How do I Accept SEPA Direct Debit and reach more European buyers

 The article has been revised since the time it was first published, and now contains the most up-to-date details on SEPA Direct Debit transactions as in April 2023.

If you are a software vendor selling internationally You're aware of how challenging managing cross-border transactions can be. From making sure you display the correct currencies for every country to accommodating your customers with their preferred payment options, international commerce has many challenges.

This is why so many customers in the European Union and surrounding countries are more comfortable paying using SEPA Direct Debit. Not only does it help simplify multi-currency payments and reduce the chance of failing payment transactions.

In this post we'll explain the fundamentals about SEPA Direct Debit and discuss the reasons why it's important to accept it at the time of checkout when you're operating within Europe.

Table of Contents

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

Are you a seller already and would like to allow SEPA Direct Debit for your business? Create a support request from within the platform, or via our help page.

What exactly is SEPA Direct Debit?

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

SEPA is similar to ACH Debit (US) as well as EFT (Canada) however, some notable differences:

Why is it so crucial to Acquire SEPA?

In the present, over 529 million citizens utilize SEPA for more than 150 billion annual electronic transactions in the 36 member countries. This accounts for over 30% of online checkout in Europe which makes SEPA an essential payment method to support if you're selling your products to Europe. 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 with a bank account can pay through SEPA. If you enable this single payment option at checkout, you can reach over 500 million potential customers across 36 countries.

How Does SEPA Direct Debit Work?

SEPA transfers operate similar to domestic transfer transactions, however, there are some minor changes that happen in the background. Here's how they work 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 your client must fill out the mandate that authorizes you to accept payment. A mandate is the billing agreement given by a buyer to permit the seller to receive future payments from them from their Euro-denominated bank account.

Mandates must include certain mandatory details.

 Essential Items to an Mandat:

• The amount of payment
• SEPA Mandate ID
• SEPA Date of Mandate
• The name of the company that is used for merchants
• Merchant's Creditor Identification
• Merchant's full address
• Information about Creditors
• The type of payment
• International Bank Account Number (IBAN)
• Bank Identifier Code (BIC)
• Signed Date
• Signature

Here's an example of 's SEPA Mandate:

Step 2: Pre-Notification

In accordance with SEPA regulations, you have to provide your clients with a pre-notification to inform them when they should expect one payment or regular subscription to leave their bank account. The notifications may be made via text message, email and/or phone calls, as well as invoices, or even in a written letter.

Compliant pre-notifications must include these things:

1. A proper notice period (typically 14 calendar days)
2. Due date, amount, mandate reference, and Creditor ID
3. Contact details for merchants

Step 3: Payment Request

When the notification has been delivered after which you are able to initiate the payment by providing all the information related to your mandate to the bank that handles transactions for your merchant. This process is automated for sellers. The bank forwards the request to the clearing and settlement system that will forward it to the bank of the buyer for settlement.

Step 4: Post-Submission

Once you have made a payment, it will take 2-3 business days to determine if the SEPA payment is successful or failed. This is why we suggest waiting for at least 48 hours before you complete the order.

SEPA Advantages and Disadvantages

Advantages

SEPA Direct Debit has 3 significant advantages for businesses that collect recurring payments:

• Control: Enables merchants to ensure that their customers pay for their purchases on time every month.
• Retention rates: Eliminates failed payments due to card expiry or cancellation. Additionally, it improves customer loyalty by offering a convenient 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:

• Improved cash flow: Payouts are made accurately and on time in a timely method.
• Collecting variable amounts: With a single, upfront contract, sellers can be able to claim a new amount instead of giving banks an entirely new set of instructions each when a modification is required.
• Reducing admin time: Payments can be automated on a scheduled basis.

Other things SEPA is good for:

• Markets with lower use of cards: In Germany and the Netherlands, credit card penetration is lower than 50 percent. SEPA Direct Debit has become the most popular method to pay in these countries.

Negatives

SEPA isn't the best choice 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 be charged back It is the SEPA Core Direct Debit no-questions-asked reimbursement policy allows chargesbacks (equivalent to refunds under the ACH scheme) effortless in the initial eight weeks following the payment.

's SEPA Experience

Our system automatically displays the mandate at checkout and handles all of the steps to process the order of your customer, which means you don't need to change anything other than enabling SEPA as a payment option in your account settings.

 What does that look as from the perspective of your customer:

1. The purchaser selects SEPA Direct Debit and enters the name of their bank, their bank code, or IBAN for logging into their bank account.
2. The buyer agrees to terms of the SEPA Direct Debit Mandate conditions and verifies their bank information in order to complete the transaction.
3. When the order is submitted after submitting the order, the customer is directed to a page for confirmation of order which confirms that the purchase has been completed.
4. The payment process typically takes at least two days to be processed.