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SEPA Direct Debits: Opportunity or Opprobrium

by Helen Sanders, Editor

The SEPA Direct Debit (SDD) went live on 2 November 2009, representing the next major step towards payments harmonisation across the Eurozone. But was its arrival feted by floods of keen corporations desperate to leverage the new instrument? Did we see customers queuing up outside their banks waving their new mandates? Well no. The SDD has created more of a flicker than an inferno, and in the five months since its launch, there has still been about as much momentum than is required to power an average electric lightbulb. As Karsten Becker, Product Manager, Deutsche Bank summarises,

“SEPA Direct Debits are now live, so customers are now in a position to use both core and B2B SEPA direct debits. However, the statistics show that the vast majority of companies have not yet chosen to migrate to these schemes.”

So what is the SDD, why haven’t organisations flocked to use it, and has their reticence been misguided?

What is the SEPA Direct Debit?

Lack of reachability is the significant challenge to migrating to the SDD scheme.

Most readers of TMI will now be familiar with the Single Euro Payments Area (SEPA) and its objectives. The SEPA Credit Transfer (SCT) was launched in January 2008, but the SDD was slower off the mark, primarily due to difficulties amongst stakeholders in agreeing how the instrument would work. Direct debits i.e., instruments that involve a creditor requesting funds from a debtor’s bank on the creditor’s authority, are used to varying degrees Europe-wide. Consumers in countries such as Germany and the United Kingdom have a particular preference for direct debits to make utility, telecoms and mortgage payments. The new SDD has been launched as a replacement to existing domestic schemes, so that all direct debits across SEPA will have the same characteristics, and can be transacted cross-border as well as in-country. There are two types of SDD: firstly, a core scheme, that effectively replaces existing schemes, and can be used by any individual or institution to make payments; secondly, a business to business (B2B) scheme that is entirely new, specifically for debiting institutional customers. The features of the SDD are summarised in figure 1.