What is SEPA Direct Debit?

It was on 1 August 2014 that the transition period ended and the new SEPA standard for direct debits came into effect.

What is a direct debit?

Direct debit is a payment method allowing an automatic charging of a client's bank account. The clients submit their bank account data (IBAN, BIC, and the account owner's name) on the website where they want to make a purchase, they agree to be charged and that's it! The merchant can charge their clients' bank accounts in an automated way, without any action on the part of the clients, simply by sending a request to the bank. It is a perfect solution for recurring payments, e.g. resulting from regularly delivered services.

What is SEPA?

SEPA is an abbreviation for Single Euro Payments Area. It is an area where entities may perform cashless settlements in euro, both cross-border and within the member states on the same basis, bound by the same legislation and with the same mutual obligations. Thus, it is one standard in operation in all the SEPA countries.

Thanks to introducing a universal standard, payments in various European countries may be regulated by the same rules, which results in cheaper, faster and more fluent transactions.

What is SEPA Direct Debit?

SEPA Direct Debit is a direct debit based on a universal standard - SEPA. This method allows charging euro from clients' bank accounts in various European countries provided that the merchant has a bank account in one of the SEPA countries. And all of that in one standard, common for all!

What does the charging process look like from the perspective of a merchant?

Charging customers with direct debit is very similar to charging their credit cards. The merchant needs to provide a form on his/her website or a redirection to a payments provider's website where a purchaser has to input the bank details. The client completes the form with IBAN, BIC and the bank account owner's name, agrees to be charged (by signing what is called a mandate) and accepts the payment. The payment provider sends the payment data to the receiver's bank which then initiates the payment. If the merchant wants to do a resale - based on the prior consent from the client - the merchant sends a request to the payments provider, who, in turn, sends it to the receiver's bank again and the receiver's bank calls out the payment, well… again. A resale may be entirely automatized, with no client's participation.

What is a mandate?

A mandate is a form confirming the client's consent to charge his or her bank account. The form needs to contain the following data: a mandate id (a unique identification number of the consent), the bank account data, and a description of the type of permission (this could be either an authorization of an individual payment or recurring billing).

The merchant needs to store all the consents/forms/mandates.

Currently, the most widespread way of authorizing direct debit payments (accepted by all banks) is the following one: a webshop generates a completed form in a pdf file and sends it to the client. The client signs the mandate and sends it back to the merchant. Consequently, the merchant has the original document at his or her disposal. However, an electronic mandate (e.g. as a scan of the signed document or a ticked checkbox on the merchant's website) is becoming increasingly popular - especially with web businesses. Though you can be sure that in the near future the e-mandate will be generally accepted, at present not all European banks accept such a solution.

A different mandate for B2C and B2B?

Depending on who your clients are (whether these are business or individual clients) the mandate might slightly differ. The content of a consent from a business client will be different than that from an individual client (it has to clearly determine whether this is a company or a person that you deal with). The possession of a B2B mandate or a B2C mandate by the merchant determines also the period for a reversal.

How long does the SEPA Direct Debit transaction take to process?

Though it may seem that this payment method is processed in real time (the confirmation of submitting the transaction arrives from the payments provider instantly after the submitting it by the client) - it is not quite so. The transaction clearing period might be counted in days. It is only after 5 work days from sending a request that the funds are booked on the receiver's account.

That means that it is the merchants' decision whether they want to proceed with enabling their service right after sending the charging request and receiving the information from the payments provider (facing the risk that the money may not actually appear on the merchants' account) or wait a couple of days before the transaction is cleared and proceed with the service then.

For whom is SEPA Direct Debit?

SEPA Direct Debit is an excellent payment method for all businesses selling their products and services in euro all over Europe. That includes companies providing both online content (in that case we suggest treating the confirmation of receiving a request to charge the account as a confirmation of payment and in the event of an inability to clear the money - block the service) and offline content (in that case we suggest waiting with sending the ordered goods till the funds are booked on the merchant's account). We recommend this payment method particularly to all those who receive payments in the recurring model and have their customers renewing their transactions via the same payment method.

Can all European customers use this payment method?

SEPA direct debit is dedicated to euro payments. So, ultimately, YES, all clients with a euro bank account in one of the banks within the SEPA area will be able to pay via this payment method. However, for now it is a payment method functioning best within the euro zone (the countries where the national currency is euro). All the other countries have time till October 2016 to adopt the new standard.

That means you can easily pay with direct debits in all the euro zone states. In other European countries this payment method may (but doesn't have to) work not so smoothly (that is why we do not recommend using this payment methods in these countries yet).

How much is introducing this payment method?

All the costs of this payment method depend on where you have a bank account and which payments provider you work with. The costs are a sum total of the fees of the bank where the merchant has an account (where the direct debit funds will be received) and payments provider's fees. To get to know the costs of accepting SEPA Direct Debits via PayLane - just contact us.

How long does it take to add that payment method?

This depends mostly on whether you already have a bank account allowing to accept direct debits or not. If yes - the only thing to do is to configure the account in such a way as to accept direct debits (for this purpose we suggest to contact the bank where you have the account) and set up an account with a payments provider. In such a situation - when the merchant already has the necessary bank account - adding SEPA Direct Debit to your payment methods portfolio will be very fast.

If a merchant does not have the appropriate bank account, the time required to set it up needs to be added to the time it takes to get a merchant account with a payments provider. So the entire process may extend by a period of a week up to a couple of weeks, depending on the bank where you set up the account.

Where to look for more information?

Feel free to contact us. Our experts will be happy to provide you with further information.

All the legislation, sample mandates and reference materials on SEPA Direct Debits are available at: http://www.europeanpaymentscouncil.eu/index.cfm/sepa-direct-debit/sepa-direct-debit-core-scheme-sdd-core/.

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