Pioneering European Direct Debits (SEPA) and Mandate Management
by Begoña Blanco Sánchez, Senior Product Manager, Véronique Steleman, Sales Consultant, and Peter Hardeman, Product Manager, Payments & Cash Management, ING
The European Direct Debits went live in November 2009. Since then, ING has been a pioneer in supporting clients moving from domestic direct debit arrangements in Eurozone countries, particularly in Belgium which was the country ING chose for its pilot project. In this article, ING outlines how we have addressed some of the opportunities and challenges that corporate clients have experienced, and the solutions that are becoming available to facilitate efficient migration.
Motivation for European Direct Debits migration
Inevitably companies have different reasons for migrating to European Direct Debits. In some cases, clients are creditors who want to take advantage of the non-refundability provision in the European Direct Debits business to business (B2B) scheme. In Belgium, for example, the domestic scheme allows the immediate right to refund if requested by the customer, which adds risk and unpredictability to the creditor. Consequently, there are clear benefits in migrating to the European Direct Debits B2B scheme in this instance.
Another group of companies attracted to European Direct Debits are those who have not used a domestic direct debit scheme in the past, and therefore are implementing European Direct Debits directly without the need to migrate from a legacy scheme. Clearly the experience for these clients is the most straightforward, as there is no need to convert mandates or existing formats.
In addition, there are companies with a pan-European customer base, who have either not been in a position to use direct debits for collections in the past, or who have had to maintain separate collection banks and/or accounts with different conditions in each country. These companies can benefit from harmonised conditions with same-day value in a single account under the European Direct Debits scheme. Consequently, European Direct Debits presents a significant opportunity to automate, accelerate and harmonise the collections process for all customers in the Eurozone, which is a major factor in encouraging companies to implement European Direct Debits, particularly the B2B scheme.
There are other motivating factors in companies’ decision to migrate to, or implement European Direct Debits. For example, European Direct Debits is based on ISO 20022 XML formats. XML is becoming a company-standard for messaging and integration amongst many of our clients; therefore the ability to leverage XML is considered an important advantage by some companies.
Obstacles to European Direct Debits migration
Despite the opportunities that the European Direct Debits scheme presents, there are inevitably some challenges and concerns to be overcome, as follows.
Creditor mandate flow
Some countries currently have direct debit schemes based on a debtor mandate flow, i.e., debtor banks are responsible for maintaining mandates. In contrast, the European Direct Debits scheme has a creditor mandate flow, so creditors are responsible for maintaining and validating mandates. This represents a substantial shift in responsibility, and potentially increases the administrative requirement dramatically for companies with a high volume of direct debits.
The requirement for XML
Another challenge is that while some companies are keen to promote XML standards within their organisation, others have domestic formats more entrenched within their technology infrastructure, which makes it more difficult to adopt new XML-based formats.
File delivery times
While creditors have been accustomed to delivering direct debit files to their bank only one day before value date, under the European Direct Debits scheme, files must be delivered either five days beforehand (for one-off and first collections of recurrent direct debits) or two days beforehand (for subsequent collections of recurrent direct debits) or one day beforehand (for B2B direct debits). This creates additional pressure on already stretched business processes and has the potential to delay collection dates, with the resulting impact on working capital.
Finally, European Direct Debits does not yet have full reachability across every bank that supports direct debits. This is generally more of an issue for companies seeking to implement European Direct Debits on a pan-European basis; however, this is a short-term obstacle as it will become mandatory for banks to support European Direct Debits by November 2010.