What is SEPA Direct Debit?
SEPA (Single Euro Payments Area) is a payment scheme developed by the European Payments Council to enhance payment efficiency across EU member countries. SEPA Direct Debit (SDD) is designed to make cross-border direct debits in Europe as convenient and secure as domestic ones via a unified market for euro-denominated payments.
Direct debit transactions are known as pull-payments conducted between bank accounts, meaning that merchants can initiate the transfer of funds from consumer to merchant with no card schemes involved in the process. This makes SDD transactions faster and more cost-efficient for businesses than card-driven payment solutions.
With SEPA being the payment method of choice for more than 529 million European citizens as of 2021, these transfers are mainly used to collect funds on a recurring basis for subscriptions. Therefore, consumers don't need to worry about missing a payment deadline, incurring charges or not receiving their goods and services.
How does SDD work?
At online checkout, the customer chooses SDD as their preferred payment method. Next, they’re asked to enter their name and bank account number in an IBAN or business identifier code (BIC) format. Depending on the configuration, this stage can be completed through a hosted payment page or directly on the merchant’s website through both a client-side encryption and server to server integration options.
During the payment flow, the customer must sign a direct debit mandate which authorises the merchant to debit the bank account of the customer with the amounts due for both one-off and recurring payments. With a billing agreement in place, businesses could likely mitigate the risk of chargebacks when processing SDD payments. Once the mandate is generated, a pre-notification is sent to the customer's email about when they can expect the payment to leave their bank account. Along with the order confirmation, the merchant also receives notice that the mandate has been successfully submitted.
What areas and verticals does SDD serve?
SDD is available in 36 European and non-European countries within the SEPA – from Austria, Andorra, Bulgaria, Belgium, Cyprus, Croatia, Czech Republic, Germany, Denmark, Estonia, Finland, France, Greece and Hungary to Ireland, Iceland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Monaco, Netherlands, Norway, Portugal, Poland, Romania, Sweden, Slovakia, Slovenia, Switzerland, San Marino, Spain, United Kingdom and Vatican City State.
The vertical industries served by this payment option include forex, gambling, travel, retail, general eCommerce, and gaming.
How big is SDD’s penetration in the European market?
A report from the European Central Bank reveals that the volume of direct debits within the eurozone spiked by 4.4% to 22.2 billion in 2020, while the total number of direct debit transactions accounted for 22%.
On a regional level, the highest number of direct debit transactions was 11,593.78 million and was recorded in Germany in 2020, according to Statista. Research from the European Payments Council reports that Belgium consumers have made the most SDD transactions in 2020, totalling 542.1 million payments.
Survey from GlobalData forecasts that direct debits in France, the region with the highest transaction value and volume after Germany, will hit 384,068 million by 2025. With recurring bill payments, consumers can pay with ease for expenses that require regular coverage such as utility bills and mortgages or subscription services like gym memberships. This way, businesses can be fully paid upon agreed dates.
With the European Payments Council’s planning to expand the scope of SEPA transactions beyond the eurozone, it remains to be seen how users beyond European borders will embrace SEPA payments in the future.
Benefits of using SDD
In a nutshell, the SDD project pursues an integrated payments infrastructure that's innovative and competitive for direct debits made in euro. By offering pricing that is common in all the regions within the SEPA zone, this payment method allows:
- Merchants to have better transaction control – repeat SDD payments ensure that customers cover their bills on time.
- A simplified and speedy payments handling – SDD automates the collection process, allowing customers to pay with ease.
- Improved retention rates – SDD permits a greater number of transactions that delivers consumers a relatively simple and smoother payment experience.
- Reduced processing costs due to similar standards among countries in the Eurozone, which is beneficial for both the customer and the merchant. Besides, SDD payments are made between bank accounts, which cuts out any card scheme fees and makes cross-border transfers faster and easier.
Accepting payments in Europe with emerchantpay
A well-established and trusted brand name is a critical factor for consumers when using an online payment method. For this reason, direct debits made via SEPA seem like the ideal option. Since it’s an automated payment option that permits merchants to withdraw money from a customer’s bank account at regular intervals, it gives peace of mind to European customers seeking an easy and safe payment experience.
Boasting a global acquiring network and deep knowledge of your local target markets and their payment methods of choice, emerchantpay is here to help you excel in the European market. Our team of payment experts based all over Europe can empower merchants across many verticals to navigate regional payment preferences for maximum profitability and sales volumes.
Are you ready to streamline your payments offering? Get in touch with our payment specialists and learn how you can reach more customers in the European market.