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SEPA Explained: SEPA Direct Debit vs SEPA Wire Transfer

There are two payment protocols: SEPA SCT (SEPA Credit Transfer) and SEPA SDD (SEPA Direct Debit). The latter in two variations: Core and B2B. They differ. Precisely, how?

On Differences Between SEPA Wire Transfer (SEPA Credit Transfer) and SEPA Direct Debit Schemes.

Tsk tsk, similar names can make one’s life hard, can’t they.

SEPA Wire (Credit) Transfer is just a common, one-time bank transfer within the SEPA zone, made in EUR currency. It debits an euro account and credits another euro account. As for SEPA Direct Debit – it is a type of recurring payment (also within the SEPA area and in euro).

By the end of this article you’ll know this by heart.

SEPA – What Does That Stand For?

SEPA is an abbreviation for Single European Payments Area. Its main goal is to unify payments market across the Europe. Therefore – the currency used for transactions is euro.

On the newest Map of SEPA Scheme Countries and Territories there are 34 SEPA countries listed. Within the jurisdictional scope of the SEPA there are both countries that are in eurozone and countries that aren’t.

The deadline for applying regulations on SEPA credit transfer and SEPA direct debit in non-euro area countries passes in 2016, on October 31. This means that existing national euro credit transfer and direct debit schemes will have to be replaced by SEPA alternatives by then.

Those alternatives are: SEPA Credit Transfers (SCT) and SEPA Direct Debits (SDD). Both systems are slowly becoming a new normal for online payments.

SEPA Credit Transfer (SCT)

The history of SEPA Credit Transfer goes back to 2008, when it was introduced by the European Payment Council. EPC is a non-profit organization representing payment service providers (PSPs) and setting standards for European payments integration and development.

SCT enables PSPs to manage international payment processing and to offer it to merchants as a credit transfer service within the 34 Single European Payments Area participant countries. To be able to do this, a PSP has to be a formal participant in the SEPA scheme.

The payments are processed in EUR currency. With SCT, the customers can transfer funds to any beneficiary account in SEPA in a form of non-urgent one-time bank transfer.

SEPA Direct Debit (SDD)

The SEPA Direct Debit enables consumers and businesses to make cross-border direct debit payments in EUR currency. Accounts may be held in any SEPA currency, but the transfer of funds between them is always in euro.

The basis for collecting money is a signed authorization (mandate) given to the creditor by the debtor.

While making a purchase, a customer has to submit their bank account data (name of the account owner, IBAN and BIC) and agree to be charged. After that happens – it’ s the merchant, who initiates the transaction.

If you want your business to handle recurring payments and charge your clients by automatically collecting money from their accounts, direct debit is the best solution.

You should also read: Credit Card vs Direct Debit Payments

SDD Mandates

A mandate is a proof of client’s consent to charging their account. Merchants are obligated to store them. One mandate can authorize an indefinite number of recurring payments, a specific number of recurring payments or a “one-off” payment.

There are two possibilities for issuing a mandate:

There are two types of SEPA Direct Debit – B2C and B2B. Mandates are used in both.

SDD Core versus SDD B2B

Before you decide on Core (B2C) or B2B protocol, you need to take into consideration a few things. Let’s have a glimpse on what the options are.

SDD Core

A B2C (business-to-client) solution, where debtors may be natural or legal persons. The Core scheme is mandatory for all SEPA banks offering euro-denominated direct debits.

SDD B2B

A business-to-business scheme, intended solely for use of debtors that are professionals or companies. It’s optional, so not every bank offers it.

The main variations are as follows:

  1. You can’t use Direct Debit B2B if your clients are private individuals (consumers) or microenterprises. B2C can be used for all payers.
  2. In the Core scheme the client is granted a no-questions-asked repayment of a transaction for 8 weeks after the due date. B2B, on the other hand, does not grant the payer a refund for an authorized transaction. The debtor can only cancel it before the funds are collected. In B2B scheme, refunds for unauthorized transactions are possible if the payer proves that they did not agree to a B2B mandate. They have up to 13 months after the debit date to do this, the same as in B2C model.
  3. Timeline for presenting a collection to a debtor’s bank varies in B2C and B2B options. The SDD Core Scheme allows for minimum 5 days before the due date for first or single transaction, and at least 2 days for a recurring payment. Responding to the specific needs of the business community, in SDD B2B the execution periods are shorter. The timeline for payment submission is 1 day before the collection. In case of technical failure or inability to collect – the response time from the banks is also faster (2 days after collection).
  4. With B2B, debtors have to notify their bank of the mandate, with B2C they don’t.
  5. The SDD B2B scheme requires the debtor’s bank to ensure that the transaction is authorized. To do this they check the collection against mandate information. If a payer does not confirm the first transaction of a B2B mandate, their bank is entitled to reject the request.
  6. The reachability of banks is higher for Core than for B2B. B2B is optional whereas the B2C is mandatory for financial institutions wishing to process SEPA Direct Debits.
  7. B2B and B2C mandates vary in the period for a reversal they determine. Businesses are not able to get the funds after the collection. They can only cancel the transaction before it takes place. The mandate clearly states whether the transaction’s payer/debtor is a businesses or a consumer.

SEPA has transformed Europe into one big “domestic” market. SDD in particular enables collecting funds on a big scale in a universalized way. This means a lot of new opportunities for entrepreneurs.

For more information on SEPA, go to EPC Knowledge Bank.

PayLane's CEO with all kind of skills - programming, marketing, team leading and more. A movie lover and snowboard fan. @KarolZielinski

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