Responding to the requirements of e-commerce
The Core Direct Debit Scheme () creates, for the first time, a payment instrument that can be used for both national and cross-border collections throughout the area. In response to changing habits in the virtual shopping world, the optional e-mandate feature offers consumers a cost-efficient, safe and easy means to authorise direct debit collections online while purchasing goods and services on the Internet. This is how it works:
When a customer shops online, he or she could be offered the opportunity to pay using the Direct Debit. If the customer (debtor) chooses this option, he needs to fill in relevant information on the e-mandate form featured on the website of the retailer (creditor). The customer is then re-routed to the Internet-banking application of his own bank (debtor bank). After logging in, he will be presented again with the e-mandate form he previously completed on the retailer's website. At this stage, the customer will finalise the authentication process or, in other words, he will "sign" the e-mandate form using the online credentials provided by his bank to allow for the verification of the customer's identity. Once the authentication process is complete, the customer will be returned automatically to the retailer's website to conclude the purchase.
The retailer will receive a message from the debtor bank confirming that the customer has access to the bank account specified by the customer in the e-mandate form. The message from the debtor bank also states that this bank-account is open for Direct Debit transactions. The retailer is now entitled to collect payment(s) from the customer's account. This process ensures maximum transparency and comfort both for the customer and the retailer.
Benefits of the e-mandate solution for debtors and creditors
The inclusion of the e-mandate feature in the Core Direct Debit Scheme offers a variety of benefits for creditors (essentially, any service provider or retailer) as well as debtors (customers shopping on the Internet).
Advantages for creditors include:
- The solution allows fully automated end-to-end processing of e-mandates including issuing, amendment and cancellation of such mandates while eliminating the need to deal with a multitude of local technical or organisational barriers
- The e-mandate is agreed on in a secure way
- The confirmation of the debtor's right to access the account is specified by the debtor bank
- The e-mandate process allows automatic storage and retrieval of e-mandate data
Advantages for debtors include:
- The debtor avoids the inconvenience of printing, signing and mailing a paper form to the creditor by using a fully electronic process instead
- The e-mandate facility is based on secure, widely used online banking services of the debtor bank; the debtor, therefore, can simply rely on the online banking procedures he is already familiar with
Balancing different direct debit cultures in
The inclusion of the e-mandate option in the Direct Debit not only provides an additional means of authorising direct debit collections. In addition, the e-mandate solution accommodates the habits of bank customers used to direct debit processes existing in some countries today which rely on mandates issued by the customer's bank (debtor bank).
Today's national direct debit schemes fall into two broad categories: those that are creditor driven and those that are debtor driven. The Core Scheme is based on the first model. It uses a traditional paper document featuring the handwritten signature of the customer as basis of the agreement between a debtor and a creditor. Under the Core Scheme, the debtor completes and signs a paper-based mandate and sends it directly to the creditor. In this scenario the debtor bank does not receive any mandate-related information from its customer nor is the debtor bank responsible for checking the right of a creditor to collect a payment from a debtor's account. At the same time, an easy, no-questions-asked refund procedure within the timelines specified in the Payment Services Directive (PSD) applicable in all countries protects the customer from unwanted debits to his account. The creditor - not the debtor bank - is responsible for storing the original mandate, together with any information regarding amendments relating to the mandate information or its cancellation.
When issuing an electronic mandate under the Core Scheme, however, the debtor bank must check whether the person who issues an e-mandate is indeed authorised to accept direct debits on the account specified in the e-mandate. In addition, the e-mandate option enables not only the creditor but also the debtor bank to obtain and to store the mandate information provided by the customer. As such, the e-mandate solution provides the necessary level of comfort to bank customers in those countries where today the debtor bank customarily checks on the validity of mandates underlying direct debit collections from customer accounts.
The availability of e-mandates will depend largely on market demand
The use of the e-mandate feature requires that both the debtor bank and the creditor bank participating in the Direct Debit Scheme support this feature. Since it is optional for banks to offer the e-mandate solution as part of their Direct Debit customer propositions, its availability will largely depend on market demand. As mentioned above, such demand might materialise based on consumers' expectations as regards the involvement of the debtor bank in the process of issuing mandates.
Another aspect to consider in this context is the open question whether it will be possible to use existing mandates issued under national direct debit schemes to authorise Direct Debit transactions. Should mandate migration eventually not be possible in some countries, availability of the e-mandate solution might serve as an alternative catalyst for the migration of significant transaction volumes to the Direct Debit. At the same time, implementation of the e-mandate option will reduce the cumbersome management of large quantities of paper-based mandates for corporate bank customers.
To complete the range of Direct Debit Schemes developed by the , the e-mandate feature will also be included in the Business to Business Direct Debit Scheme Rulebook at a later stage.
For a detailed description of the e-mandate solution refer to Annex VII of the SEPA Core Direct Debit Scheme Rulebook version 3.2 .
John Holsberg is a member of the Payment Schemes Working Group (SPS WG) and the Chair of the E-Mandate Task Force.
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