SEPACorporate StrategyWill SEPA Direct Debit Be a Winner For Pan-European Corporates?

Will SEPA Direct Debit Be a Winner For Pan-European Corporates?

The SEPA Direct Debit Scheme (SDD), to be introduced on 1 January 2008, has been criticised in a number of ways. For example, some have argued that too little remittance information can be contained in the message and that the reclaim period is too long/too short compared to legacy one-country schemes.

In addition, the mandate structure has faced some opposition. The original mandate structure, which will still be open as a possibility, puts the onus on the initiator/creditor to cancel it. In other words, the payer/debtor has to rely on the good offices and organisation of the initiator/creditor to cancel, and that may not find wide consumer acceptance, especially if money is going abroad and if the creditors are organised so that it takes several calls and letters to achieve cancellation. The EPC has responded to these concerns by undertaking to develop a mandate structure, more like the UK BACS DD Schemes, where the payer/debtor can cancel the mandate at their own bank.

The issue around the reclaim period comes down to the unrealistic hope of keeping everyone happy: if a legacy scheme has a 90-day period and the replacement scheme has 42 days, then the payer will be annoyed and the receiver delighted. In any case, the receiver has to pre-advise the payer that SDDs will be presented individually (and a monthly bill can validly function as a pre-advice if sent far enough in advance of submission of the DD) and for a period in advance, e.g. a year’s broadband subscription of 12 payments of €15.99.

With this pre-advice in hand and a bank statement/debit advice showing the individual payments (with a minimum detail of receiver, amount and date), what would stop the payer knowing the reason for payment and being able to reconcile that in their own books, if indeed the payer is a business large enough to have ‘books’?

The consumer and SME agree to payment arrangements that are identical to this on a domestic basis now, so there can be no real barriers to the payment scheme in that sense.

For the receiver, who will be a large business, it cannot possibly be an issue that they cannot reconcile a payment received where:

  • They issued a pre-advice;
  • They issued the SDD to start with;
  • They can fill the available remittance field with a reference recognisable to their systems; and
  • The Scheme Rules require the banks and infrastructures to carry the remittance field right along the chain and include it in the R-messages.

The German Direct Debit Scheme works perfectly well based on a very small remittance field for the same reasons.

With this degree of control and the SDD (hopefully) to be presented to all Euro-12 banks from 1 January 2008, there is a major opportunity for corporates who issue direct debits in euros into the many legacy schemes in parallel to collect:

  • Subscriptions to e-mail, Internet, broadband.
  • Insurance premia.
  • Payment for mobile services.
  • Utilities where the company has made acquisitions.

Several euro countries are even designing facilities whereby the consumer can have the SDD presented to them as looking almost the same as a legacy direct debit – to reduce the resistance to adoption – but where the initiator can operate harmoniously on a SDD basis.

Clearly, these are retail direct debit transactions. We are not yet talking about the types that more resemble an electronic bill of exchange and which can be discounted (e.g. LCR in France or RIBA in Italy). The EPC and EBA are working on that as a future deliverable for business-to-business transactions.

The earlier prize, for example, to a mobile phone operator with businesses in all Euro-12 countries, is to collapse 11 payment processes and remain with just one, even if, to allay consumer concerns about sending money abroad, the collection accounts remain distributed and there is still one in each country.

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