As a ‘local’ payment instrument for the entire Eurozone, the SEPA direct debit will, in the medium-term, replace today’s many different national direct debit schemes. For the cross-border collection business, this is a significant development since currently there is no standardized product for direct debits. The EU Payment Services Directive is in principle a pre-condition for harmonizing today’s differing legal jurisdictions regarding direct debit refunds and for enabling the use of direct debits across national borders according to the new scheme rules.
The Directive has been transposed into national law in most of the participating countries. 

SEPA direct debit transactions are based on a direct debit mandate, which the debtor (payer) gives to the creditor (payee). The latter submits the direct debit to his bank for collection. The direct debit data at the same time contains the electronic mandate data. Hence, the debtor’s bank receives the mandate information integrated in the clearing process. The debtor’s bank is not obligated to dispatch the mandate data received to its customer (the debtor), nor is it required to check or administer this data. However, it may offer such functions to its clients as value-added services.

Key Features of SEPA Core Direct Debit include: 

• Allows for domestic and cross-border direct debits
• IBAN and BIC replace national account numbers and sort codes
• The SEPA direct debit is a collections process based on a mandate signed by the debtor and presented to the creditor
• This mandate is standardized in content and must be issued in the language of the debtor’s country of residence
• New data elements:
  -  A unique mandate number to be assigned by the creditor
  -  A centrally assigned creditor identifier
  -  Dedicated optional creditor reference field (end-to-end reference)
  -  Dedicated optional on-behalf-of fields
  -  Optional purpose and category purpose codes
• The SEPA XML format is binding for the exchange of payments between banks (however, banks may continue to accept other formats from customers for the instruction of SEPA payments)
• Execution times:
  -  Direct debits will have a due date to be assigned by the creditor, which is the date on which the
     debtor is debited
  -  The date and amount of the direct debit is communicated to the debtor no later than 14 calendar
     days prior to the due date (however, other arrangements can be agreed on)
  -  Initial direct debits or one-off direct debits are sent to the clearing five business days prior to the
     due date
  -  Subsequent direct debits under a mandate must be sent to clearing two business days prior to
     the due date
  -  Any returns by the debtor bank (e.g. if the account has been closed) must be effected no later
     than five business days after the due date
  -  The debtor can return the direct debit up to 8 weeks after the due date
  -  Unauthorized direct debits (for which the debtor has not signed a mandate) can be returned up to
     13 months after the due date
  -  The mandate expires 36 months after the last initiated direct debit

The SEPA Direct Debit will replace domestic legacy schemes in the medium term. The importance of old infrastructures and formats will start to wane and eventually they will be no longer required.

Additionally, the SEPA Direct Debit will be further enhanced over the next few years. For example, the EPC is developing a concept for the electronic creation, validation and exchange of SEPA direct debit mandates in a real-time process. The objective of this service is to reduce administrative costs and enhance security for creditors, especially in the online business. For debtors, the convenience in using direct debits by signing mandates in a fully electronic way will be increased.

• Returns by the debtor are not possible, i.e. B2B direct debits will not be refundable (whereas in the core scheme the debtor can request refund of a direct debit up to eight weeks after the debit date)
• Therefore, the bank of the debtor must conduct a mandatory mandate check to verify that the direct debit is indeed valid
• Also, there is a shorter collection cycle of D-1 (D being the due date) for first and subsequent collections
• All returns by banks will be settled on D+2 at the latest
• Finally, B2B direct debits will be identified by a specific transaction code in the collection message