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 scheme - are based on the following concept: 'I request money from someone else, and, with his prior approval, I can credit it to myself'. The Direct Debit Schemes ( 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 biller2 must each hold an account with a payment service provider () located in . The accounts may be in euro 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 this article.
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.
What is a mandate?
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 must be signed by either the payer who is the account holder of the bank account to be debited or by a representative of the payer authorised to sign the mandate on his behalf.
How must mandates be stored?
The Schemes are based on a direct debit model, referred to as the 'creditor-driven mandate flow' (CMF) - the creditor is the biller. This means that the payer completes and signs a paper-based mandate and sends it directly to the biller. In this scenario, the payer's bank does not receive any mandate related information directly from its own customer. The payer's bank receives the mandate related information with the first collection. To learn more about the CMF model, refer to the dedicated page on the Website (see 'related links' below).
Any paper mandate, together with any related amendments or information concerning its cancellation or lapse, must be stored intact by the biller, according to national legal requirements and the terms and conditions of the bank of the biller. After cancellation by the payer, the mandate must be stored by the biller according to the applicable national legal requirements and the terms and conditions of the biller's bank.
The signed mandate - regardless whether it is paper-based or electronic - must be stored by the biller for as long as the mandate exists and for an additional fourteen months after the last collection presented. This is necessary because the Payment Services Directive (PSD) stipulates a refund right for a payer during the thirteen months following the debiting of an account in the event of an unauthorised collection. If a payer requests a refund of a direct debit collection, claiming an unauthorised collection, the biller must be able to produce a copy of the underlying mandate if he wishes to prove that the collection was duly authorised.
Expiration of the mandate
The mandate expires 36 months after the last initiated collection. This means: if a biller does not present a collection under a mandate for a period of 36 months, the biller must cancel the mandate and is no longer allowed to initiate collections based on this cancelled mandate. The 36 month period starts from the date of the latest collection presented, even if rejected, returned or refunded. Should the payer and the biller agree to re-establish payment by direct debit for goods or services exchanged, a new mandate must be issued.
To learn more about the option to issue an electronic mandate (e-mandate), refer to the article 'Have it Your Way! The e-mandate option: a secure way to authorise a Direct Debit payment' (see 'related articles in previous issues' below).
This article covers the information that must be included in a paper mandate form as defined in the Core Rulebook.
How to create a user-friendly paper mandate form
Mandate forms, to be completed by payers, are usually made available by billers themselves, provided the biller offers as a means of payment. The illustration of the mandate as it appears in the Core Rulebook (see 'related links' below) features the most comprehensive layout possible. In actual usage, however, the mandate may be streamlined in a number of ways without losing any essential content while still remaining compliant with the rulebook (see, as one example, the sample mandate under 'related links' below). The offers guidance to billers on the creation of streamlined, easy-to-use paper mandates. This information is set out in the document 'Guidelines for the Appearance of Mandates' (see 'related links' below). This document features additional examples of mandate forms, compliant with the Core Rulebook. The also provides translations of the mandate text as specified in the Rulebooks into the languages (see also 'related links' below).
In many cases, the mandate form itself does not have to include all the information required for the authorisation of a collection, provided that this information can be obtained from other sources. It also needs to be kept in mind that most of the information included in a mandate can actually be supplemented by the biller and may as such already be part of the mandate form which the biller creates. Payers who complete and sign such mandate forms will eventually provide virtually the same information with a mandate as in any mandate issued under most national direct debit schemes existing today. The mandate is in fact an easy-to-use tool for payers and billers alike.
What information must be included in a mandate?
The specific information to appear in a mandate is defined in section 4.7.2 of the Core Rulebook (see 'related links' below). The mandate is issued in the language of the country of residence of the payer. If more than one official language exists in the country of residence of the payer, the mandate information may be featured in several languages. English language text may be added if the biller is not able to determine with certainty the language of the payer prior to completion of the mandate form.
The biller should ensure that the information on the mandate form is clearly legible and easily intelligible to the payer. The mandate should provide for a separate field headlined 'Creditor's Use Only'. Information included in this field should reflect any additional and / or separate agreements between the biller and the payer which is not related to the authorisation of the direct debit collection. The Rulebook does not standardise the font or the colours used in the mandate.
The paper mandate must feature the headline ' Direct Debit mandate'. It is mandatory to include the term '' in this headline, regardless of the language in which the mandate is issued. A translation of the term '' may be added.
The following fields or data elements are mandatory in any mandate:
1. The unique identifier of the mandate ('unique' in the sense that upon request of a third party to obtain a copy of the mandate identified by this unique identifier, the biller must be able to provide a copy of the mandate paper based unambiguously on this identifier).
2. Name of the payer.
3. Address of the payer (street and street number).
4. Payer's postal code and city of residence of the payer.
5. The payer's country of residence.
6. The payer's account number (International Bank Account Number - IBAN).
7. The Business Identifier Code (BIC) of the payer's bank.
8. Company name of the biller.
9. Identifier of the biller (each biller is identified in the Schemes by a unique identifier provided to the biller, by the bank of the biller).
10. Address of the biller (street and street number).
11. The biller's postal code and city where biller is located.
12. The country where the biller is located.
13. Type of payment (one-off collection or recurrent collections).
14. Line indicating place and time of signature.
The following optional fields or data elements may be included in a mandate:
1. Payer identification code: this code may be provided by the payer as agreed with the biller, e.g. a customer identifier specific to the biller's organisation.
2. Name of the payer reference party: the reference party is the party on whose behalf the payer is signing the mandate, e.g. a family relation of the payer such as parents -paying for their children - the reference party.
3. Identification code of the payer reference party: the code agreed between the biller and the payer on the identification code of the reference party (see under 2).
4. Name of the biller reference party: the reference party of the biller is a third party on whose behalf the biller is collecting payments. This third party may be the party contracting with the payer in the underlying contract. The mandate is established to make the necessary payments related to the goods and /or services delivered as agreed in that contract.
5. Identification code of the biller reference party: an identifier of the reference party of the biller (see under 4) provided by the biller to the payer when the payer is completing the mandate.
6. Underlying contract identifier: the identifier of the contract between the biller and the payer specifying the goods or services exchanged. This contract is the basis upon which the mandate is signed in case the customer wishes to pay by for the goods or services received.
7. Contract description: description of the underlying contract as proposed by the biller.
These optional fields should only be included on the mandate form if the biller intends to use these fields.
It is the responsibility of the biller to communicate the data elements included in the paper mandate to his bank when initiating a collection, i.e. the biller must transfer this data electronically to his bank without altering its content. The biller's bank then transmits this data to the bank of the payer as part of the collection message. This process is referred to as the 'dematerialisation of the mandate'. The Rulebook provides options for the payer's bank to contact the payer to allow him to verify authorisation of a direct debit collection if the payer requires such a mandate check.
Validity of existing mandates under the Scheme
To facilitate migration of bank customers to the Scheme, it is imperative that mandates existing today can be used under the Scheme, even if these do not happen to meet all the requirements of the mandate. Where necessary, Member States must devise legislative solutions to ensure the continued legal validity of existing mandates under the Scheme. According to the European Commission's Services' Second Annual Progress Report on the State of Migration in 2009 this issue has been addressed in all Member States 'with the important exception of Germany'. Direct debits are used twice as much in Germany as in the rest of the European Union3. Billers wishing to learn more about solutions implemented at national level to ensure the continued validity of existing mandates under the Scheme, should contact relevant institutions at national level or their local (s). The pages of the European Central Bank website feature -related contact links at national level. To view this contact information, click here.
The is aware of potential difficulties faced by billers who wish to transition to the Scheme using existing mandates which may not be fully compliant with the scheme requirements on form and content of mandates. The therefore introduced into the Rulebooks, a specific section which provides significant practical assistance to billers by waiving certain requirements for these legacy mandates if used under the Scheme. For more information on this subject refer to the article 'Creditors: Help is Here. introduces rules on the use of legacy mandates under the Scheme' (see 'related articles in previous issues' 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 Schemes are based on the so-called 'creditor-driven mandate flow' (CMF). The Website features a page which explains the CMF model. To view this page, click here
The Website features a page dedicated to the mandate. To view this page, click here
Publication: Shortcut to the SEPA Direct Debit
Related articles in this issue:
The SEPA Regulation - A Progress Report. First reactions by European Parliament and Council of the European Union introduce important improvements to European Commission's proposal for a SEPA Regulation
Related articles in previous issues:
Have it Your Way! The EPC e-mandate option: a secure way to authorise a SEPA Direct Debit payment ( Newsletter, Issue 6, April 2010)
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 technical terms used in the Rulebooks refer to the payer as 'debtor' and to the biller as 'creditor'.
3: Uniform Payment Instruments for Europe. Association of German Banks. 4th revised edition. December 2010.
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