How do I accept SEPA Direct Debit and reach more European Buyers

 The article has been revised since the time it was first released with the latest details on SEPA Direct Debit transactions as of April 2023.

If you're selling software globally You're aware of how challenging handling cross-border payments can be. From ensuring that you show the right currencies for each area to ensuring that you support your clients preferring payment methods global commerce can come with its fair share of challenges.

Many buyers within the European Union and surrounding countries choose to pay with SEPA Direct Debit. It not only helps facilitate multi-currency payment however it reduces the likelihood of failed payment transactions.

In this article we'll go over the fundamentals in SEPA Direct Debit and discuss why it's so important to take it into consideration at the time of check-out if you're conducting business within Europe.

Table of Contents

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

Are you already a seller and wish to set up SEPA Direct Debit to your business? Create a support request from within the platform, or via our support page.

What exactly is SEPA Direct Debit?

SEPA Direct Debit is a wire transfer that allows retailers to take payment from accounts within the countries and associated territories in the Single European Payments Area (SEPA).

SEPA is very similar to ACH Debit (US) as well as EFT (Canada) with the exception of there are a few distinct differences:

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

Today, more than 529 million individuals make use of SEPA to pay more than the 146 billion electronic payments per year in the 36 member countries. The SEPA system accounts for 30% of the online shopping across Europe and makes SEPA an essential payment method to support if you're selling into 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 as well as Territories  

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

Additionally, any European who has accounts with banks can make payments with SEPA. If you enable this single payment method at the point of purchase, you can reach over 500 million potential buyers across 36 countries.

What is SEPA Direct Debit Function?

SEPA transfers function similar to domestic transfer transactions, but with some slight differences that happen behind the scenes. Here's how they work from the perspective of a merchant:

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

Step 1: Mandate

Before you can collect payment through SEPA Direct Debit your client must complete the mandate that authorizes you to accept payment. A mandate is the billing contract signed by the buyer to permit the seller to receive any future payments they make via their account with a Euro denomination.

Mandates must include certain mandatory information.

 Essential Items to the Mandate

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

Here's an example of 's SEPA Mandate:

Step 2: Pre-Notification

As per SEPA guidelines, you are required to send your customers a pre-notification to let them know when they will be able to expect a single installment or a regular monthly subscription to leave their bank account. This notification can be delivered by email, text message and/or phone calls, as well as invoices, or via a note.

Compliant pre-notifications must include these things:

1. The appropriate notice time (typically fourteen calendar days)
2. Due date, amount the mandate number, the creditor's ID
3. Contact information for the merchant

Step 3: Payment Request

After the pre-notification is delivered After the pre-notification is delivered, you can start payment by submitting the mandate-related data to the merchant's bank. It does this automatically for sellers. The bank will then send the order to the clearing and settlement mechanism that will forward the request to the customer's banking institution to be settled.

Step 4: Post-Submission

After you submit the payment, it can take 2-3 business days before you know whether a SEPA payment was successful or failed. That's why we recommend waiting at least 48 hours to finish the order.

SEPA Benefits and Drawbacks

Advantages

SEPA Direct Debit has 3 important advantages for companies that collect recurring payments:

• Control Enables merchants to ensure that customers pay their bills in time each month.
• Retention rates: Eliminates failed payments because of card expiry or cancellation. Additionally, it improves customer loyalty by offering a convenient set-and-forget payment method.
• Reducing admin time: Reduces the admin time involved in collecting payments.

SEPA Direct Debit is also great for B2B invoicing:

• Improved cash flow: The payments are processed accurately and on time in a speedy method.
• Collecting variable amounts: Using a single upfront contract, sellers can be able to claim a new amount instead of giving banks fresh set of instructions every time a change is needed.
• The admin process is streamlined: Payments can be made automated in a schedule.

Other benefits SEPA is good for:

• Markets with lower card use: In Germany and the Netherlands the penetration of credit cards is not more than 50%. SEPA Direct Debit is a preferred method to pay in these countries.

Disadvantages

SEPA isn't a great choice to:

• Transactions that need immediate clearing SEPA Direct Debit payments cannot be instant even with the more efficient B2B scheme.
• Transactions that are likely to be charged back: It is the SEPA Core Direct Debit no-questions-asked reimbursement policy allows chargebacks (equivalent to refunds under the ACH scheme) simple in the first eight weeks following the payment.

"'s SEPA Experience

Our platform automatically presents an order at the point of checkout. It takes care of all the necessary steps for processing the purchase of your purchaser, therefore you won't have to do anything except enable SEPA for payment method in the settings of your account.

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

1. The customer chooses SEPA Direct Debit, and then enters the name of their bank, their IBAN, or bank code to sign in to their account at the bank.
2. The purchaser agrees to accept the SEPA Direct Debit Mandate Terms and confirms their bank details for the purpose of submitting the order.
3. Once the purchase is made and submitting it, the purchaser is taken to a confirmation page which confirms that the purchase has been completed.
4. Payments typically take at least 48 hours for processing.