Creating smart SEPA Solutions

Version 1.0 - September 2010

A convenient and secure

way to make payments

SEPA Direct Debit for Consumers

1
All you need to know about SEPA
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Making SEPA a Reality – the Definitive Guide to the Single Euro Payments Area
The Most Popular Misunderstandings about SEPA – Clarified
SEPA for Business
SEPA for the Public Sector
SEPA for IT-Providers
SEPA for Consumers
SEPA Direct Debit for Consumers – a convenient and secure way to make payments
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Shortcut to SEPA Credit Transfer
Shortcut to the SEPA Data Formats
Shortcut to the SEPA Cards Framework
Shortcut to SEPA Cards Standardisation
Business – the 10 Best Reasons to Practice SEPA
Public Sector – the 10 Best Reasons to Practice SEPA
Merchants – the 10 Best Reasons to Practice SEPA

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 TABLE OF
CONTENTS

SEPA Direct Debit for Consumers

A convenient and secure way to make payments

1. SEPA for Consumers in a Nutshell 4

2. An Introduction to SEPA Direct Debit 6
3. The SEPA Direct Debit Mandate 8
4. The SEPA Direct Debit e-Mandate Option 12
5. The SEPA Account Identifiers: IBAN and BIC 13
6. About the European Payments Council (EPC) 14

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 SEPA for Consumers – in a Nutshell

1.

Consumers enjoy fast, secure and streamlined SEPA

services featuring the most innovative options available in
payments.

This publication specifically covers the What is SEPA?

SEPA Direct Debit. For information on SEPA
Credit Transfer and SEPA for Cards refer to
The Single Euro Payments Area (SEPA)
the EPC publication “SEPA for Consumers”
is the area where citizens, companies
available for download on the EPC website1.
and other economic actors can make and
receive payments in euro, within Europe,
This chapter offers a brief introduction
whether within or across national boundaries
to the concept of a “Single Euro Payments
under the same basic conditions, rights and
Area” (SEPA) and its benefits for consumers.
obligations, regardless of their location. The
geographical scope of SEPA covers the 27 EU
member states2 plus Iceland, Liechtenstein,
Norway, Switzerland and Monaco.

SEPA payments are always euro payments.

The accounts of the consumer making a
SEPA payment and of the biller receiving this
payment must be located in one of the 32
SEPA countries. The accounts may be in euro
or in another currency.

1
www.europeanpaymentscouncil.eu / SEPA Customers

2
Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary,
Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, 4
Spain, Sweden, United Kingdom.
Why SEPA?
SEPA is the logical next step following the
introduction of euro notes and coins in 2002:
SEPA payment instruments allow consumers
to exchange electronic euro payments
between any accounts in the SEPA area as
conveniently as this is possible within national
borders today.

What are SEPA

payment instruments?
The European banking industry has
delivered a set of harmonised SEPA payment
instruments for credit transfers, direct debits
and card payments. These same SEPA
payment instruments can be used to make
payments domestically or to pay for goods
and services you purchase in a SEPA country
other than your home country.

In a first step, banks are offering SEPA

payment services in parallel with such services
based on national payment instruments,
for example, your domestic credit transfer
and your domestic direct debit. Eventually,
harmonised SEPA payment instruments will
replace the national payment instruments
existing in the SEPA countries today. It is
expected that this transition will take place
first in the euro countries.

Who makes
SEPA happen?
Everybody has a responsibility to make How does SEPA
SEPA a reality. Public authorities, including the
European Commission and EU governments,
benefit consumers?
create the conditions that support the In SEPA, consumers can rely on one
transition of bank customers to the new bank account and one payment card to
SEPA payment instruments. The European make euro payments across 32 countries
Central Bank (ECB) and the National Central while enjoying highly competitive services
Banks of those EU Member States which provided by banks. In addition, SEPA drives
have adopted the euro also play an important forward technological innovation in payments
role in the SEPA process: The ECB and the empowering consumers to take advantage of
National Central Banks actively monitor the many new features. As a result, the process
progress of SEPA in close dialogue with the of paying bills will be even more convenient.
political authorities, the banking industry and
payment services users. The banking industry,
cooperating in the European Payments 3
For more information about the EPC refer to the
Council (EPC)3, is delivering the new SEPA last chapter in this publication.
payment instruments. Most importantly,
SEPA will become a success once bank
customers embrace the new SEPA payment
instruments.
5
 An Introduction to SEPA Direct Debit

2.

The SEPA Direct Debit – for the first time ever – enables
consumers to make cross-border direct debit payments
throughout the 32 SEPA countries. At the same time, the
SEPA Direct Debit can of course be used domestically.

In November 2009, the EPC introduced The introduction of SEPA Direct Debit
the SEPA Core Direct Debit (SDD Core) and makes paying bills significantly easier for
the SEPA Business to Business Direct Debit mobile European citizens including workers,
(SDD B2B). The SDD B2B can only be used students, holiday home owners, tourists or
by payers that are not consumers such as retirees living abroad. At the same time, SEPA
businesses or public administrations making benefits consumers who wish to purchase
payments by direct debits. This publication goods or services from retailers located
focuses on the SEPA Core Direct Debit in SEPA countries other than their home
which serves as an easy-to-use and secure country. All consumers will be able to rely
payment method for consumers. on one home account for all – domestic and
cross-border – payments throughout SEPA.

In November 2009, banks started rolling out

SEPA Direct Debit services. As of November
2010, all banks in the euro area offering
national direct debit services are mandated
by EU law to be “reachable” for cross-border
direct debit payments. In practice, this means
that any consumer who holds an account in
the euro area which provides the option to
make direct debit payments at national level
will then be able to make payments by SEPA
Direct Debit as well.

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 SEPA Direct Debit payments can be made to or from any accounts that are held with a bank
located in SEPA. It is not necessary that the payer and / or the recipient of the payment (the
biller) have an account in a SEPA country that has already adopted the euro as its national
currency. For example: a consumer who holds an account in euro with a bank in Belgium can
make a SEPA payment to a retailer who holds an account in zloty with a bank in Poland. In
such a case, the SEPA payment takes place as follows: (1) the euro amount of the payment
is debited to the Belgian consumer’s account; (2) the exchange of funds between the Belgian
bank and the Polish bank takes place in euro; and (3) the amount of the payment is converted
from euro to zloty when crediting the Polish retailer’s account.

Benefits of SEPA Direct Debit for consumers:

The SEPA Direct Debit provides a convenient and secure means of paying bills and allows
for easy reconciliation of debits on account statements.

It offers convenience for consumers in so that they do not have to deal with the consequences
of late payments. The SEPA Direct Debit also enables the consumer to know exactly when
his account will be debited. Given the no-questions-asked refund right for the consumer,
the SEPA Direct Debit gives the consumer complete control over the payment.

Consumers enjoy a fast and simple refund procedure when making payments by SEPA
Direct Debit. Refunds may be claimed within eight weeks of the debit date for authorised
transactions and within 13 months for unauthorised transactions.

Each party to the transaction, e.g. the consumer paying a bill on the one hand and the biller
collecting the payment on the other, will be charged individually and separately by their
bank for this payment service in a fully transparent manner. The basis and level of charges
to customers are entirely a matter for individual banks.

For more information on the SEPA Direct Debit refer to the EPC publication
“Shortcut to SEPA Direct Debit”4 available on the EPC web site .

7
4
www.europeanpaymentscouncil.eu / SEPA Customers.
 The SEPA Direct Debit Mandate

3.

The SEPA Direct Debit builds on a direct debit model widely

used and trusted by millions of bank customers in Europe.

As with all existing direct debit systems, Going forward, a biller may offer payment
under the SEPA Direct Debit a consumer by SEPA Direct Debit in instances where
completes a mandate to authorise a biller a consumer and a biller have an existing
to collect payments. At the same time, the agreement on direct debit collections. For
SEPA Direct Debit mandate authorises the example, you are subscribing to a newspaper
consumer’s bank to pay these collections. today paying by direct debit. Your biller will
The SEPA mandate can be issued on paper clarify whether the mandate you originally
or electronically (see next chapter for details issued continues to be valid or whether you
on the e-mandate option). The mandate have to issue a new mandate.
expires 36 months after a biller last collected
a payment from a consumer based on such
a mandate.

The SEPA Direct Debit is based on the so-called

“creditor-driven” mandate flow (the creditor is the biller).

This means: (1) The payer completes and In Austria, Germany and the Netherlands,
signs a paper-based mandate and (2) sends the usage of direct debits – based on the
it directly to the biller. The biller is responsible creditor-driven mandate flow – per capita
for storing the original mandate, together far exceeds the European average; in these
with any information regarding amendments countries, consumers prefer the convenience
relating to the mandate or its cancellation. and ease-of-use provided by direct debit
In this scenario, the payer’s bank does not compared to other payment methods:
receive any mandate-related information
from its customer nor is the payer’s bank European Union 40,76 direct debits per capita
responsible for checking the right of a biller
to collect payment from a payer’s account. Euro area 51,47 direct debits per capita
This model is used in a large number of EU Germany 97,20 direct debits per capita
Member States today – for example in Austria, Austria 95,16 direct debits per capita
Germany and the Netherlands. These three
countries represent those EU Member States The Netherlands 74,55 direct debits per capita
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where direct debits are used much more often
to make payments than in other countries. Source: European Central Bank Blue Book
 The SEPA Direct Debit, which also relies The European Commission and the
on the creditor-driven mandate flow, builds European Central Bank confirmed that
on the same business assumptions and basic the SEPA Direct Debit is based “on
trust between the parties involved – that is, proven national concepts, fully meets the
the payer, the biller and their payment service respective legal requirements and – in some
providers – as the established pre-SEPA, points – goes even further than required by
national direct debit model used for decades the Payment Services Directive in order
in a large number of EU Member States. to better satisfy customer needs”5. The
This direct debit model ensures complete European Central Bank acts as an observer in
consumer protection: the EPC. The European Central Bank and the
European Commission have closely followed
The SEPA Direct Debit is fully aligned and monitored the development of the SEPA
with consumer rights as defined in the EU Direct Debit.
Payment Services Directive (PSD). Even
exceeding the requirements of the PSD, the Both institutions also encouraged the EPC
SEPA Core Direct Debit grants consumers a to give due consideration to the provision
“no-questions-asked” refund right during of additional features designed to further
the eight weeks following the debiting of a increase the trust in SEPA Direct Debit
consumer’s account; e.g. during this time services in particular by consumers who are
any funds collected by SEPA Direct Debit will accustomed to a pre-SEPA direct debit model
be credited back to the consumer’s account which differs from the SEPA Direct Debit
upon request. In the event of an unauthorised concept as regards mandate management. In
direct debit collection, the consumer’s right response to this request, the EPC introduced
to a refund extends to thirteen months as a variety of optional features into the SEPA
stipulated in the PSD. Direct Debit Schemes as outlined in the next
section of this chapter and the next chapter.
This same refund right during a period
of thirteen months in the event of an
unauthorised direct debit collection applies
in the event that a payer – accidentally or
fraudulently – indicates to a biller an account
other than his own to be debited. A bank
customer who detects that his or her account
was thus erroneously debited is of course
entitled to request that funds are credited
back to his or her account.

Last but not least, payment service

providers servicing billers who collect
direct debit payments must ensure that
only trustworthy billers are able to collect
payments via SEPA Direct Debit. This is also
in the interest of payment service providers
as they would have to cover any losses
resulting from fraudulent and / or erroneous
direct debits.

In this context, it also has to be noted that

the SDD Scheme is designed to effectively
discourage fraudulent collections: SDD
payments are traceable from the payers and
the payers’ banks up to the biller initiating the
payments. As a result, any biller collecting
SEPA Direct Debits can be rapidly and
unequivocally identified. Any gains based
on a fraudulent direct debit collection would
therefore not be sustainable. For these
reasons, it is highly improbable that fraudulent
persons or businesses would choose the 5
Joint letter of the European Commission and
SEPA Direct Debit as a vehicle for fraudulent the European Central Bank to the EPC in March
actions. 2010.
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 The SEPA Direct Debit also meets the requirements of
consumers used to an alternative direct debit model based
on the so-called “debtor-driven” mandate flow (the debtor
is the payer).

Whilst the SEPA Direct Debit builds on a The main difference between these two
national, pre-SEPA direct debit model relied alternative direct debit models therefore lies in
upon in a large number of EU Member States the fact that a consumer used to the debtor-
today (the creditor-driven mandate flow), it is driven mandate flow assumes that his bank
recognised that in some EU Member States verifies whether a direct debit collection is
an alternative pre-SEPA direct debit model authorised by the consumer prior to debiting
is currently in place. This alternative model the consumer’s account . Those consumers
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is based on a so-called “debtor-driven” who are used to the creditor-driven

mandate flow (the debtor is the payer – a mandate flow, by contrast, do not require
consumer, for example). such verification. As mentioned above, the
vast majority of consumers in the European
Union making a direct debit payment today
This means: (1) The biller informs the payer’s rely on the creditor-driven mandate flow; i.e.
bank that the payer indicated the desire the model governing the SEPA Direct Debit.
to make payments by direct debit; (2) the
payer’s bank then issues the actual mandate
and informs the payer accordingly; i.e. the
mandate stays with the payer’s bank. When a
biller presents a direct debit collection to the
payer’s bank, the payer’s bank might choose
to check the authorisation of the biller to collect
payment based on the mandate. This model
is used, for example, in Belgium, Portugal
and Italy today. (In Italy, actually, both models
– the creditor-driven mandate flow and the
debtor-driven mandate flow – coexist.)

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In the Italian domestic direct debit scheme, all payers (debtors) and billers (creditors) can rely on the fact
that the payer’s bank and the biller’s bank check the mandate prior to the first collection, independently
of the mandate management model. This is possible thanks to a database alignment service enabling
billers to exchange electronically the information related to the mandate, before the collection, through
the biller’s bank with the payer’s bank. 10
 To help in meeting the preferences of 3. The SEPA Direct Debit includes the option to issue a
consumers living in countries currently mandate electronically: in this case, the mandate information
using the debtor-driven mandate flow, the stays directly with the payer’s bank so that this bank can
SEPA Direct Debit includes options which validate the mandate once a biller presents a collection (see
allow banks to offer services such as the also next chapter).
verification of mandates by the payer’s
bank:

1. The timelines defined in the SEPA Core

Direct Debit for the execution of a collection
allow payers’ banks to tailor mandate
management to customer needs; i.e. to
validate mandates if customers so request.

2. To give even more comfort to those bank

customers who are used today to a direct
debit model which relies on the debtor-driven
mandate flow, the EPC will also deliver an
optional “Advance Mandate Information”
(AMI) functionality to be included in the
SEPA Direct Debit. The “Advance Mandate
Information” functionality provides an
extended timeline for the optional
verification of mandate information by the
payer’s bank thus increasing its ability to
widen its mandate management in relation
to its customers. The “Advance Mandate
Information” could also serve as a basis for
banks and communities of banks to develop
further Additional Optional Services (AOS)
building on this functionality and facilitating
migration from existing national direct debit
systems to the SEPA Direct Debit.

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 The
SEPA Direct Debit e-Mandate Option

4.

In addition, the SEPA Direct Debit includes At the same time, the payer is routed
the option to create mandates through from the biller’s website to the website of
the use of electronic channels – called his own bank. The payer’s bank validates
e-mandates. If the payer issues an e-mandate, the BIC and the payer chooses the IBAN
the mandate information stays directly with (International Bank Account Number) of the
the payer’s bank. Also in this case, the payer’s account that should be debited. In addition,
payment service provider has the option to the payer’s bank verifies the payer’s account
verify whether the payer authorised a direct access rights: the payer must identify and
debit collection. authenticate himself with his online banking
credentials as agreed with his bank. After
When issuing an e-mandate, payers can re- successful authentication, the payer confirms
use their online banking credentials or other the e-mandate to his own bank. This last step
bank-provided electronic access channels of confirming the e-mandate is essentially
for completing the mandate online with the equivalent to the signing of a paper-based
biller. No additional means of identification mandate. The payer is then routed back to
are necessary. When issuing an e-mandate, the biller’s website.
the payer wishing to pay by SEPA Direct Debit
avoids the inconvenience of printing, signing In addition, the payer’s bank delivers the
and mailing a paper form to the biller by using “signed” e-mandate to the biller. The biller’s
a fully electronic process instead. website acknowledges the receipt of the
e-mandate and confirms this to the payer.
Moving on, biller and payer exchange goods
The e-Mandate process: or services and payments as agreed.
this is how it works
Availability of the e-mandate will depend
Typically, issuing an e-mandate takes place upon individual bank service offerings.
in the following manner: a payer such as a
consumer, for example, chooses to purchase
goods or services from a service provider, i.e.
a utility company. The service provider; e.g.
the biller offers the payer (a consumer, for
example) the option to pay by SEPA Direct
Debit and to authorise the SEPA Direct
Debit collection(s) based on an electronic
mandate. In a first step, the payer must enter
all the required data including the Business
Identifier Code (BIC) of his own bank on the
biller’s website. The biller then submits the
e-mandate proposal to the payer’s bank. 12
 The SEPA
Account Identifiers:
IBAN and BIC

5.

When making a payment by direct debit today, consumers indicate account identifiers – an
account number and a bank code – that allow specifying bank accounts on national level.

SEPA, however, enables bank customers to exchange euro payments between any accounts
in the 32 SEPA countries. This is only possible when banks and bank customers agree to use
account identifiers which are unique and therefore allow pinpointing an account not only at
national level but anywhere in SEPA. In SEPA, therefore, IBAN (International Bank Account
Number) and BIC (Business Identifier Code) are the only permissible account identifiers.

IBAN and BIC are features that were developed by ISO, the International Organisation for
Standardisation. ISO is the world’s developer of globally compatible standards that enable
service providers (such as banks) to offer internationally compatible solutions (such as SEPA
payment instruments).

Banks, businesses and public administrations will provide the tools to ensure a smooth
transition for consumers to IBAN and BIC.

Billers, including businesses and public administrations, will feature related information
prominently on websites, invoices and stationery.

Consumers find IBAN and BIC pertaining to their own account on their account statements
and / or imprinted on their bank card.

In addition, banks provide easy-to-understand instructions on the use of IBAN and BIC on
Internet home banking channels or by making available print flyers, for example.

In most SEPA countries, a national website devoted to SEPA is available which contains a
range of IBAN and BIC related items, including educational material facilitating the use of
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these account identifiers. To find these web sites, contact your payment service provider
or your national banking association.
 About the
European Payments Council (EPC)

6.

The purpose of the European Payments

Council (EPC) is to promote the Single Euro
Payments Area (SEPA). The EPC is the banking
industry’s coordination and decision-making
body for the cooperative space of payment
services.

The EPC is responsible, amongst others,

for the development and maintenance of
SEPA payment schemes as defined in the
SEPA Credit Transfer Scheme Rulebook and
the SEPA Direct Debit Scheme Rulebooks.
The Rulebooks contain sets of rules and
standards for the execution of SEPA payment The particular SEPA payment products and
transactions that have to be followed by services offered to the customer are developed
payment service providers. These Rulebooks by individual payment service providers or groups
can be regarded as instruction manuals which thereof operating in a competitive environment.
provide a common understanding on how to The SEPA Schemes developed by the EPC in
move funds from account A to account B close dialogue with the user community provide
within SEPA. The rules and standards which the flexibility and options which enable payment
make up a payment scheme are defined by service providers to add features and services of
payment services providers in a collaborative their choice to the actual payment product.
space – that is the EPC.
To learn more about the EPC visit the EPC web
site at www.europeanpaymentscouncil.eu.

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EUROPEAN PAYMENTS COUNCIL (AISBL)
Avenue de Tervueren 12 B
1040 Brussels, Belgium
Phone: + 32 2 733 35 33
Fax: + 32 2 736 49 88
E-mail: [email protected]
www.europeanpaymentscouncil.eu

SEPA Direct Debit for Consumers – a convenient and secure way to make payments

EPC document reference: EPC316-10, version 1.0

©2010 Copyright European Payments Council (EPC) AISBL
Reproduction for non-commercial purposes is authorised; with acknowledgement of the source.
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