

Bridging Gaps in a Broken Onboarding Process

One of the main issues contributing to onboarding deficiencies is the continued use of outdated systems. Paper documents and manual data entry are still a fixture in many processes, often causing delays and errors.

What’s more, the complexity of onboarding commercial clients frequently requires back-and-forth communications, which can create bottlenecks and misunderstandings. Even when institutions manage to navigate these hurdles, they sometimes stumble at the final stage.

“A number of years ago, I applied with a company and their onboarding process was particularly fantastic right at the beginning of it,” Townsend said. “But I couldn’t quite finish it when they were trying to authenticate who I was. Know Your Customer (KYC) was happening, and it went offline to try and figure out who I was as a person, and I couldn’t get through that process. I can’t even explain to you why I couldn’t get through it, but I couldn’t figure out how to take that last step.”

These challenges often arise because organizations are trying to juggle multiple processes simultaneously—collecting data, performing authentication, ensuring compliance, and meeting security protocols.

When institutions rely on outdated systems, more gaps emerge, making it harder to guide clients smoothly through the onboarding journey. This stands in stark contrast to the streamlined interfaces and seamless interactions that have become standard across other sectors.

“I was trying to renew my driver’s license in the UK and the whole government process has been digitized,” Townsend said. “For me to prove who I was, it was a combination of using my phone and my passport. I had to put my phone next to my passport and it scanned my passport details. I had to take a picture of myself as well with my phone and that completed the KYC.”

Commercial clients, accustomed to these modern experiences in their everyday interactions, are likely to resist onboarding processes that rely on paper documentation and lengthy communications.

“Expectations for systems in things like B2B payments are being driven more so today by consumer experiences,” Thomas said. “If you can do this for my driver’s license, why can’t I onboard a new supplier with the same degree? Why is it not just a QR code or something like that? We securely exchange enough information that we know one another well enough to do business and to have a banking exchange between us.”

The Juxtaposition of Departments

Along with outdated systems, many onboarding processes are managed across siloed networks and fragmented workflows.

When financial institutions rely on disparate systems for services such as cash management, lending, and onboarding, clients often have to provide the same information to multiple departments. This duplication can lead to longer approval times and higher costs.

“A perfect example would be the separation that was driven by the changes that happened after 9/11 and with FinCEN, and this different structure where I have an underwriting policy in one department, but I also need to do my anti-money laundering with a different group,” Townsend said. “There was a reason why those two departments were segmented: because compliance has this strong role at a bank, but it’s juxtaposed with wanting to onboard customers, and then you have an underwrite as well.”

“When you have people that have different focuses and they’ve not all been merged together, there’s going to be a lot of friction between what those teams do, and that typically creates a lot of the slowdown that happens,” she said.

These delays may result from departments being physically separated, using incompatible technology, or operating under different rules. Additionally, a department’s main goal may not be to onboard customers efficiently.

These conflicting goals create friction, which can lead to a poor first impression and even missed opportunities.

“I’m always struck by the opportunity that often gets left on the table to better coordinate across departments for the betterment of everyone,” Thomas said. “A great example is if you do payables outsourcing and you look at the flow that’s going out to see what’s potentially going to FX providers.”

“Off that, you say, ‘What could we do conceivably to get a piece of this FX business, knowing the volume that’s going out and understanding we have this overall risk perspective on the customer and we park this much of their capital in different credit products,” he said. “They’d be that much more of an efficient type of customer, but I’m always struck by the fact that through siloed components of institutions, you just don’t get that kind of coordination.”

Driving Through the Lifetime

As regulatory and compliance demands continue to mount, financial institutions are facing an unprecedented challenge: how to stay compliant without stifling businesses growth. Many banks still rely on processes that require businesses to submit the same documents multiple times across different departments—adding friction and slowing onboarding.

Manual compliance checks can also miss critical red flags, leaving institutions vulnerable to fraud, exploitation, and costly penalties. These risks are amplified by an ever-shifting regulatory landscape and the rise of transformative—but not yet fully tested—technologies.

“The latest thing that’s probably going to be the biggest impact on how we think about privacy is artificial intelligence,” Townsend said. “You’re seeing the different states are having a different opinion and we’re seeing the federal government come in potentially with an overall arcing framework for what we should do. That, in itself, will impact how privacy is thought about and how we deal with people’s data and where it can be stored.”

In this complex environment, financial institutions are under immense pressure to understand and navigate their obligations. Yet, embedded within these challenges is a significant competitive opportunity for organizations that can turn compliance into a strategic advantage.

“It comes down to changing attitudes around how you create this onboarding experience,” Townsend said. “Javelin wrote a fantastic article that talks about the onboarding experience being not just this moment in time when you onboard the customer at the beginning, but it’s something you think about it through the lifetime of the customer.”

“That sounds weird, but when banks have so many products that they can offer to a customer—whether it’s a business customer or consumer—that onboarding experience drives through the lifetime,” she said. “How do you meet and bring products at the right time, at the right moment to a customer?”

Starting on the Other Side

Shifting the mentality around the onboarding process can be challenging, especially since many banks have historically outsourced some or all of these functions. However, outsourcing has become an increasingly perilous tack to take, as numerous organizations are now waiting to step in and address the gap if banks are unprepared.

To stay at the forefront of the commercial customer banking experience, financial institutions will need to start at the very beginning.

“It’s just that shift in attitude of how you can think about things differently, where we think about customer satisfaction first and how we can make that experience better,” Townsend said. “Then, think about how do I apply compliance and how do I apply all these different things.”

“Have a different way of framing it rather than starting at the other side of it—this is why we can’t do this, or this is why we can’t do that,” she said. “Shift how you think about it, and that will probably be the greatest opportunity for change that banking might have over where we are right now.”

Building the Bridge

Altering this mindset is essential, as fintech competitors are often more equipped to handle certain onboarding aspects than banks are. For example, recent research from Capgemini found it can cost up to two to three times more–around $496–for a financial institution to onboard a merchant for payment services, while a technology company can spend approximately $214 to accomplish the same task.

This cost gap shows no signs of narrowing, which makes it even more difficult for many institutions to compete. This means the future of financial institutions’ merchant acquiring commercial banking products will belong to the organizations that can shift their mindset from gatekeeping to guidance, and from a compliance-first to a customer-first mentality.

“With compliance as the backstop to what’s going on, modern onboarding cannot remain just that one-time event or that disconnected checklist,” Townsend said. “It has to evolve into a continuous and integrated experience that adapts during the life cycle of a client–and also when you want to add and remove products. All of this will help strengthen the relationship over time.”

For a financial institution to achieve this transformation, it is critical to select the right technology and partners that can provide a holistic view of the process. This means the partner should be equipped to handle all aspects of onboarding, underwriting, and compliance payments, as well as the customer engagement life cycle.

While turning to partners for these crucial functions may cause some trepidation, modernizing an institution’s onboarding systems offers a far greater opportunity.

“It’s a call to action, a moment to have the FI pause and take a look and figure out how to build that bridge with the right partner,” Townsend said. “Or else the FI is going to get left further and further away from their commercial customers, as other fintechs and services jump in to do what the FI is unfortunately unable to do right now–which is to provide that modern onboarding experience.”