SEPA Direct Debit Processing: Steps merchants need to take to get ready

By Josef Etz on 11. September 2013 in Inside PAY.ON, Open Payment Technology

In previous blog posts on SEPA, we discussed the challenges and opportunities of SEPA as well as handling payments with SEPA Direct Debit (SDD).  In this blog, I would like to shed light on how payment service providers get their merchant ready for SEPA Direct Debit processing. Remember, the migration to SEPA Direct Debit must be completed by 1 February 2014.Processing SEPA Direct Debit (SDD) has various effects on the business of merchants on commercial as well as 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 must provide a pre-notification of the direct debit to shoppers 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. And of course the pre-notification period has effect on merchants’ cash flow management. But, let us have a look at each individual step that needs to be completed to start processing SEPA Direct Debit successfully.

Get a creditor ID:
Merchants need to get a creditor ID. Depending on the country, merchants might be able to use an existing national ID, apply for a new one at the central bank or get it from their principal bank. In Germany, for example, a merchant needs to apply for a creditor ID at the Deutsche Bundesbank.

Set up the merchants bank account for SEPA Direct Debit (SDD):
Merchants need to get in touch with their principal bank to set up the account for SEPA processing. There might be bank specific as well as country specific flavours. Examples are enabling file upload only via EBICs and COR1 in Germany.

Define mandate and notification handling:
The way merchants want to treat mandate and notification handling very much depends on the type of business they operate in.  Regarding mandate handling in e-commerce, different options are under discussion. Here are some examples: login to the offered service, confirmation by SMS or mail, a sophisticated risk check, doing the initial payment with Sofortüberweisung or Giropay as well as any KYC technique. The data taken as mandate can then be sent to the shopper as a PDF in an additional mail. The content of this mail is defined by SEPA regulations.

Define the pre-notification period in the Terms and Conditions:
Merchants must make sure that shoppers are informed about the due date of the payments in a pre-notification as stated above. In Germany, SEPA’s default pre-notification period can be reduced from 14 days to one single day – couple of days in other countries – with COR1. This needs to be clearly stated in the merchants’ Terms and Conditions.

Bank’s cut-off times/dates:
Merchants need to obtain information about cut-off times for file submissions from the bank. This is needed for calculating the due date properly for the pre-notification.

Setting up descriptors:
SEPA Direct Debit reduces the available descriptor length to 140 characters and will also support special characters such as German umlauts. This is a fact that needs to be considered in the processing set-up.  Especially in existing set-ups it is necessary to set up the descriptors in order to avoid any matching and reconciliation problems.

Payment Pages:
Merchants must decide on the appearance and content of payment forms. It might have huge effect on the conversion rate if a shopper can still enter the national details of his bank account if you require him entering IBAN/BIC. Some systems allow either options or a combination of both.

Once, merchants have implemented all of the above, they are ready for SEPA Direct Debit processing.

The tasks are straightforward but require time and dedication. PAY.ON’s SEPA solution offers merchants a smooth transition from national direct debit schemes to SEPA. Technically merchants can start processing SEPA without any change to the check-out workflow. It will take some times for the shoppers to get used to SEPA payments, therefore a smooth transition will help merchants maintaining their high conversion rates from direct debit processing. How easy SEPA Direct Debit is set up with PAY.ON will be demonstrated in our next blog on SEPA. So follow us!



Josef Etz

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