SEPA Direct Debit Integration Guide

SEPA (Single Euro Payments Area) Direct Debit allows businesses to collect payments directly from customer bank accounts across 36 European countries.

Why consider SEPA DD:

• Lower fees: 0.2-0.5% vs 1.5-2.5% for cards
• No card expiration: Bank accounts don't expire
• B2B friendly: Businesses often prefer bank payments
• High-value suitable: No transaction limits like cards

Challenges:

• Setup complexity: Mandate collection required
• Settlement time: 3-5 business days
• Failure handling: Returns can happen weeks later
• Customer experience: Less familiar than cards

SEPA DD works best as a secondary payment method alongside cards, particularly for recurring B2B payments or high-value subscriptions.

SEPA has two Direct Debit schemes with different rules and protections.

SEPA Core (consumers):

• Available to all account holders
• Customer can request refund within 8 weeks
• Unauthorized transaction claims up to 13 months
• Banks must support it
• Lower collection certainty

SEPA B2B (businesses):

• Only for business accounts
• No refund rights after payment made
• Mandate verification by debtor bank
• Not all banks support it
• Higher collection certainty

Choosing the right scheme:

• Use Core for consumer customers
• Use B2B for business customers when available
• B2B not supported by all banks—need fallback
• Check availability with customer's bank before setup

B2B advantages:

• No refund risk after successful collection
• Faster finality
• Better for high-value recurring payments

B2B limitations:

• Customer's bank must support B2B
• Mandate must be verified by bank
• Less widely available

Customers must authorize you to debit their account. This authorization is called a mandate.

Mandate requirements:

• Unique Mandate Reference (UMR)
• Creditor Identifier (your ID from payment provider)
• Customer IBAN
• Customer name and address
• Signature (electronic or physical)
• Date of signing

Electronic mandate collection:

• Online forms with checkbox consent
• E-signature platforms
• Payment provider checkout flows
• Must capture all required information

Mandate storage:

• Keep mandates for duration of relationship
• Plus 14 months after last collection
• Provide copy to customer on request
• Store securely (contains bank details)

Implementation via Stripe:

1. Create SetupIntent with payment_method_types: ['sepa_debit']
2. Customer enters IBAN in Checkout
3. Customer accepts mandate terms
4. PaymentMethod created and attached to Customer
5. Use for subsequent payments

SEPA DD has specific timing requirements unlike instant card payments.

Collection timeline:

Pre-notification:

• Inform customer before debiting
• Default: 14 days before collection
• Can reduce to 1-2 days with agreement
• Include amount, date, mandate reference

Submission:

• Submit collection to bank
• D-2 for first/one-off (2 days before)
• D-1 for recurring (1 day before)
• Cut-off times vary by bank

Settlement:

• Funds available D+2 to D+5
• Depends on payment provider
• Not immediate like cards

Planning for timing:

• Account for pre-notification period
• Don't rely on immediate fund availability
• Build in buffer for first-time collections
• Communicate timing to customers

Best practices:

• Collect well before due date
• Set consistent collection dates
• Send reminders before collection
• Have grace period for delayed settlement

SEPA DD failures can occur at multiple stages. Proper handling is essential.

R-transaction types:

Reject:

• Bank rejects before settlement
• Reasons: insufficient funds, account closed
• No funds received

Return:

• Customer or bank returns after settlement
• Within 8 weeks for Core (refund right)
• Within 5 days for B2B (unauthorized)
• Funds reversed from your account

Refund:

• Customer requests refund
• Up to 8 weeks for Core
• Must honor without question

Reversal:

• You initiate return
• Within 10 business days of settlement
• Used for errors or duplicates

Implementation requirements:

• Webhook handlers for all R-transactions
• Reconciliation to catch missed events
• Customer notification of failures
• Retry logic with backoff
• Fallback to card payment

Protecting against returns:

• Verify IBAN before collection
• Use B2B scheme for business customers
• Clear mandate language
• Good customer communication
• Monitor return rates by customer

Successful SEPA DD implementation requires attention to operational details.

Mandate management:

• Validate IBAN format before accepting
• Store mandate details securely
• Track mandate status (active, cancelled)
• Handle mandate amendments properly

Collection strategy:

• Fixed collection dates (1st of month)
• Consistent amounts where possible
• Clear pre-notification emails
• Easy way to update bank details

Failure recovery:

• Immediate notification to customer
• Clear instructions to resolve
• Automatic retry with delays
• Fallback to card if available

Compliance:

• Generate required SEPA XML files
• Maintain audit trail of collections
• Report suspicious activities
• Follow scheme rules precisely

When SEPA DD makes sense:

• B2B recurring payments
• High-value subscriptions (card fees significant)
• Customers who prefer bank payments
• Markets where card penetration is lower
• As backup for card failures

When to stick with cards:

• Consumer-focused products
• Need instant confirmation
• Variable amounts each period
• Global customer base