The Direct Debit () Schemes in a nutshell
The Core Direct Debit Scheme ( Core) and the Business to Business Direct Debit ( B2B) Scheme developed by the European Payments Council () - like any other direct debit schemes - are based on the following concept: 'I request money from someone else and, with his prior approval, I can credit it to myself'. The Schemes, for the first time ever, enable consumers to make cross-border direct debit payments throughout the 32 Single Euro Payments Area () countries1. At the same time, the Schemes can of course be used domestically. The payer and the biller must each hold an account with a payment service provider () located in . The accounts may be in the euro currency or in any other currency. The transfer of funds (money) between the payer's bank and the biller's bank always takes place in the euro currency. Currency conversion aspects are out of scope of the scheme.
For more information on the Schemes, refer to the publication 'Shortcut to Direct Debit' (see 'related links' below). This four page publication summarises the main features of the Schemes in non-technical terms, including their key benefits. Detailed information on the Schemes is available on the Website (see 'related links' below).
Billers collecting payments under the Schemes are obliged to obtain a creditor identifier
The Schemes allow a biller to collect funds from a payer's account provided that a signed mandate has been granted by the payer to the biller. A mandate is signed by the payer to authorise the biller to collect a payment and to instruct the payer's bank to pay those collections. The mandate can be issued in paper form or electronically. The mandate expires 36 months after the last initiated collection. Each mandate must include a so called 'unique mandate reference'. The biller must be able to provide a copy of a mandate identified by this reference upon request. The signed mandate must be stored by the biller as long as the mandate is valid and for at least 14 months after the last collection. The biller initiates the collection by sending the mandate-related data to his bank2. (Please see 'related articles in previous issues' below to learn more about the mandate as relevant for billers).
Payers are entitled to instruct their banks to refuse individual transactions. Many banks offer their customers automated facilities to introduce such a request. The efficient handling of a payer's request to refuse a direct debit collection from a specific biller is contingent upon the ability of the payer's bank to unambiguously identify this biller. This is not possible however, based on the name of the business which the biller represents. In many instances, the name of the business communicated to the customer is not the name of the business' legal entity. The fact that businesses operating in a specific sector such as, for example, telecommunications, use very similar names would also make it difficult to identify a biller based on the name of the business. Last but not least it has to be taken into consideration that enterprises operating in multiple countries often adapt the name of the business used in a specific market to the local language.
Billers collecting payments under the Schemes are therefore obliged to obtain a creditor identifier which relates to a legal entity, or an association that is not a legal entity, or a person assuming the role of the biller. The Rulebooks refer to the biller as the 'creditor'. The creditor identifier, in connection with the mandate reference, allows the payer and the payer's bank to verify each payment and to process or reject the direct debit according to the payer's instructions. The identifier must be stable over time to ensure that a payer and the payer's bank can contact the biller if required. This may be necessary, for example, to verify the existence of a mandate or in instances of returns or refunds of a direct debit collection.
A pragmatic approach: the Schemes rely on the re-use of existing creditor identifiers
A -wide creditor identifier solution is not required. Most national direct debit schemes already use defined identifiers. The Schemes rely on the re-use of existing creditor identifiers. Countries using a national identifier which has insufficient capacity or is unsatisfactory for -wide use may define a new or adapted national creditor identifier. The creditor identifier uses, wherever possible, information available in the public domain. Most national creditor identifier solutions, for example, use the number, Chamber of Commerce numbers, trade entity numbers or creditor identifiers issued by the national central bank or banking association. It is therefore not necessary to maintain a -wide centralised database containing all creditor identifiers and other data related to the biller.
A creditor identifier issued in one country can be used in all countries. A biller may use more than one identifier if they so choose, however one creditor identifier must always be attributable to only one biller. The creditor identifier therefore allows the unambiguous identification of any biller collecting payments under the Scheme within and across the 32 countries. Billers have to request this identifier according to local practice. Normally, billers receive their creditor identifier from their bank once the biller starts collecting payments under the Scheme.
Billers collecting payments under more than one national direct debit scheme today may already have several creditor identifiers. They are able to continue using these identifiers under the Scheme if the continued validity of the underlying mandates so requires. Solutions to ensure the continued legal validity of existing mandates under the Scheme have been implemented in all European Union Member States except Germany, to facilitate migration of bank customers to the Scheme.
The Scheme does not require that the biller maintains his bank account in the country where the creditor identifier was issued. Taking into consideration different bank practices however, billers are recommended to consult their bank in this matter. The existing creditor identifier can be maintained in the event that the biller changes his banking relationship.
The structure of the creditor identifier
The creditor identifier contains the following elements:
a) The International Organization for Standardization (ISO) country code of the country where the national identifier of the biller was issued, for example 'BE' for Belgium.
b) The check digit which allows verification of the ISO country code (item (a) above) and the country specific part (see item (d) below).
c) The extension, called 'creditor business code', which allows the biller to identify different business lines, services or activities. The creditor business code can be designed by the biller in a flexible manner to include information useful to both the biller and the payer. As unambiguous identification of the biller is not contingent upon the 'creditor business code', it is permissible to change the content of this element over time. The check digit (see item (b) above) does not verify the content of this element.
d) The country specific part of the creditor identifier is a national identifier of the biller as defined by a national banking community. In most countries, this national identifier contains a specific structure. As a result, this element of the creditor identifier varies across countries according to the structure established at national level.
The document 'Creditor Identifier Overview' (see 'related links' below) offers basic information on the country specific part of the creditor identifier enabling creditor banks to check the validity of a creditor identifier. The detailed specifications of the creditor identifier, as relevant in particular for creditor banks, are set out in the ' Core Direct Debit Scheme Inter-Bank Implementation Guidelines' published by the (see 'related links' below).
Javier Santamaría is the Chair of the Payment Schemes Working Group. Herman Segers is the former Secretary General of the . He also served as the editor of the Rulebooks for many years.
The Website features a section dedicated to . To view this section, click here
Publication: Shortcut to the SEPA Direct Debit
Related articles in this issue:
Related articles in previous issues:
SEPA Direct Debit for Billers: The SDD Mandate ( Newsletter, Issue 10, April 2011)
The Quantum Leap for SEPA Direct Debit. From 1 November 2010, all banks in the euro area are reachable for SEPA Core Direct Debit ( Newsletter, Issue 8, October 2010)
Have it Your Way! The EPC e-mandate option: a secure way to authorise a SEPA Direct Debit payment ( Newsletter, Issue 6, April 2010)
SEPA Survey 2009: Corporate Readiness on the Rise - The findings confirm that early movers have everything to gain ( Newsletter, Issue 5, January 2010)
Better Business with SEPA Direct Debit. Corporate customers confirm benefits of SEPA implementation ( Newsletter, Issue 4, October 2009)
Refunds and Returns Revisited. Questions and answers on the correlation between the PSD and the SDD Schemes ( Newsletter, Issue 4, October 2009)
Creditors: Help is Here. EPC introduces rules on the use of legacy mandates under the SDD Scheme ( Newsletter, Issue 2, April 2009)
1 currently consists of the 27 Member States plus Iceland, Liechtenstein, Norway, Monaco and Switzerland.
2The term 'bank' is used in a non-discriminatory fashion and does not exclude payment service providers other than banks.
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