What is SEPA direct debit?

What is SEPA?

SEPA, which stands for Single Euro Payments Area, is an initiative by the European Union (EU) aimed at standardizing payments across the Eurozone. The main objective of SEPA is to simplify and reduce the cost of euro-denominated payments across Europe, making them as convenient as domestic payments. To accomplish this, the European Payments Council (EPC) has developed three SEPA schemes that establish a set of regulations, practices, and standards for interbank transactions. These schemes are known as SEPA Direct Debit (SDD), SEPA Credit Transfer (SCT), and SEPA Cards Framework (SCF).

Common SEPA Definitions Explained

SEPA Direct Debit

A SEPA Direct Debit (SDD) is a payment method that allows businesses to collect funds from customers' bank accounts, with the customer's authorization.

SEPA Core Direct Debit

SEPA Core Direct Debit is the standard SEPA Direct Debit payment method used for collecting payments from individuals. It can also be used for collecting payments from businesses. This payment method offers consumer protection during 8 weeks and if the mandate is not correctly setup this period can be 13 months.

SEPA Business-to-Business Direct Debit

Business-to-Business Direct Debit is the SEPA Direct Debit payment method used for collecting payments from businesses. A SEPA Business-to-Business needs to be registered at the bank of the customer and offers no refund right.

SEPA Mandate

A SEPA Mandate is a written authorization from a customer allowing a business to collect funds from the customer\'s bank account via SEPA Direct Debit. The way the mandate is structured is defined by the EPC (European Payment Council).

SEPA Credit Transfer

A SEPA Credit Transfer (SCT) is a one-time payment method that allows funds to be transferred from one bank account to another within the SEPA region.

SEPA Payment

A SEPA Payment refers to any payment that is made using the SEPA payment system.

SEPA Transfer

A SEPA Transfer refers to the movement of funds from one bank account to another within the SEPA region.

SEPA Countries

SEPA Countries refer to the European countries that participate in the SEPA payment system.

SEPA IBAN

SEPA IBAN refers to the International Bank Account Number used in SEPA transactions to identify bank accounts.

SEPA BIC or BIC

SEPA BIC refers to the Bank Identifier Code used in SEPA transactions to identify the bank.

SEPA Regulation

SEPA Regulation refers to the regulation set by the European Union to create a single market for euro payments within the SEPA region.

SEPA Compliance

SEPA Compliance refers to the process of ensuring that all SEPA payments comply with the SEPA regulation.

SEPA Scheme

SEPA Scheme refers to the payment system created by the European Union for making euro payments within the SEPA region.

SEPA Creditor Identifier

SEPA Creditor Identifier is a unique identification number assigned to businesses that collect payments via SEPA Direct Debit.

SEPA Return Codes

SEPA Return Codes are codes used to indicate the status of a SEPA payment, such as whether it was successful or unsuccessful, and the reason for the failure if applicable. They are sometimes also called SEPA R-codes or SEPA R-messages.

What's the difference between a SEPA Direct Debit and a SEPA Credit transfer SEPA Direct Debit (SDD) and SEPA Credit Transfer (SCT) are two different payment instruments used within the Single Euro Payments Area (SEPA) that enable individuals and businesses to make electronic payments in Euro across SEPA countries.

The main difference between SDD and SCT is the direction of the payment flow.

SEPA Direct Debit (SDD) is a payment method where a creditor initiates a payment transaction by debiting the account of a debtor. SDD is commonly used for recurring payments, such as utility bills or insurance premiums, where the payment amount may vary from one payment to another. The creditor must first obtain authorization from the debtor before initiating a SDD payment via a mandate.

On the other hand, SEPA Credit Transfer (SCT) is a payment method where the payer (sender) initiates the payment transaction by crediting the account of the payee (recipient). SCT is commonly used for one-time payments, such as wages, supplier invoices, or online purchases.

In summary, the main difference between SDD and SCT is the direction of the payment flow. SDD is initiated by the creditor, while SCT is initiated by the payer.

How much does SEPA Direct Debit cost?

Looking for information on the cost of SEPA Direct Debit? The great news is that SEPA Direct Debit is often more cost-effective than other payment methods! While exact pricing will depend on a number of factors, SEPA Direct Debit is significantly cheaper than credit card payments.

The cost of a SEPA Direct Debit can vary depending on

1. the bank or the payment service provider that is used,

2. the country; eg. Belgium being one of the cheapest countries for doing transactions

3. the volume of SEPA Direct Debit collections

4. the number of batches with SEPA Direct Debit collections that are offered.

5. and sometimes also the detail that bank or Payment services provider is giving back in the account information.

Depending on the above parameters Twikey has seen prices between €0,01 and €0,35 per SDD transaction with a bank and between €0,10 and €0,50 if executed via a Payment Service Provider.

Banks and Payment Services Providers charge also costs for non-succeeded transactions, refunds or real rejection and also there the costs of a bank is lower than a Payment Service Provider.

When implemented well, SEPA is designed to save you money in the long run as. Contact us for more information on SEPA Direct Debit pricing and how it can benefit your business.

How much does SEPA Direct Debit cost for a consumer?

SEPA Direct Debit transactions are typically free of charge for the payer, as long as they have sufficient funds in their account to cover the payment.

However, it's important to note that some banks may charge account maintenance fees, which could indirectly impact the cost for the payer. Additionally, in cases where the payer claims falsely that a SEPA Direct Debit transaction is not authorized, the payer may be subject to fees or penalties from their bank. Some banks will also charge costs when there are no funds on the payer's bank account.

Overall, though, the cost of SEPA Direct Debit transactions is primarily borne by the payee or the merchant who is receiving the payment, as they may be charged fees by their bank or payment service provider for processing the transaction.

Is SEPA Direct Debit safe?

Ensuring the safety and security of your financial transactions is of the utmost importance. So, is SEPA Direct Debit safe? The answer is yes! SEPA Direct Debit is a highly secure payment method, offering a number of built-in features to protect both the payer and the payee. All transactions are subject to strict regulations and comply with European banking standards.

Safe through the mandate process

When starting with a SEPA Core Direct Debit, a consent on paper or electronically needs to be given. If this is not the case the payer is protected by 13 months of refund right. If a transaction is disputed or not correct, the payer can ask a refund during 8 weeks. In both cases this is via the payer's bank. There is one risk in this more "consumer" flow that the merchant is neglicting the obligation to have that consent or does it with a simple checkbox on a website (often used).
When starting with SEPA B2B Direct Debit, also a consent needs to be given but via the bank of the payer. As there is no refund right on those mandates, the bank adds an extra layer of security to it. This B2B flow is safe for both parties.

Safe through the bank acceptance

Additionally, when a merchant or payee wants to start with direct debit, the bank of the merchant needs to sign a contract with his bank (or Payment Service Provider). The bank will decide if he wants to accept the merchant. Young startups will have more difficulties in starting this up. Also companies that are not showing relevant business, a bad risk profile are refused. As the merchant bank remains responsible at the end in case of bankruptcy, they are very strict on this. PSP's are far less strict in this but you pay a bit more and the account of the PSP is used instead of an own bank account.

Who can pay with SEPA Direct Debit?

SEPA Direct Debit is a payment method available to any individual or business located in the Single Euro Payments Area (SEPA). The following conditions apply:

1. The transfer needs to be done in Euro.

2. The account must be held with a bank that supports SEPA Direct Debit and must be a Euro account.

3. There are banks in 41 countries (December 2023) that support SEPA Direct Debit, the countries are: Andorra, Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Germany, Denmark, Estonia, Spain, Finland, France, Guadeloupe, Greece, Hungary, Ireland, Italy, Liechtenstein, Lithuania, Luxembourg, Latvia, Monaco, Martinique, Malta, Mayotte, New Caledonia, Netherlands, Norway, French Polynesia, Poland, Portugal, Reunion Island, Romania, Sweden, Switzerland, Slovenia, Slovakia, San Marino, United Kingdom, Wallis and Futuna Islands. Not all banks in those countries support SEPA Direct Debit. In April 2023 there were 3848 banks that support SEPA Direct Debit (Core) collections.

Note that this list of countries larger than only the countries that are in the EU zone. Some of the above countries have specific agreements.

Additionally, businesses or organizations that wish to collect payments through SEPA Direct Debit must be authorized by their bank to do so. Not all banks support the role as "creditor bank". If you have any questions about whether your business or organization is eligible to use SEPA Direct Debit, we recommend contacting your bank or a payment specialist for more information.

What SEPA countries do support SEPA Direct Debit?

Euro valuta countries in the SEPA zone

Within the SEPA, there are both Eurozone and non-Eurozone countries. Eurozone countries are those that have adopted the euro as their official currency, including Austria, Belgium, Croatia, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. There are also 4 microstates with a monetary agreement being Andorra, Monaco, San Marino and Vatican City and there are some EU special territories that also use Euro as currency and accept SEPA Direct Debits: Guadeloupe, Martinique, New Caledonia, French Polynesia, Mayotte, Reunion Island, Wallis and Futuna Islands.

Non Euro valuta countries in the SEPA Zone

Non-Eurozone SEPA countries, on the other hand, are those that have not adopted the euro as their official currency, but it is possible to do SEPA Direct Debits on payers in those countries (if the payer has a euro account) and has an account with a bank that supports SEPA Direct Debits. These countries include Poland, Bulgaria, Czech Republic, Denmark, Hungary, Liechtenstein, Norway, Romania, Sweden, Switzerland and the United Kingdom.

Officially Iceland is also part of the SEPA zone as being a member of the European Free Trade Association but for the moment (April 2023), there is not one bank that supports SEPA Direct Debit.

The conclusion is that regardless of whether a country is part of the Eurozone or not, SEPA Direct Debit can be used to receive payments in euro currency. However, it's important to note that some banks may charge additional fees for processing SEPA Direct Debit transactions in non-Eurozone countries, so it's always a good idea to check with your bank or a payment specialist for more information.

SEPA Direct Debit Payment Service Providers PSPs

There are many Payment Service Providers (PSPs) that support SEPA Direct Debit as a payment method. These providers offer SEPA Direct Debit as part of their suite of payment options, and they may offer additional features and services to help businesses and organizations manage their payments more efficiently.

Almost all PSPs only offer the ability to collect on the CORE schedule. So it is not possible to collect on the B2B scheme which means that a chargeback is possible for 8 weeks (or 13 weeks if the mandate is not ok).

However, it's important to note that PSPs will charge fees per transaction or sometimes a percentage on the total collect amount, so it's always a good idea to check with your payment specialist for more information on how to set up and use SEPA Direct Debit with your chosen provider. Also the costs in the case of no money on the account, refunds, rejections are important and can be a multiplier of the bank costs.