Validating the identity of a client and verifying their solvency is a necessary process for any company that sells products and services. This process is called due diligence and it is directly related to KYC (Know Your Customer) or and KYB (Know Your Business) processes.
What is the due diligence process?
Due diligence is a study process that is carried out when you want to enter into a contractual relationship with a natural or legal person or buy a business corporation or property. The objective of the process is to learn in-depth about the client, company, or property to determine whether there are any legal obstacles that could impede the collaboration or potential sale.
In a due diligence process with a person or an entity, in the case of acquiring services or purchasing products, the following aspects should be analyzed:
- The identity of the natural or legal person. Identity documents are requested for individuals or articles of incorporation of a company for business corporations, powers of attorney, land registry reports, etc.
- The solvency of the natural or legal person. If a commercial relationship is to be established (for example, if a company is going to provide a service to another company), it is important to check for solvency and whether the company that hires the services will be able to make their payments. Solvency is usually checked by requesting accounting and tax information from the company in the case of commercial entities, or by requesting information such as tax returns (including personal income tax and VAT), employment contracts, and payroll slips in the case of individuals.
What is the relationship between due diligence and the eKYC and eKYB processes?
As mentioned previously, it is essential to verify the identity of the person you want to enter into a contract with. For example, a telecommunications services company or a bank will need to run a credit check on a customer who wishes to acquire a product or service. This check was once carried out by requiring the customer to present to the company’s offices or stores in person to check their identity documents. However, with the advancement of digital transformation, fully digital due diligence processes can be carried out, such as electronic KYC and KYB (eKYC and eKYB).
Customer identification processes must comply with various regulations, especially in the case of banking entities:
- General Data Protection Regulation. This regulation regulates the protection of personal data in terms of its use and processing by users.
- Law on the prevention of money laundering. This law aims to protect the financial system and other economic sectors against money laundering and terrorist financing.
- eIDAS Regulation. This European regulation oversees the electronic signature and other trust services and is applied directly in the countries of the European Union.
What are the characteristics of the due diligence process?
Essentially, due diligence process includes the following elements:
- All information that is exchanged is confidential and respects legal regulations on data protection, money laundering, and electronic services.
- Mandatory nature. In many sectors, this process is mandatory by law, as is the case for banking.
- Carried out by a third party. For the process to be reliable and secure, due diligence in eKYC processes must be carried out by trusted third parties who are certified to provide this type of service.
- The objective of the entire process is to identify the person and verify whether there are any potential obstacles that could prevent them from entering into a contract.
- This process should be quick to avoid losing the customer due to delays or excessive amounts of paperwork.
How does the eKYC process work?
For this process, Lleida.net uses its online facial recognition service with eKYC photo, and proceeds as follows:
- The process begins and the customer takes a photo of the front and back of their ID. They can use any device, computer, mobile phone or tablet, meaning it can be done from anywhere and anytime.
- Next, the customer is required to take a selfie.
- The system validates the customer’s identity by comparing the photos on the identity card with the selfie.
- Finally, the client will be able to sign the contract with your company and the provision of services can begin.
This procedure takes only a few minutes and greatly simplifies customers’ onboarding processes, ensuring high satisfaction for both customers and the contracting company. The main advantage of this process is that it can be done from anywhere and at any time, saving the customer significant amounts of time and resources.
Moreover, since this process is recorded on video, and thus the electronic evidence can be consulted at any time. Notably, eKYC can be used to enter into contracts with entities such as telecommunications companies, online services, and banks.
In conclusion, due diligence is a fundamental process used to gain information about individuals or entities with whom you are potentially entering into a contract with. Performing due diligence is a highly effective strategy to avoid potential risks, such as fraud and delinquencies.
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