SEPA Direct Debit: 10 best practices

SEPA (Single Euro Payments Area) Direct Debit is a bank account-based payment method available across the Eurozone, which can be used for both ecommerce and recurring payments.

It works in combination with local e-banking services such as Sofort and Giropay in Germany, iDEAL in the Netherlands, and EPS in Austria.

SEPA Direct Debit (SEPA DD) is an alternative to credit cards, and an important addition to your payment portfolio, especially in Eurozone countries where card penetration is low.

It is ideal for businesses that are operating a subscription business model, or are looking to attract young shoppers who do not yet possess a credit card. And it has the added benefit of comparatively low fees, for both domestic and cross-border payments.

Adyen offers SEPA DD optimized for both desktop, and mobile checkouts. Further, Adyen can store the shopper and bank account details after the initial payment, so the customer is not required to re-enter the IBAN a second time, resulting in a seamless checkout flow for subsequent payments. 

All this combines to make SEPA DD an attractive option for businesses. However before rolling it out, it is important to understand a couple of things:  

Unlike cards, SEPA DD does not have an additional authentication layer, such as a CVC check or 3D Secure. Consequently it is important to have good risk management tools in place to offset the threat of fraud.   

It has a comparatively long clearing process and settlement time, and you have to wait up to three days before receiving confirmation that your shopper has paid. Further, a shopper can perform a chargeback online eight weeks after the purchase, with no questions asked. And in some extreme cases this can be as much as 13 months.

Here are 10 best practices to bear in mind when supporting SEPA Direct Debit: 

1. If you are a retailer, we recommend holding shipment for seven days, to avoid making a loss if the payment is unsuccessful.

2. For ticketing businesses and airlines, it is strongly recommended to only allow SEPA DD payments if enough time is available to settle the payment before the flight or event. In that way there is time to cancel the transaction if it is not successful.

3. Depending on your business model, consider a maximum transaction value for SEPA DD. A good indicator could be the average transaction value of your chargebacks.

4. If you want to offer SEPA DD for high transaction values, be sure to crosscheck your customers against local credit scoring agencies. In the case you fail to collect the funds from your shoppers, but have shipped the product, it is common practice to work with local debit collecting agencies.

5. If you are processing with Adyen, we will collect the funds. This means ‘Adyen’ and Adyen’s creditor ID will show on the customer’s bank statement alongside your name. It is important to communicate this clearly to your customers to avoid confusion and chargebacks. 

6. Communicate clearly on your confirmation page that the payment might take up to seven days to complete, so the shopper is aware they may be charged at a later date.

7. Be sure to state clearly in your return/refund policy that refunds will take a few days. This will reduce the chance of a customer performing a chargeback in the meantime. Be aware: SEPA DD can be charged back by the shopper even if a refund has already been carried out. And consequently it is risky to refund a SEPA DD transaction if there is an ongoing dispute with the customer. 

8. Make sure you keep your IBAN blacklists up to date in order to identify and block payments from invalid bank accounts. 

9. Use available tools to mitigate chargeback risks. For example: set up and keep and eye on your velocity checks, limiting the number of orders a shopper can place within a specific timeframe.

10. Many transactions are refused due to lack of funds on the shoppers bank account. In this case it is worth retrying the transaction later, once the customer is likely to have received his monthly income. So it is recommended to adjust your retry logic based on the refusal reason provided by the customer’s bank.