Direct debits with SEPA (SDD): Smooth transition with COR1?

By Josef Etz on 20. November 2013 in Market Insights
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The SEPA project unifies Europe’s electronic fund transfer schemes. In e-commerce, one European payment scheme will successively replace all the previous national payment schemes. After February 1st 2014, both domestic and intra-regional direct debit payments in the EU have to follow the SEPA standard (SEPA direct debit – SDD). This means that it will become mandatory to use IBAN and BIC instead of the account number and bank code as the bank account details to identify the accounts of shoppers and merchants.

SEPA- challenges for shoppers and merchants
SEPA opens the market for new customers abroad. While in the past, it was hard to charge a shopper’s bank account from another European country, the new pan-EU payment scheme enables to address about 500 million people with just one single payment scheme. However, the European payment scheme comes with challenges as well.

For the consumer side SEPA means the user-unfriendly memorization of their, up 34 characters, IBAN and bank’s identifier code (BIC). For the merchant side, processing SEPA has various effects on their business on a commercial as well as a technical level. The most challenging fact from the business perspective is that merchants must obtain shopper mandates for debiting their bank account and that they are obligated to make sure that shoppers are informed about the due date of a payment and amount in a pre-notification by default 14 banking days in advance. While the form of pre-notification is not specified, the exact date when the shopper’s account will be debited must be provided. The main motivation behind this regulation is to allow shoppers time to check that there are enough funds in their account prior to the direct debit being executed. Such long default periods can have an impact on the merchant’s business, such as on cash flow management and are not very practical for e-commerce transactions overall.

COR1 – possibility to reduce merchant’s pre-notification periods
In order for merchants to reduce the pre-notification period and remain direct debit a practical payment method, some national regulations have been released along with SEPA.

 

In Germany and Austria, for example, COR1 is the base for direct debit processing and has become the new direct debit standard in payments within Germany starting on November 4th 2013. COR1 is very similar to the recent German direct debit authorization in as much as it reduces SEPA’s default pre-notification period of 14 days to one single day and to couple of days in other countries.

It is strongly suggested for merchants to gear their investments and system adjustments to COR1 for intra-German direct debits, since COR1 has already become the new direct debit standard in payments within Germany and other SEPA countries will implement COR1 as well. Merchants can apply COR1 with a reduced notification period for the countries where COR1 is offered by banks, by entering into an agreement with their banks and announcing COR1 clearly in their Terms and Conditions.

SEPA-ready with PAY.ON
At PAY.ON we are SEPA-ready. Our clients, PSP/ISO and further payment providers, can start their SEPA migration and/or integration right away. PAY.ON offers its clients and their merchants a smooth migration process that requires little effort to implement and has maximum impact on their existing processing set-up whilst allowing them to benefit from all the new SEPA capabilities and opportunities.

Josef Etz

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