Online SEPA Direct Debit: happy merchants and happy customers

Whether standard or business-specific, online SEPA direct debit and its variants, SDD Core and SDD B2B, is a widely used payment method. You may already be familiar with the process between debtor and creditor, managing mandates, the role of the bank, and the timelines. That’s the theory! But what does SEPA direct debit bring in practice, for both businesses and customers? Xpollens has explored the matter and provides insights into its popularity, especially in e-commerce.

When we think about payments in an online store, bank cards often come to mind. And rightly so, because for single purchases of goods or services, a bank card is an excellent payment method – fast, reliable, and traceable.
However, things become more complicated when it comes to paying for subscription-based products or services. This was the case for a well-known music streaming platform. Ah, the memories…

When customers wanted to subscribe, they would register their bank card on their profile, and each month, the subscription fee would be charged.
The problem arose when the card expired, reached its online purchase limit, or was blocked due to loss or theft—resulting in failed payments.

• • For the platform, this meant notifying customers, sometimes chasing them up, suspending the service while waiting for payment, and helplessly watching its cash flow become unbalanced.
• • For customers, it was a big disappointment: an unpleasant message from customer service, the threat of service suspension, or the actual suspension itself!

Then SEPA direct debit arrived, and simplicity was restored!

Unlike a standard or instant transfer, SEPA direct debit is a “pull” payment method: once authorised by signing a mandate, it allows the company or professional providing the goods or service to directly collect the payment from the customer’s bank account.

Every direct debit must be authorised by the debtor through an electronic signature of the mandate.

The creditor must submit the direct debit mandate to the debtor’s bank:

• • At least 5 working days before the due date for a one-time or first direct debit,
• • And 2 working days for a second or subsequent direct debit.

The creditor is responsible for managing the mandates set up for their debtors but can delegate this task to a third-party mandate management service.

The payment is collected within 3 working days.

SEPA direct debits operate bank-to-bank, bypassing the transaction fees associated with card networks.

The SEPA (Single Euro Payments Area) covers EU countries, EEA member states, as well as the UK, Switzerland, Andorra, Monaco, San Marino, and Vatican City.

As you can see, SEPA direct debit is a simple and convenient way to pay since the customer no longer needs to take any action. Well, almost! To secure future transactions, the customer must authorise the payment by signing the SEPA mandate, an essential step that permits the e-commerce site to initiate direct debits and the customer’s bank to process them.

Automatic and secure, online SEPA direct debit has become one of the most popular methods for recurring payments, offering peace of mind to customers. Additionally, it gives them the ability to request a refund within generous timeframes:

• • Up to 8 weeks for any dispute, regardless of the reason,
• • Up to 13 months for unauthorised transactions.

When recurring payments need to be collected on predetermined dates, such as with subscriptions, SEPA direct debits can be configured once and automatically processed at the desired frequency. There’s no need to chase debtors or manage unpaid bills. E-commerce merchants can then focus on more profitable activities by eliminating time-consuming and tedious administrative tasks.

As SEPA direct debit is a “pull” payment initiated by the creditor, e-commerce merchants can always be sure that debtors will pay their invoices on time. A significant benefit: with planned, real-time recurring payments and a considerable reduction in payment failures and delays, managing cash flow becomes easier and more reliable. SEPA direct debits contribute to the profitability and financial health of the business.

Since SEPA direct debits rely on the customer’s bank details (IBAN and BIC are mandatory for SEPA mandates), they avoid the typical issues of card payments, such as expiration dates or limits. Payment failure rates are significantly reduced, and as a result, so are churn rates!

While payment failures cause financial and administrative headaches for e-commerce merchants, they also create significant frustration for customers.
Choosing SEPA direct debit as the payment method allows for a smoother purchasing journey by making the payment process invisible.

With APIs like those developed by Xpollens, customers no longer have to leave the online store. Just a few clicks are enough to set up SEPA direct debit and complete payments, both immediate and future.

In short, beyond being an automatable and highly reliable payment method, SEPA direct debit is an excellent way to foster lasting customer relationships.

Two types of direct debits can be implemented for businesses selling online to other companies: SDD Core and SDD B2B.

Mandatory for all banks in the SEPA zone and applicable to all payers, whether individuals or professionals, SDD Core is the most commonly used type of direct debit.

Exclusively for payments between businesses, SDD B2B offers faster execution times than SDD Core and greater security, as it does not allow for disputes or refunds. However, setting it up involves more complex procedures. Both parties must submit the SEPA B2B mandate to their respective banks, who may or may not accept it, as SEPA B2B direct debits are not mandatory within the SEPA payment area.

This is why SDD Core remains the most widely used payment method between businesses.

This was the choice made by AUTODOC, which opted for standard SEPA direct debit with electronic signature of the mandate, offering an alternative to card payments and the cumbersome strong authentication process.