SEPA Direct Debit - under the hood
By Grey BakerFeb 20133 min read
GoCardless makes collecting SEPA Direct Debits incredibly simple by abstracting away the implementation details. If, however, you've ever wanted to peak under the hood at how SEPA works, this post is for you.
The SEPA Direct Debit system
Before we dive into an example payment collection, it's useful to spend a moment understanding how a payment scheme, and specifically SEPA, works. I've written about the features of SEPA Direct Debit before. Here I'm interested in what defines the scheme.
Like any payment scheme, SEPA Direct Debit is essentially a set of rules agreed between banks. These rules define, amongst other things, access to the scheme, the payment submission process, and how failures are handled. Together, they fully specify the scheme.
There are actually two rulebooks for SEPA Direct Debit: one for a general scheme and one for B2B Direct Debits only. For now, collecting using the general scheme is safest as the B2B scheme is in its infancy. In future, GoCardless will take payment by B2B Direct Debit where possible, falling back to the general scheme where necessary.
The full rulebook for SEPA Direct Debit (core) is online. In the following sections we'll walk through its implications for collecting a payment.
Getting authorisation from the payer
Similarly to UK Direct Debit, to pay by SEPA Direct Debit the payer signs a mandate approving variable future payments. The mandate and signing process are both specified by the SEPA rulebook.
A SEPA mandate must display text on the payer's rights, and must collect specific details from them. The rulebook allows some flexibility in how these details are obtained. For example, the customer's IBAN and BIC can be generated them from more familiar details.
Once completed, a mandate needs to be signed. SEPA includes an e-Mandate scheme to do so through the payer's online banking, but it is currently unsupported by the banks. Instead, GoCardless maintains comprehensive logs of the 'electronic signature' the customer creates.
Once a mandate is in place, payments can be collected by notifying the payer and submitting a request to the banks.
SEPA Direct Debit requires payers to be notified about each collection from their account. Just as for UK Direct Debits, these notifications may be for one or many payments and must be issued an agreed number of days in advance.
Once the payer has been notified, payment is initiated by submitting a file to the collector's "sponsor bank" (see below). This file is then distributed to the other banks involved in the transaction, who process the payment.
The "sponsor bank" system controls access to SEPA Direct Debit. A collector must first find a bank to sponsor them into the system. With GoCardless, however, there's no need to arrange a banking deal of your own - you can submit payments through us (and our sponsor bank, The Royal Bank of Scotland).
Receiving updates from the banks
Once payments have been submitted, it takes several days for them to clear (more on timings in a separate post). To help manage this delayed clearing, and to inform collectors if anything goes wrong, the banks send collectors messages. To avoid any ambiguity, these messages are sent as two-letter codes.
In many cases, such as a change in a customer's bank details, the banks' messages can be responded to automatically. In others, such as when a payment fails due to lack of funds, the response is up to the collector (e.g., whether to retry the payment).
Understanding and responding to these messages is crucial to collecting SEPA Direct Debit payments. GoCardless puts them in the context of your payments, and automates the response when it's clear. When it's not we describe the choices to you clearly.
How to get access
GoCardless will be beta testing SEPA Direct Debit in the coming weeks. Initially, we'll allow UK-based merchants to collect from select European countries. We'll then expand the countries we collect from to cover all of SEPA, and begin to serve non-UK merchants.
To be part of the GoCardless beta test register your interest here.