Small businesses drive growth, but for many banks and financial institutions, onboarding them is still painfully outdated. The systems that power business onboarding today were built for a different era — one where most customers were corporations with predictable entity structures and paper-based documentation.
But that’s not today’s reality.
In 2025, small business formation is booming. Sole proprietorships, remote-first companies, and side hustles are all competing for financial services. Fintechs and neobanks are racing to meet their needs with seamless onboarding flows. And yet, many traditional institutions are stuck with KYB processes that frustrate good customers and fail to filter out bad ones.
So where does it all break down? And what role does better data play in fixing it?
Where the activation process typically breaks down
1. Fragmented or outdated business data
Most institutions rely on a patchwork of third-party data vendors — many of which lag weeks behind real-time changes. For example, a newly registered sole proprietorship may not appear in legacy databases for 15–30 days, delaying activation or forcing manual review.
2. Treating all SMBs the same
A weekend Etsy shop and a 20-person S-corp don’t carry the same level of risk — but many KYB flows treat them like they do. That results in either unnecessary friction for low-risk businesses or insufficient scrutiny for high-risk ones.
3. Manual reviews that chip away at trust
When teams have to manually verify each new business, the experience slows — and customer trust erodes. In fact, the 2025 LINK Index found that institutions relying heavily on manual KYB see much higher abandonment rates, especially among sole proprietors and digitally native businesses.
4. Data mismatches and entity resolution issues
A small discrepancy — like a naming mismatch or an outdated website — can trigger a false negative, escalating the case or rejecting a legitimate customer. This issue is especially acute for entities with limited digital footprints, such as sole proprietorships. In fact, community banks report verification mismatches as a recurring pain point in client reviews and supervisory feedback.
The cost of getting it wrong
Broken KYB flows don’t just slow you down—they expose your institution to real risk. Fraudsters may pass as sole proprietors or inactive DBAs, while good customers abandon the process if they feel stuck.
According to The Financial Brand, banks can lose up to 60% of potential small business clients during account creation due to complexity, manual steps, or unclear requirements.
What better data unlocks
Modern customer activation starts with verified business identity data — pulled directly from authoritative sources like secretaries of state, licensing bureaus, and tax authorities. With the right data infrastructure, banks and fintechs can:
1. Verify businesses in real time
Rather than waiting weeks for new entities to appear in traditional databases, pull in government registration and licensing data as soon as it’s filed — enabling same-day account approval.
2. Match effort to risk
Stronger data supports adaptive verification flows — light-touch for low-risk entities, deeper checks for higher-risk businesses.
3. Reduce manual reviews
Automated pre-fill, contextual enrichment, and smarter entity resolution mean fewer “exceptions” and escalations. .
4. Power long-term customer relationships
Good data at activation benefits every downstream workflow — from underwriting and credit expansion to fraud detection and renewal cycles.
Final thoughts
The business landscape has changed — and your KYB systems should too.
Fintechs have raised the bar for digital experiences. Regulators are setting new expectations for identity verification and fraud controls. And business customers now expect fast, secure, and flexible account creation.
If your current process wasn’t built for nuance, automation, or real-time signals, it’s time to rethink the foundation.
