SEPA Direct Debit (SDD)

The Creditor-Driven-Mandate Flow (CMF)


The SEPA Direct Debit (SDD) Schemes are based on a 'creditor-driven mandate flow' (CMF), where the creditor is the biller. This means that the payer completes and signs a paper-based mandate and sends it directly to the biller*. The biller is responsible for storing the original mandate, together with any information regarding amendments relating to the mandate or its cancellation. In this scenario, the payer's bank does not receive any mandate-related information from its customer, nor is the payer's bank responsible for checking the right of a biller to collect payment from a payer's account. The payer's bank receives the mandate-related information with the first collection.

It should be noted however that in February 2012 the European Union (EU) co-legislators, i.e. the European Parliament and the Council of the EU representing EU governments, adopted the 'Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009' (the SEPA Regulation), which makes it mandatory for payer's banks to perform certain mandate checks upon request. (See headline 'SEPA Regulation introduces provisions regarding mandate management' below).

*The technical terms used in the SDD Rulebooks refer to the payer as 'debtor' and to the biller as 'creditor'. To learn more about the option to issue a mandate electronically, view this dedicated page on the EPC Website: The SDD Mandate.

Legacy direct debit schemes in most EU Member States are built on the CMF model

The CMF model was used in a large number of EU Member States in the pre-SEPA era - for example in Austria, Germany, the Netherlands and Spain. The latter four countries represent the EU Member States where direct debits are used much more often to make payments than in other countries.

An alternate direct debit model: the debtor-driven-mandate flow

While the SDD Schemes build on the CMF model, such as the national, pre-SEPA direct debit model implemented in a large number of EU Member States, it is recognised that some EU Member States use an alternate pre-SEPA direct debit model. This alternate model is based on a 'debtor-driven mandate flow' (DMF), where the debtor is the payer. This means that the biller informs the payer's bank that the payer has requested to make payments by direct debit. The payer's bank then informs the payer and issues the actual mandate. In this model, the mandate stays with the payer's bank. When a biller presents a direct debit collection to the payer's bank, the payer's bank might choose to check the authorisation of the biller to collect payment based on the mandate. Previously, the DMF model was used in Belgium, Portugal, Italy and France for example. In Portugal and Italy both models - the CMF and the DMF - coexisted.

Main differences between CMF and DMF  

The main difference between the CMF and DMF direct debit models is in the expectation of the consumer. A consumer used to the DMF assumes that his bank verifies whether he has authorised a direct debit collection prior to debiting his account. In contrast, those consumers who are used to the CMF, do not require such verification by their bank. As mentioned above, the vast majority of consumers in the EU who make a direct debit payment today rely on the CMF, which is the model governing the SDD Schemes. According to the European Central Bank (ECB) Blue Book, the ratio of direct debits processed in the EU, based on the CMF model (the SDD model), to those based on the DMF is 3:1 in the pre-SEPA era. The ECB Blue Book provides a comprehensive description of the main payment and security settlement systems in EU Member States.

The SDD Schemes based on the CMF model cater to all payment service users

To help in meeting the preferences of consumers living in countries (previously) using the DMF, the SDD Core Scheme includes various optional features, which allow banks to offer services such as the verification of mandates by the payer's bank. The SDD Schemes also ensure complete consumer protection:

As each SDD mandate is identifiable based on the 'Unique Mandate Reference' and the 'Creditor Identifier', each SDD collection can be traced back - immediately and unmistakably - to the biller. As a result, any biller collecting SDDs can be rapidly and unequivocally identified. Any gains based on a fraudulent direct debit collection would therefore not be sustainable. For these reasons, it is highly unlikely that fraudulent individuals or businesses would choose SDD as a vehicle for fraudulent actions. The SDD Core Scheme goes beyond the requirements of the Payment Services Directive (PSD), by granting consumers a 'no-questions-asked' refund during the eight weeks following the debiting of a consumer's account. This means that during this time, any funds collected by SDD will be credited back to the consumer's account upon request. In the event of unauthorised direct debit collections, the consumer's right to a refund extends to thirteen months as stipulated in the PSD. Banks must also ensure that only trustworthy billers are able to collect payments via SDD. This is also in the interest of payment service providers as they would have to cover any losses resulting from fraudulent and / or erroneous direct debits. The risk of any fraudulent or erroneous SDD collections is actually born by the biller's bank - never by the payer. The actual mitigation of these risks is based on the intervention of the payer's bank.

In a joint letter to the EPC in March 2010, the European Commission and the ECB confirmed that the SDD Scheme is based "on proven national concepts, fully meets the respective legal requirements and - in some points - goes even further than required by the Payment Services Directive in order to better satisfy customer needs".

SEPA Regulation introduces provisions regarding mandate management

Article 5 (3) d of the 'Regulation (EU) No 260/2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009' (see below) (the SEPA Regulation), states that: "the payer must have the right to instruct its PSP:

  • To limit a direct debit collection to a certain amount or periodicity or both.
  • Where a mandate under a payment scheme does not provide for the right to a refund, to verify each direct debit transaction, and to check whether the amount and periodicity of the submitted direct debit transaction is equal to the amount and periodicity agreed in the mandate, before debiting their payment account, based on the mandate-related information.
  • To block any direct debits to the payer's payment account or to block any direct debits initiated by one or more specified payees or to authorise direct debits only initiated by one or more specified payees."

These mandate checking obligations do not apply to the SDD Business to Business Scheme. For more information on the SEPA Regulation, refer to this dedicated page on the EPC Website: SEPA Legal and Regulatory Framework.

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