What is SEPA Direct Debit?
The Sepa Direct Debit Scheme – like any other direct debit scheme – is based on the following concept: “I request money from someone else, with their prior approval, and credit it to myself”. The payer and the biller must each hold an account with a payment service provider located in SEPA. The transfer of funds between the payer’s bank and the biller’s bank always takes place in the euro currency.
The Scheme allows a biller to collect funds from a payer’s account provided that a signed mandate has been granted by the payer to the biller. A mandate is signed by the payer to authorise the biller to collect a payment and to instruct the payer’s bank to pay those collections. Payers are entitled to instruct their banks not to accept any SEPA direct debit collections on their accounts. The mandate expires 36 months after the last initiated collection. The signed mandate must be stored by the biller as long as the mandate is valid but at least for 14 months after the last collection. The mandate can be issued in paper form or electronically. To learn more about paper mandates and electronic mandates, click here.
The payment service providers executing the direct debit transaction must formally participate in the SDD Scheme. The SDD Scheme may be used for single (one-off) or recurrent direct debit collections, the amounts are not limited. Even exceeding the requirements of the Payment Services Directive (PSD), the SDD Scheme grants payers a “no-questions-asked” refund right during the eight weeks following the debiting of a payer’s account; e.g. during this time any funds collected by SDD will be credited back to the payer’s account upon request. In the event of unauthorised direct debit collections, the payer’s right to a refund extends to 13 months as stipulated in the PSD.
Keeping in mind that the process of collecting a payment by direct debit is initiated by the biller, the biller (and, in consequence, the biller’s bank) must respect the following timelines under the SDD Scheme: the payer’s bank must receive the request for a first direct debit collection or for a one-off direct debit collection the latest five business days prior to the due date. For subsequent direct debit collections, the payer’s bank must receive such a request the latest two business days prior to the due date.