How do I take on SEPA Direct Debit and reach further European buyers

 This article was updated since it was originally published, and now contains the most up-to-date details on SEPA Direct Debit transactions as from April 2023.

If you're selling software globally, you know how difficult dealing with cross-border payments. From ensuring that you show the correct currencies for every region to supporting your customers' preferred payment methods, global commerce can come with many challenges.

Many buyers within the European Union and surrounding countries prefer paying with SEPA Direct Debit. This not only assists in simplify multi-currency payments and reduce the likelihood of failed payment transactions.

In this article, we'll break down the fundamentals in SEPA Direct Debit and provide a reason why it's so important to take it into consideration at the time of checkout if you're doing business within Europe.

Table of Contents

1.   What is SEPA Direct Debit?
2.   How does SEPA Direct Debit work?
3.   SEPA Advantages & Disadvantages
4.   "' SEPA Experience

Are you already a seller and wish to set up SEPA Direct Debit in your business? Submit a support ticket from within the platform or on our Support page.

What exactly is SEPA Direct Debit?

SEPA Direct Debit is an international wire transfer which allows merchants to collect money from accounts located in states and territories that are part of the Single European Payments Area (SEPA).

SEPA is very similar to the ACH Debit (US) as well as EFT (Canada), except with a few notable differences:

What is the reason it's so important to Adopt SEPA?

Today, more than 529 million citizens make use of SEPA to make over 146 billion annual electronic transactions across the 36 countries that are members of SEPA. This accounts for over 30% of the online shopping across Europe, making it an important payment method that you can use if selling to the European market.

   European-Economic Area (EEA) SEPA Countries  

• Austria
• Belgium
• Bulgaria
• Croatia
• Cyprus
• Czech Republic
• Denmark
• Estonia
• Finland
• France
• Germany
• Hungary
• Iceland
• Ireland
• Italy
• Latvia
• Liechtenstein
• Lithuania
• Luxembourg
• Malta
• Netherlands
• Norway
• Portugal
• Romania
• Slovakia
• Slovenia
• Spain
• Sweden

   non-EEA SEPA Countries and Territories  

• Andorra
• Monaco
• San Marino
• Switzerland
• United Kingdom
• Vatican City State
• Saint-Pierre-et-Miquelon
• Guernsey
• Jersey
• Isle of Man

In addition, any European having a bank account can pay using SEPA. With this one payment option at checkout this option will reach over 500 million potential customers across 36 countries.

How Does SEPA Direct Debit Work?

SEPA transfers function similar to domestic transfer transactions, with a few minor differences that happen in the background. Let's look at how they operate in the view of the merchant

1. Mandate
2. Pre-notification
3. Payment request
4. Post-submission

1. Mandate

In order to collect payments via SEPA Direct Debit, the customer has to fill out the Mandat authorizing you to take payment. A mandate is the billing agreement given by a buyer that allows the seller to take future payments from them via their account with a Euro denomination.

Mandates must include certain mandatory information.

 Mandatory Items on a Mandate:

• Payment amount
• SEPA Mandate ID
• SEPA Date of Mandate
• Merchant company name
• Merchant's Creditor Identifier
• Merchant's full address
• Information about Creditors
• Type of payment
• International Bank Account Number (IBAN)
• Bank Identifier Code (BIC)
• Date of Signed
• Signature

Here's an example of 's SEPA Mandate:

2. Pre-Notification

In accordance with SEPA guidelines, you are required to notify your customers in advance informing them of the date they should expect one installment or a regular monthly subscription to leave their bank account. This notification can be delivered via text message, email, phone, invoice, or in a mailer.

Fully compliant pre-notifications require to meet the following requirements:

1. Appropriate notice period (typically 14 calendar days)
2. The amount, the due date the mandate number, the creditor's ID
3. Contact details for merchants

Step 3: Request for Payment

Once the pre-notification has been sent, you can initiate payments by sending the mandate-related data to the merchant's bank. It does this automatically for the sellers. The bank forwards this request to the clearing and settlement mechanism, which will then forward it to the bank of the buyer to settle.

Step 4. Post-Submission

When you make an order, it'll take 2-3 business days to know if a SEPA payment is successful or not. This is why we suggest waiting for at least 48 hours before you complete the order.

SEPA Benefits and Drawbacks

Advantages

SEPA Direct Debit has 3 important advantages for companies that take on recurring payment:

• Control: Enables merchants to ensure that clients pay their bill on time every month.
• Retention rates: Eliminates failed payments because of card expiry or cancellation. Also, it increases the loyalty of customers through a simple set-and-forget option for payment.
• Reducing admin time: Reduces the admin time required to collect payments.

SEPA Direct Debit is also great for B2B invoicing:

• Better cash flow Payments happen accurately and on time in a speedy method.
• Collection of variable amounts: With a single, upfront contract, sellers can be able to claim an amount that is new instead of giving banks new instructions each whenever a new amount is required.
• Reducing admin time: Payments can be automatized on a regular basis.

Other functions SEPA is good for:

• Markets with lower use of cards: In Germany and the Netherlands the penetration of credit cards is lower than 50%. SEPA Direct Debit is a preferred method to make payments in these countries.

Disadvantages

SEPA isn't the best alternative to:

• transactions that require immediate clearing SEPA Direct Debit transactions do not happen instantly, even with the B2B faster scheme.
• Transactions that are likely to result in a chargeback: The SEPA Core Direct Debit no-questions-asked reimbursement policy allows chargebacks (equivalent to refunds under the ACH scheme) effortless in the initial eight weeks following the transaction.

"'s SEPA Experience

Our system automatically displays an order at the point of checkout. It handles all of the steps to process the order of your customer, which means you don't need to make any changes other than enable SEPA to be a pay option in your account settings.

 This is what it looks as from the perspective of your customer:

1. The purchaser selects SEPA Direct Debit and enters their bank's name, the IBAN, or bank code to sign in to the bank account.
2. The purchaser agrees to terms of the SEPA Direct Debit Mandate conditions and verifies their bank information for the purpose of submitting the order.
3. Once the purchase is made after submitting the order, the customer is directed to a page for confirmation of order which confirms that the purchase is complete.
4. Payments typically take at least 48 hours to process.