In our last blog post on SEPA, we discussed the challenges and opportunities of SEPA. In e-commerce, European payment schemes will successively replace all national direct debit payment schemes. Following the SEPA credit transfer (CT) introduced in 2008, now the European Payment Council (EPC) has set the deadlines for unifying the national direct debit (DD) payment schemes to one standard – the “SEPA Direct Debit” or “SDD” by 1 February 2014.
Challenges result from various country-specific usage patterns of direct debit schemes in different European countries. For traditional direct debit countries, such as Germany, consumers and merchants have an interest in SEPA and expect a smooth transition to the method which has been the power house of e-commerce since the very beginning.
In a nutshell, SEPA Direct Debit defines the following aspects of handling payments:
Merchants need to obtain a mandate to debit a shopper’s bank account. There are several kinds of defined mandates. While some (e.g. signed paper form) might not fit into every scenario of online payment, others (e.g. e-mandate) are not supported by key players such as the Deutsche Kreditwirtschaft.
On the other hand, mandates are neither a new topic nor an artificial hurdle to restrict the usage of direct debit payments in e-commerce. The German “Einzugsermächtigung” currently used in direct debit represents a mandate as well. It is the merchant’s responsibility to make sure that the shopper authorises the debit and provides a reference (Mandate ID) in his/her form of mandate/proof. In case of chargebacks, the merchant’s bank may ask the merchant for the mandate identified by the mandate ID as a proof of payment correctness. The chargeback cannot be carried out if the merchant cannot provide a mandate. Not having any kind of proof will extend the chargeback period from eight weeks – with a valid mandate – to 13 months without a valid mandate. Right now in Germany a chargeback can be done almost indefinitely without having a valid mandate (Einzugsermächtigung) – even after 13 months.
Merchants can adopt various ways to create the so-called “Internet mandate”. The options include well-known mechanisms, such as login/password combinations for the offered service, risk checks or any KYC technique, and does not end with new or less common methods, such as signing an electronic identity card, secured mail communication (e.g. De-Mail), manual signing by mouse and many more.
Pre-notifications and due dates:
By default, merchants will have to provide a pre-notification of the direct debit to shoppers 14 banking days in advance. 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 is 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. However, some national regulations (e.g. COR1 in Germany) make it possible for merchants to reduce this period to a few days or even one day by entering into an agreement with his/her bank and announcing it in his/her Terms and Conditions.
While the form of pre-notification is not specified, the exact date when the shopper’s account will be debited must be provided. Merchant’s often combine pre-notification with shopper invoicing. Calculating this due date can be a challenge of its own, especially since it must respect European bank holidays TARGET2 as well as the individual bank’s cut-off times.
National formats for presenting payments to the bank and receiving booking information (DTA, MT940, CSB19, DIRDEB, etc.) will be replaced by standardised international formats (ISO 20022, PAIN, CAMT, etc.) by 1 February 2014; only a few will be waived as niche products and accepted until 2016.
At PAY.ON we are SEPA-ready. Our clients, PSP/ISO and further payment providers, can commence their SEPA migration and/or integration. 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.
Here are the key facts:
– Bank processing: Migration from generating DTA files to SEPA XML files. For example, PAIN and CAMT formats will be handled by PAY.ON behind the scenes.
– SDD formats: COR1 is the base for direct debit processing within Germany; CORE is used in other connected countries.
– Due date management: Merchants manage due dates either by themselves or let PAY.ON calculate due dates based on TARGET2, as defined by SEPA in order for pre-notifications to be carried out easily and properly.
– Mandate handling: PAY.ON does not force merchants into a scheme for mandate handling that does not fit their business. Merchants handle mandates by themselves as they need them: properly, compliant and in the way that makes most sense to them and their customers. Alternatively, one of the integrated partners can be used to handle mandates.
– Payment pages: Should the shopper enter IBAN/BIC or national bank account details? Both options are supported. Merchants can switch between national details, IBAN/BIC or both if PAY.ON payment pages (e.g. COPYandPAY) are used. Merchants decide to optimise their conversion rates.
– All-in-one SEPA Direct Debit: If merchants need an all-in-one solution that handles mandates, pre-notifications as well as bank accounts, PAY.ON partners, such as P4 Solutions, which are fully integrated and have been available for use on the PAY.ON platform since May 2013, can be used.
– Country focus: All traditional direct debit countries such as Germany. While the form of this pre-notification is not specified, the exact date when the shopper’s account will be debited must be provided. Merchant’s often combine pre-notification with shopper invoicing. Calculating this due date can be a challenge of its own, especially since it must respect European bank holidays TARGET2 as well as the individual bank’s cut-off times.
– Formats: National formats for presenting payments to the bank and receiving booking information (DTA, MT940, CSB19, DIRDEB, etc.) will be replaced by standardised international formats (ISO 20022, PAIN, CAMT, etc.) by 1 February 2014; only a few will be waived as niche products and accepted until 2016.
However, payment service providers/independent sales organizations will have to make sure that their merchants take the necessary steps NOW in order to be SEPA-ready by 1 February 2014. What steps merchants will have to take in order to integrate or migrate SEPA direct debit will be the focus of our next blog post on SEPA on 3 September 2013.