SEPA Direct Debit (SDD) is a payment scheme within the Single Euro Payments Area (SEPA) that facilitates bank-to-bank euro transactions for regular payments like subscriptions and bills. It allows merchants to automate payment collection, providing benefits such as lower transaction costs, predictable revenue, and greater control over payment processes. The guide explains the distinctions between SDD core and business variants, emphasizes the importance of mandates for authorization, and outlines the operational framework within the SEPA network encompassing 35 countries.

1. What is SEPA Direct Debit?
A Complete Guide

2. What is SEPA Direct Debit?
What is the Single Euro
Payments Area (SEPA)?
There are several SEPA payment schemes,
including:
The Single Euro Payments Area (SEPA) is
a payment network that makes it easy
and cheap to process euro payments in
the European Union (EU).
It was launched in 1999, and currently
operates in an area with more than 529
million citizens making 146 billion
electronic payments every year. It’s seen
as a key innovation introduced by the EU
in the payments sector, helping
thousands of individuals and businesses
manage payments effectively. But what is
SEPA exactly? How can you implement it
as a payment institution? What are the
most prominent benefits?
In this guide, we’ll be breaking down how
SEPA works, what is SEPA direct debit
and the main benefits of implementing it
as a merchant.
Each scheme is a specific service and has
its own pros and cons. All SEPA payments
are bank to bank and do not involve any
card networks. All transactions must be in
euros, with merchants and customers only
requiring one bank account to process the
payment.
SEPA is a European payments system that
enables merchants and businesses to
send and receive payments in the 35
SEPA countries. It’s an EU initiative that
encompasses all 27 EU members, 3 EEA
countries and 6 non-EEA countries, with
the goal of making it easy and cheap to
transfer money in Europe.
SEPA Direct Debit
SEPA Credit Transfer
SEPA Instant Credit Transfer
What countries make up SEPA?
What countries make up SEPA?
There are 35 countries within the SEPA:
EU/EEA countries:
Belgium
Bulgaria
Czech Republic
Denmark
Germany
Estonia
Ireland
Greece
Spain
France
Croatia
Italy
Cyprus
Latvia
Lithuania
Luxembourg
Hungary
Malta
Netherlands
Austria
Poland
Portugal
Romania
Slovenia
Slovakia
Finland
Sweden
1

3. SEPA payments are most popular in
cash-heavy countries or places where
subscriptions are popular, such as
Germany and the Netherlands. That’s
because SEPA payments allow debtors to
make payments directly from their bank
account rather than with a debit card,
cutting out the middle-man and card
network costs.
SEPA Direct Debit (SDD) is a specific
payment scheme within SEPA that is used
for regular payments such as for
subscriptions and bills. Like all SEPA
payments, these transactions must be in
euros, and payments are bank to bank. So
far, the SEPA direct debit scheme
operates in 21 of the Eurozone countries.
SDD is quite straightforward: the creditor
issues a contract called a “mandate” with
all the details necessary about the direct
debit. Once the customer consents, the
merchant pulls the payments on a regular
basis, notifying them 14 days before
the payment is due. If a payment is
unauthorised, customers have 13 months
to ask for a refund.
SEPA Core Direct Debit (SDD Core) is used
between merchants and consumers,
whereas SEPA B2B Direct Debit (SDD
Business) is used for collecting payments
from businesses. We’ll go into more detail in
the section below.
What is unique about all Direct Debits is that
it’s the merchant who is in control of the
entire payment process. They issue the
SEPA Direct Debit mandates, they notify the
customer and they are the ones to pull the
payments whenever they are due. This is
different to other local schemes where
either the customer or the bank is in charge
of making the payments.
SDD Core is mandatory if you are a
payment service provider (PSP) that
offers European direct debits to
consumers.
Debtors can request a refund 8 weeks
after a payment without a reason, and
can ask for a refund 13 months after if
it was unauthorised.
The payer’s PSP does not need to be
verified beforehand and receives the
mandate information on the first
payment collection.
Within SDD (yes, there’s more!), there are
two payment schemes:
What are the differences between SDD Core
and SDD Business? There are a few:
SEPA Direct Debit Core:
What is SEPA Direct Debit?
Difference between SEPA Core DD
and SEPA Business DD
2
Non-EEA countries:
Andorra
Monaco
San Marino
Switzerland
Vatican City State
SEPA Core Direct Debit
SEPA B2B Direct Debit

4. SEPA Direct Debit Business:
SEPA Direct Debit Rulebooks
What is a SEPA Direct Debit
mandate?
The payer must be a business, not
an individual.
The payer cannot receive a refund if
the transaction was authorised.
The PSP must check and validate
the mandate before collecting any
money.
SEPA DD allows merchants to collect
direct debits in 35 separate countries
It offers a standardised payment method
that makes it less complex to manage
payments, enhances security and reduces
the barrier to market entry.
It allows for a greater number of
transactions and allows merchants,
payers and banks to keep payment
processes relatively simple.
The European Payments Council
(EPC) publishes rulebooks to help
merchants and financial institutions
effectively manage the various
different types of direct debits and
mandates. These rule books include
the eligibility criteria in order to accept
SEPA direct debit transactions,
clarifications on customer reporting,
guidance on refund reason codes,
fraud trends reports and information
on managing payments messaging.
The 2019 SCT Rulebook is the one
currently in effect until November
2021. After that date, the 2021
Rulebook will come into effect. You
can download the most recent SEPA
Rulebooks on the EPC website.
One essential feature of the SEPA DD is the
pre-notification. This is a notification that
happens before the creditor collects the
payment, in order to notify the payer of the
upcoming direct debit. The pre-notification
will include the time of collection, the total
amount, whether there is an adjustment to
the total payment amount and the unique
mandate reference. It must be sent 14 days
before payment collection, however mer-
chants can arrange their own agreement with
customers to arrange for a shorter window.
The pre-notification allows the debtor to
ensure they have sufficient funds to pay the
direct debit. Merchants can choose to send
these themselves through paper or email, or
engage a third party to manage the process.
In order to collect SEPA DDs, the
merchant must first get the customer
or business to sign a mandate - a
document that acts like a contract.
This mandate is what allows the
creditor to collect future payments
with the payer’s consent.
The mandate is a certified document,
which means it needs to include
evidence of consent of the payer,
What is a SEPA DD pre-notification?
Advantages of using SEPA DD
3
identity verification using strong customer
authentication and a certified signature. It will
also include the payer and merchant details, as
well as the type of payment used. The legal text
includes details of the refund as well as an
agreement to withdraw payments if
necessary, which will be different for the Core
DD and Business DD. Once the mandate is
completed and signed, it is then submitted to
the banks or PSPs and payments can
be collected.
There are several advantages of implementing
and using SEPA Direct Debit:

5. SEPA Direct Debit Business:
Merchants
It enables the subscription model, a
payment method that is steadily
increasing in popularity: several
European countries have nearly half of
their populations paying for multiple
subscriptions, with 27% of global
consumers expecting to increase the
number of subscriptions they pay for.
It’s a great payment instrument for
companies seeking to add liquidity
during the Covid-19 pandemic.
SDD drastically lowers transaction
costs for merchants, therefore
reducing costs of working capital.
Revenue is more predictable and
consistent, but is still flexible enough
that payment amounts can be adjusted
accordingly.
It is low risk: since merchants are in
charge of managing the recurring
payment and notifying the customer,
payments are more likely to be
completed on time and in full.
The pre-notification means that
debtors have time to add sufficient
funds, which lowers the chance of
going into overdraft.
Subscriptions are an increasingly
preferred way to manage payments.
Lower costs.
Higher efficiency through automation.
Less responsibility since they don’t
need to manage the payment process.
There are some additional unique
advantages for each player in the SEPA
ecosystem:
The SEPA Credit Transfer (SEPA CT) is a
simple one time bank transfer within the
SEPA Zone, in euros. The Credit Transfer
does not require a mandate and can be
initiated by both the payer and the
creditor.
This is different to SEPA DD, which is only
for recurring payments and requires a
signed mandate issued by the merchant.
Banks
4
Payers, both individuals and businesses
SDD is cheaper than other forms of
payments, which further decreases the
cost of the product or service they are
buying.
It’s a payment method that is incredibly
convenient and straightforward
to set up.
It’s easy to keep track of payments.
Difference between SEPA DD &
SEPA CT
Both SEPA DD and Standing Orders are
automatic payments, however the key
difference is the entity in control. With
standing orders, the customer is in control.
With SEPA DD, the merchant is in control.
Difference between SEPA DD &
Standing Orders
Initiated by the customer: the customer
initiates the regular payment which is
“pushed” through the bank.
Less flexibility: they only work at
regular intervals (e.g. every 2 weeks,
every 1 month, etc) and for a fixed
amount.
More documentation: a lot of admin and
documentation is required in order to set
up a standing order.
Standing order:

6. In general, the standing order is a more
risky payment method for the merchant,
since there is always a possibility that the
debtor is late or misses a payment. For
small organisations with very few
customers, standing orders may be
sufficient. For organisations with more
than 30 customers, standing orders are
cumbersome and direct debits are a much
better option.
SEPA DD works well for regular payments
that aren’t overly frequent and are used
for long-term work. Payments are not
instant and can take a few days to clear,
which is why using SEPA DD for payments
that are required to happen more than
once per week can be inefficient.
SEPA DD is generally used for regular
payments. These could be for:
There are two main cases when it may not
be wise to use SEPA DD:
If you’re selling high value items such as
property or investments, you may not
want to implement SEPA DD. This is
because the chargeback time frame is
limited to 13 months. If there are many
chargebacks, you may also end up doing
a lot more administrative work.
5
Popular use cases for SEPA DD
Software companies
Subscriptions
Marketing agencies
Billing companies
Memberships
When not to use SEPA DD
The credit identifier is the unique refer-
ence every creditor holds when collecting
direct debits. It helps identify where the
SEPA payment is coming from and
therefore must be included in every direct
debit collection.
This reference allows banks to verify the
transaction, request refunds and adjust
the mandate if necessary. It also allows
the payer to check whether the direct
debit mandate is correctly in place.
What is a Credit Identifier?
Initiated by the merchant: the merchant
issues the mandate and pulls the
payment from the customer.
Highly flexible: merchants can collect
variable amounts and pick the intervals.
Automatic: with a direct debit scheme
the entire process is automated and the
only documentation necessary is the
mandate and prenotification.
Direct Debit:
Chargeback
If your business requires instant pay-
ments, SEPA DD is not an ideal payment
method as payments can take a few days
to be processed.
Of course, it goes without saying that the
Direct Debit scheme is not ideal if you are
solely targeting consumers or businesses
from outside the Single Euro Payments
Area.
Instant payments

7. The process in order to cancel a SEPA DD
varies from country to country.
In most countries, you cancel a SEPA DD
by submitting a “cancel direct debit
mandate” form. The cancellation is often
done by the merchant, but both the debtor
and the merchant can cancel if needed.
The DD is also cancelled automatically if
there is no activity after 36 months.
The merchant is responsible for archiving
and storing the cancellation documents
(both paper and digital). Once a mandate
has been cancelled, it cannot be used
again.
How to cancel a SEPA DD
6
FinXP has significant experience offering
SEPA DD services to companies across
Europe for the last 6 years with some of
the most competitive fees in the market.
Our SEPA DD product is trusted clients
across Europe. The fees are lower than
most banks and card networks, which
make it a very attractive product option
for merchants.
We hope this SEPA Direct Debit guide has
clarified what SEPA Direct Debit is all
about. The payment network is one of the
most utilised for European payments and
offers a standardised way to easily take
payments from customers.
If you’re a small business that charges
subscriptions or requires regular
payments from clients and customers,
SEPA DD is an intuitive, cheap and easy
way to manage payments. At FinXP, we’ll
help you implement SEPA Direct Debit in a
way that is compatible with your
business.
SEPA DD and FinXP

8. 7
Jeffrey Romano has 12 years of experience working in the Technology and
Financial Services industries. At FinXP he is a champion of an educational
approach towards Marketing, focusing on informing B2B business leaders on
how payment innovations can drive organizational efficiency gains and drive
company growth.
About the Author
FinXP is a Malta-based electronic money institution, licensed by the MFSA. It’s
license has been passported within the EU and EEA. It is registered with SEPA,
provides a PCI certified gateway and is a member of FinanceMalta.
The company was founded in 2014 by Jens Podewski, CEO, and Stefan
Haenel, CFO. The company is committed to enabling customers to quickly and
easily initiate and receive payments in whatever form best suits them,
wherever they are in the world.
The company serves business clients across several European countries in a
multitude of sectors. Its product portfolio includes an omni-channel payment
gateway that includes credit card processing and over 350 payment
methods, Euro IBAN accounts, SEPA Direct Debit processing, and bespoke
payment solutions.
For more information, visit our website at www.finxp.com
For sales-related questions,
please contact: sales@finxp.com
For media-related questions,
please contact: jeffrey.romano@finxp.com
About FinXP