What is SEPA Direct Debit?
Normally, Direct Debits can only be made between accounts within the same country. SEPA is the exception – it allows for Direct Debits in EUR to be made cross-border and nationally since 2009.
SEPA Direct Debit is a European initiative that allows merchants to collect Direct Debits in Euro denomination. SEPA is comprised of the 28 EU countries, together with Norway, Iceland, Switzerland, Liechtenstein, Monaco and San Marino.
Within the individual non-Eurozone countries, local payment rules apply – SEPA payments are only valid for cross-border transactions in non-Eurozone countries.
Within the Eurozone, however, all bank accounts in EUR should now have been migrated to SEPA payments. This means that SEPA rules apply to national Direct Debits also.
SEPA Direct Debits consists of two separate functionalities – Core SDD – which covers consumers. Banks that provide SEPA payments must mandatorily participate in this scheme. B2B SDD is targeting businesses and the participation of the banks is optional.
What are the key benefits of SEPA Direct Debits?
- Faster retail payments;
- Consumers’ payment protection;
- Cost-savings for businesses and reducing the threshold for market entry;
- IBAN and BIC standardisation;
- Simplifying cross-border payments.
SEPA Direct Debits in the UK
To be able to receive SEPA Direct Debits, businesses in the UK need to take a few steps:
- Collect IBAN and BIC information for all payments in EUR in an organised format;
- Obtain a Creditor Identifier from your bank.
- Consider the relevant deadlines.
- File submissions should be done in the SEPA XML file format.
How do Direct Debits operate in different countries?
In Germany, there are two distinct types of Direct Debit systems – Einzugsermächtigung and Abbuchungsauftrag. Direct Debit is called Lastschrift or just ELV – Electronic Direct Debit.
The former type is the most common – the benefactor authorises the payee to debit their account – for a fixed period, one-off or until further notice.
A Direct Debit agreement has to be signed and transactions can be disputed and credited back for a certain period of time.
The latter type is a lot less commonly used – in this case, the payer authorizes their bank to process Direct Debit requests. The transactions are verified by the bank; therefore, it is much harder for them to be returned – it is only via the legal system. It is less convenient than the Einzugsermächtigung, so it’s mostly used for B2B transactions.
Like Germany, a payer can authorise a company to collect Direct Debits without notifying the bank. Around 45% of all transactions are Direct Debits in the Netherlands.
Transactions can be recurring or one-off – and organisations have to sign a Direct Debit agreement called automatische incasso with the bank.
Unauthorised transactions can be disputed via the bank within certain time afterwards – usually 8 weeks. One-off transactions can be recalled within 5 days. Banks can also be instructed to put a selective block or a blanket block on Direct Debits to certain account numbers or for all Direct Debits.
Direct Debits can be initiated in writing or over the phone. If there’s a dispute about transactions, protections will be put on the account to prevent debit transactions coming out.
Direct Debits are widely used in Denmark for household payments – the service started in the 1970s by PBS (now Nets Holding) and is called Betalingsservice. Approximately, 95% of Danish households have at least one Direct Debit. In 2012 more than 16,500 businesses, public authorities and associations (creditors) carried out 195 billion payments using Direct Debits.
Autogiro is the Direct Debit scheme for collecting payments in SEK from customers in Sweden. The scheme is managed by Bankgirot, the clearinghouse for inter-bank payment. In Sweden, the problem of Direct Debit fraud is much smaller than in the UK, since there are more strict requirements on which companies that can use Direct Debit.
In the United States, Direct Debit usually means an Automated Clearing House (ACH) transfer from a bank account to a payee, initiated by the payee.
In South Africa, Direct Debits (called debit orders), are performed through the ACB (Automated. Clearing Bureau). Debit orders are often a preferred method of payment as they’re quick, safe and cheaper than other methods.
There are three types of debit orders: EFT (Electronic Funds Transfer), NAEDO (Non-authenticated Early Debit Order) and AEDO (Authenticated Early Debit Order).
A new payment system in South Africa is being been devised, called AC – Authenticated Collection – it will give consumers upfront knowledge about their Direct Debits through an electronic authentication process, ensure that Direct Debit payments will be authorised legally and rule out any cash flow management strategies from abusive consumers.