SEPA Direct Debit. in e-commerce

Transcription

1 SEPA Direct Debit in e-commerce

2

3 by Dipl.-Kfm. Jens H. Leinert

4 Acknowledgements Author Jens Leinert Editor Sebastian Paulke Layout Vera Golina A project by PAY4 GmbH & P4 Solutions GmbH Contact c/o PAY4 GmbH Hanauer Landstraße D Frankfurt am Main Tel: Fax: marketing@pay4.eu Web: ISBN Copyright Jens Leinert 2013 All rights reserved. This document and all its parts are protected by copyright. Any unauthorised use outside the narrow limits laid down by the Copyright Act is not permissible without the written permission of Jens Leinert and shall be liable for prosecution. This shall apply without limitation to reproductions, translations, microfilms and storage in electronic systems. However, circulation of the document in its digital form is expressly permitted and welcome in accordance with the Creative Commons please feel free to distribute the SEPA Direct Debit for e-commerce pdf to colleagues, business partners and other interested parties at any time! The copyright for all pictures, brands, brand names, products and product names used in this study lie with their respective owners. 4 SEPA Direct Debit in e-commerce

5 1. Foreword Europe will finally receive long-awaited harmonisation of payments for European and international e-commerce. The SEPA Direct Debit will commence operations on 1 February In doing so, there will be a uniform European payment standard for the first time, in addition to credit cards and popular alternative payment methods. In turn, all national direct debit processes in Europe will be discontinued immediately, thus ending a lengthy introductory phase that has lasted since The benefits of the SEPA Direct Debit are significant for all parties. All European citizens already fulfil the prerequisite for the SEPA Direct Debit, which is only limited to those with their own bank account. European end customers will now also get a trusted payment method proven in everyday life for their cross-border purchases. In contrast to credit cards, direct debit is generally considered by European consumers to be a more secure payment type. For European and international e-commerce companies, the SEPA Direct Debit means: direct access to 500 million potential European customers who meet the SEPA preconditions with their own bank accounts from the start direct access to a new payment method that is a already established and accepted by consumers in Europe direct access to the bank accounts of consumers to process one-off and recurring payments and therefore immediate cash inflow in three working days direct access to a payment method that is extremely reliable for both end customers and online merchants direct access to a customer-oriented checkout process and thus higher conversion rates a reduction in returned direct debits via e-mandate from 13 months to just 8 weeks payment processing and control costs are automatically reduced to a minimum. Time is pressing for the integration of a new SEPA Direct Debit to profit from the new payment method from 1 February 2014 onwards. To achieve this integration, e-commerce companies must create some, albeit few, conditions. In addition to the integration of IBAN bank details, this also includes applying for a Creditor ID, a new agreement with the primary bank as well as the technical preparation of the actual payment and collection processes. It is also necessary to establish the new PAIN format and enlargement of customer databases to include the Mandate ID fields and create equivalence with the specific requirements of the banks operating in the country in question. Time and again, I am confronted with all manner of questions in my daily work and in numerous discussions with banks and online merchants, both in Europe and worldwide. This brochure should examine these issues in advance and support the integration of the SEPA Direct Debit in the checkout process. As a result, the most successful and popular payment method in Germany and Austria will also be available in other European countries and for international e-commerce companies from 1 February 2014! I hope you find this an illuminating read! Jens Leinert SEPA Direct Debit in e-commerce 5

6 2. About the Author Jens Leinert Jens Leinert is CEO of PAY4 GmbH, headquartered in Frankfurt am Main. Since 1996, Jens Leinert has been committed to exploring the commercial opportunities presented by the Internet, from his dissertation on Problems and Opportunities in Multimedia Commerce in 1996 via a directorship for a shopping software company through to CEO of a payment service provider. During this time, Leinert has worked as a payment adviser, publishing numerous papers on Internet payment systems. 3. About the Publisher PAY4 GmbH is a Payment Transaction Provider specialising in the technical processing of alternative payment methods for payment transactions on the Internet. PAY4 offers internet merchants technical processing of the most common payment methods in Europe from a single source, such as National Direct Debit, SEPA Direct Debit, ewallet and online bank transfers for Germany, Austria, Switzerland, Belgium, Netherlands, Italy, Poland and England. With qooqo, PAY4 is also the first to offer an mpayment system for point of sale, online and mobile payments, available internationally. PAY4 is one of the leading providers of direct debit payments in Europe. P4 Solutions GmbH is a payment processor for payment service providers (PSP) and banks. Payment service providers can use P4 Gateway to offer their merchants payment processing for SEPA Direct Debit, credit cards, online bank transfers or various ewallets such as qooqo, PayPal, webmoney, yandex and qiwi. Thanks to PCI certification, P4 can guarantee a high level of security of all data for the payment methods it supports. 6 SEPA Direct Debit in e-commerce

7 4. Table of Contents Acknowledgements Foreword About the Author About the Publisher Table of Contents Introduction What is SEPA? Are you SEPA ready? SEPA Credit Transfer (SCT ) SEPA Direct Debit (SDD) General direct debit overview and potential of SEPA Direct Debit SEPA Rulebook What does this mean for online merchants? Changes to SEPA Direct Debit versus current direct debit Mandate characteristics Migrating existing customers to SEPA Direct Debit One-off versus recurrent payment mandates Creditor ID Pre-notification of direct debit charges AVIS period SEPA Direct Debit processing systems E-mandate module Electronic signature PIN / TAN authentication SMS authentication authentication Quality call SEPA Mandate Server SEPA Processing System Risk management Bank file generation Bank communications Bank file processing SEPA ready for e-commerce...27 SEPA Direct Debit in e-commerce 7

8 5. Introduction The European Union set itself the objective of standardising the European payments space. With this in mind, EU Regulation No. 260/2012 ( SEPA Migration Regulation ) will come into force on 1 February This regulation shall apply in all 28 EU member states as well as in Iceland, Liechtenstein, Monaco, Norway and Switzerland. From 1 February 2014, direct debit processes in each country will be replaced with a new uniform SEPA Direct Debit for the whole of Europe. This will simultaneously pave the way for using this payment method for cross-border payments in the e-commerce sector. The most striking change is the change from national bank details and account numbers to the uniform European IBAN and BIC system. The introduction of the SEPA process thus means that new file formats and business processes will be used for payment processing and communication between end customers, merchants and banks. This SEPA Direct Debit for e-commerce handbook is intended for all European and international online merchants. It should provide specific support and guidelines to enable you to adjust to the new situation in good time by 31 January 2014 and thus quickly enhance the new potential for growth. Important note: Companies that have previously processed their payments via the Internet or by telephone shall lose these revenues at the start of the SEPA Direct Debit if they have not completed the adjustment to their internal and external processes by 31 January next year. The opportunities here are enormous for all online merchants in Europe who want to operate their e-commerce business across Europe or grow it within Europe. It is also a huge opportunity for international merchants to generate more customers in Europe or those who do not wish to put themselves at risk of finding themselves at a competitive disadvantage in their European business. This SEPA handbook helps all those affected to take the right steps in the right order so that they can ensure a seamless transition to the new SEPA world of e-commerce. 8 SEPA Direct Debit in e-commerce

9 6. What is SEPA? Definition SEPA stands for Single Euro Payments Area, in which domestic and cross-border payments can be made in euros based on the same rules. Objectives SEPA enables borderless payments across Europe using consistent payment instruments and standards. Basic common procedures for EU payments Common data formats Common jurisdiction for EU payment procedures IBAN and BIC instead of national account numbers and bank sort codes Currency is always the euro Can be used for domestic and cross-border European payments Recipient s account credited within one business day Introduction of SEPA Direct Debit New direct debit conditions come into force National credit transfers and direct debits abolished and replaced by SEPA processes Introduction of SEPA Credit Transfer The Single European Payments Area consists of 33 European countries and more than 500 million citizens. SEPA Direct Debit in e-commerce 9

10 7. Are you SEPA ready? There are essentially three payment methods affected by the SEPA Regulation: SEPA Credit Transfer SEPA Direct Debit B2B SEPA Direct Debit B2C SEPA Direct Debit SEPA card payments For SEPA card payments (i.e. payment with EC or bank cards in a shop), there is an extended transition and changeover period until 31 January As a result, SEPA card payments will not be reviewed in detail in this handbook given its Internet focus. 10 SEPA Direct Debit in e-commerce

11 8. SEPA Credit Transfer (SCT ) From 1 February 2014, SEPA Credit Transfers shall replace national credit transfer processes in Eurozone countries once and for all. Those making and receiving payments as well as their payment service providers shall be identified by two specific numbers in SEPA Credit Transfers: the IBAN (International Bank Account Number) the BIC (Business Identifier Code) instead of the traditional account number and bank sort code. IBAN / International Bank Account Number (22 digits) Consists of country code Check digits Bank sort code Account number Check digits (two-digit) Account number (10-digit, missing characters are e.g. filled from the front with zeros) Country code (two-digit) Bank sort code (eight-digit) Short name of institution Country BIC / Business Identifier Code (8 or 11 digits) Location Branch Bank identifier (4-digit) Country (2 digit) Location/Region (2-digit) Branch identifier (3-digit) SEPA Credit Transfers can be exclusively processed in euros. For payments in other European currencies (e.g. British pound or Danish kroner), specific additional forms (e.g. an overseas bank transfer) and processing conditions (e.g. fees, execution periods) are required. A SEPA Credit Transfer must be credited to the recipient s account after one bank working day. Similarly, a European SEPA Credit Transfer may not be more expensive than a national bank transfer. In e-commerce, SEPA Credit Transfers are primarily used for payment in advance or payment by invoice. Online merchants must ensure that they provide end customers with their IBAN and BIC bank details. It therefore makes sense for the IBAN and BIC bank details to be clearly indicated on invoices and on the website with immediate effect, and to continue to provide national bank details until the end of the year. The benefit of this standardised European credit transfer is clear, as the switch to SEPA means no more overseas bank transfers! It doesn t matter whether the end customers is transferring funds from Munich, Milan or Madrid; the transfer is the same for every European. This provides the possibility of selling goods and services more efficiently across Europe and offering online payment in advance and/or by invoice on a Europe-wide basis. SEPA Direct Debit in e-commerce 11

12 9. SEPA Direct Debit (SDD) Payment by direct debit is one of the most popular methods of online payment for e-commerce in the German-speaking nations. On the one hand, this is because direct debit gives end customers the option to reverse a direct debit within eight weeks, without any complications or any need to provide reasons. On the other hand, direct debit is popular among online merchants because it is one of the simplest and cheapest payment methods for physical or digital goods purchased online. SEPA Direct Debit offers the potential to rapidly increase growth in the European e-commerce sector and for international e-commerce companies operating in Europe: SEPA Direct Debit gives the cross-border Internet industry an immediate opportunity to finally offer around 500 million consumers in 33 European countries one of the most successful and convenient payment methods as a common pan-european payment standard. All online merchants within Europe need to do is use the guidelines to modify their current national direct debit process to correspond with the new European guidelines, whereas international e-commerce platforms simple expand their existing system to include the new payment standard General direct debit overview and potential of SEPA Direct Debit Direct debits are cashless payment transactions. The payment transaction is triggered by the online merchant so that an amount specified in advance by the merchant is debited from the customer s bank account. Therefore, the payment order is only indirectly issued by the customer via the online merchant. In addition to one-off direct debits, such as those made when shopping online, the direct debit mandate process, the functionality of which is also being taken over by SEPA Direct Debit, is of particular significance for the Internet industry. This process offers the execution and processing of recurring payments using a mandate issued by the customer that, depending on the terms of the contract, results in the authorised regular debiting of a fixed or variable amount on a specific date or as specified by the customer until the end of the agreement. 12 SEPA Direct Debit in e-commerce

13 Direct debit is a long-established payment method, particularly in the European heartland, which significantly simplifies the processing of one-off and recurring payments in e-commerce. Direct debit is most widely used in countries such as Germany, Austria, Netherlands, Spain and Great Britain, where it is firmly embedded as a payment option within the payment process. Invoices are paid by direct debit within 3 bank working days. Any returned direct debits are quickly and easily identified so that subsequent payment reminders and warnings can be issued promptly. E-commerce also benefits from the low fees and strong degree of customer acceptance associated with direct debit, which leads to higher conversion rates. As a result, the integration of SEPA Direct Debit offers sustainable benefits for both European and international companies. Specific advantages for e-commerce companies within Europe: For many European countries, SEPA Direct Debit represents a major step towards modern payment processing and all the advantages this brings. For example, up to now, monthly mobile phone payments in Latvia have been made via . Each month, the user has to settle the invoice via online banking each month; it is not possible to standardise the process as the amounts due change each month. If payment is not made on time, the user s mobile network connection is temporarily suspended. SEPA Direct Debit would automatically take over all the processing required and thus ensure that the user can be reached without interruption. SEPA Direct Debit also significantly simplifies internal processes for mobile communications providers. Payments would be made to the provider s account via direct debit within 3 bank working days rather than after 2-3 weeks. This would automatically eliminate potential errors such as an incorrect reason for payment, which means that only payments not received and/or non-payers would need to be checked. Likewise, any returned direct debits are promptly identified so that payment reminders and warnings can be issued immediately. As a result, switching to SEPA Direct Debit would reduce administrative costs to a minimum and quickly generate liquidity. SEPA Direct Debit thus offers both parties mobile communications providers and users alike obvious added value and an improvement in customer relationships. The benefits illustrated in this example can be transferred to anything within the e-commerce sector. For example, online dating websites can automatically collect their members monthly subscriptions using SEPA Direct Debit. Similarly, games providers would be able to automatically debit subscriptions or replenish prepaid accounts in future with a one-off approval from the customer. As a result, setting up recurring payments in a customer-oriented way and establishing lasting customer relationships has never been so simple. Direct debit s high level of acceptance among the population also makes it indispensable in e-commerce. SEPA Direct Debit offers the same potential for online shops to win new customers more easily and significantly increase their conversion rate. Businesses that would benefit directly include fashion and lifestyle online shops as well as wine merchants and brick-and-mortar stores with an additional online shop, for example. According to the German Retail Association (HDE), 46 percent of online trading in Germany integrates direct debit into its payment process, whilst 16 percent of total sales are generated by direct debit payments. In conclusion, SEPA Direct Debit will unite 33 European countries and make cross-border e-commerce simpler than ever before. Online merchants already offering direct debit as a payment option can continue to do this and in doing so, preserve the sales they generate via direct debit. Online merchants who will be integrating SEPA Direct Debit into their payment process for the first time will simplify their recurring payment processes to a minimum, whilst direct debit s high levels of acceptance will generate new sales and thus increase conversion rates. For international merchants outside Europe, the standardisation of direct debit offers direct access to 500 million potential customers, a market opportunity previously denied to them. SEPA Direct Debit therefore meets all the conditions significant for e-commerce: securing and increasing sales. SEPA Direct Debit in e-commerce 13

14 9.2. SEPA Rulebook The European Payment Council (EPC, has clearly defined regulations for the SEPA Direct Debit. Amongst other things, this means that SEPA Direct Debits can be executed either with or without a mandate. If a mandate exists, the consumer can reverse the debit within eight weeks from the date of collection. In all cases where a purchase is offered without a mandate, the consumer has 13 months in which to reclaim his money if the direct debit was unauthorised. The EPC differentiates between two types of mandate the written mandate (direct debit mandate) issued personally by the customer either in person or by post, and the so-called e-mandate as an alternative for e-commerce. The specific form of such an e-mandate has not been defined in detail by the EPC, as the opportunity to develop this should be left to the market What does this mean for internet merchants? Internet merchants must enquire with their bank as to whether this requires a personally signed paper mandate. If there is no mandate, the end customer can reverse the direct debit payment for up to 13 months from payment. If there is an electronically issued mandate (e-mandate) as described above, the charge back risk is reduced to eight weeks. Does your bank require a personally signed paper mandate? Alternatively, banks are available in 33 European countries. We would be glad to help you find an alternative upon request Changes to SEPA Direct Debit versus current direct debit When dealing with the SEPA Direct Debit, a distinction is made between SEPA Core Direct Debit and SEPA B2B Direct Debit. E-commerce will primarily use SEPA Core Direct Debit; as a result, SEPA B2B Direct Debit will not be discussed in detail at this point. The SEPA Direct Debit process enables domestic and cross-border direct debits in euros. The biller requires a SEPA Direct Debit mandate from the payer. With a Direct Debit mandate, the payer authorises the biller to collect the amount due and issue an instruction to the payer s bank to honour the direct debit. The biller must issue a pre-notification 5 to 10 days before collecting a payment. 14 SEPA Direct Debit in e-commerce

15 Submission deadlines Day 0 Due date = debit date - 14 calendar days Latest day on which biller can notify payer of amount and date - 3 business days Latest day for submission of recurring core direct debits + 5 business days Possible for payer s bank to return direct debit + 13 months Period for payer to reverse payment where there is no valid mandate (EXCEPTION) - 6 business days Latest day for submission of first-time core direct debit + 8 weeks Period for payer to reverse payment (core direct debit) Submission deadlines (AVIS) of the payer s bank must be observed when submitting a direct debit. These deadlines are five business days for initial/one-off direct debits and two business days for subsequent direct debits. In the case of a SEPA COR1 Direct Debit, the AVIS period can be shortened to one business day. The end customer may reverse the direct debit within eight weeks of the account being debited without giving reasons. For SEPA Direct Debits carried out without a mandate, the reversal period is 13 months. Merchants require a Creditor ID. Format: XML-based SEPA format (PAIN) instead of DTAUS. A SEPA Direct Debit mandate is valid indefinitely. However, the mandate expires if not used within 36 months. The biller is required to retain the mandate for at least 14 months after the last payment is collected (legal basis in Germany, for example: Section 257 of the German Commercial Code (HGB) and Section 147 of the German Fiscal Code (AO). 0. Obtaining mandate 1. Mandate 2. Pre-notification Biller Payer 5. Debit entry 3. Transaction and mandate information Clearing & Settlement Biller bank 4. Forwarding of all information Payer bank SEPA Direct Debit in e-commerce 15

16 10.1. Mandate characteristics Biller information Name and address Creditor ID number Mandate reference ID Designated as either a one-off or recurring payment Payer information Name and address of account holder IBAN/BIC Signature and date The mandate must not contain the amount or the debit date. This information will be passed to the end customer in the pre-notification, which may be sent via or on the invoice Migrating existing customers to SEPA Direct Debit End customers who have issued a written direct debit mandate before 1 February 2014 may also be debited by SEPA Direct Debit after the SEPA migration date. These direct debit mandates must be provided with a Unique Mandate Reference and saved on the mandate server. National bank details must also be converted to IBAN/BIC. If there are no written direct debit mandates in place, it is advisable to request that an e-mandate be issued for the next online purchase One-off versus recurrent payment mandates When dealing with the SEPA Direct Debit, a distinction is made between one-off-payment and recurrent payment. A one-off payment mandate expires after the direct debit has been successfully executed. No fixed debit amount or debit rota needs to be specified in the case of a recurrent payment mandate. A one-off mandate is suitable for end customers who only shop once as a guest, for example. It is recommended that recurrent mandates be used in e-commerce. A recurrent mandate should be obtained from each purchaser so that no new mandates are required when the end customer makes their next purchase. One further benefit is that the AVIS period is shortened from five to two bank working days for subsequent purchases. 16 SEPA Direct Debit in e-commerce

17 10.4. Creditor ID The merchant or recipient of a direct debit payment can be identified using a Creditor ID. Here example for Germany: ISO country code Business area code DE 02 ZZZ Check digit National identifier In Germany, applications for numbers are made to the German Bundesbank. In Belgium, England, France, Greece, Ireland, Lithuania, Luxembourg, Austria, Portugal, Switzerland, Slovakia, Czech Republic and Cyprus, applications for Creditor IDs are made to the creditor s bank. The company s registered office determines the place of application. There is not yet any regulation as to how the other European countries or merchants outside Europe (e.g. from the USA) apply for Creditor IDs Pre-notification of direct debit charges The purchaser must be notified of direct debit charges in advance. The pre-notification must provide the following details: Due date (date account is debited) Amount Mandate ID Merchant s Creditor ID This notification can be made at the time of the online order and displayed to the purchaser via or on the webpage itself. It is already standard practice to notify the customer of a forthcoming direct debit charge, so the only change is that the identity of the merchant is clearly specified in the form of a Creditor ID. The same applies to the Unique Mandate Reference, which enables those involved in payment processing to request the corresponding mandate. SEPA Direct Debit in e-commerce 17

18 10.6. AVIS period The pre-notification enables the payer to be notified of an upcoming direct debit charge. In addition to the pre-notification, the merchant s and customer s banks must be informed of the upcoming direct debit charge in advance for AVIS payments. The AVIS period is five bank working days for first-time SEPA Direct Debits. For subsequent debits, the AVIS period can be shortened to two bank working days. For SEPA Direct Debits within Germany, for example, the AVIS period can be shortened to one bank working day in accordance with the COR1 process. In other European countries, any enquiries about handling and duration should be directed to the respective merchant s bank. What does this mean for online merchants? If an Internet order is placed on 1 February, the end customer s bank account will be debited no earlier than 5 February and the amount credited to the merchant. If new orders are placed based on a subsequent mandate on 1 March, the end customer s bank account will be charged on 3 March. The AVIS period should ensure that the customer receives the goods before their account is debited for them. This reduces direct debit reversals due to unauthorised charges. However, for the merchant this means that the money is only credited to their account five days later. A pre-notification is issued to the customer upon ordering and does not need to be repeated in the even of subsequent mandates. Pre-notification vs. AVIS An AVIS must take place before each direct debit charge and is communicated to the banks.... Pre-notification & AVIS SEPA Transaction System SEPA Merchant Payment Page SEPA Direct Debit e-mandate Generator Merchant Bank Order Pre-notification SEPA-Processing System Customer Customer Bank AVIS - initial entry 5 Days AVIS - subsequent entry 2 Days AVIS - COR1 entry 1 Day 18 SEPA Direct Debit in e-commerce

19 11. SEPA Direct Debit processing systems The SEPA processing system is a solution for companies, payment service providers (PSP) or banks, available as a service or Software as a Service (SaaS). The SEPA processing system enables online purchases made via SEPA Direct Debit to be processed efficiently and securely. The modular structure of the SEPA processing system consists of the following components: e-mandate Generator SEPA Mandate Server SEPA Processing System E-mandate Generator The e-mandate Generator is integrated into an online shop s payment process as an e-mandate page. The module prepares the e-mandate and delivers it to the customer for authorisation. The merchant can use the resulting e-mandate to provide evidence that the customer has given approval for the direct debit charge. As a result, this fulfils the transmission by telecommunications, in written form as described above (Germany example: Section 127, Paragraph 2 and Section 126b of the German Civil Code (BGB)) and written form requirements. SEPA Direct Debit in e-commerce 19

20 The following systems minimise risks, as they provide proof of authorisation: Electronic signature For electronic signature, a signature field is shown in the payment form. On a PC, the signature is provided using the mouse, or with the finger if using a smartphone or tablet PC. This solution is similar to a signature at a POS terminal at the supermarket or the acknowledgement of receipt given to a courier when delivering a parcel PIN / TAN authentication In PIN/TAN authentication, the initial payment is made via online transfer, whilst subsequent debits are made by SEPA Direct Debit. This approach confirms the regularity of the bank account and records information regarding the subsequent direct debit charges on the account statement SMS authentication In SMS authentication, a confirmation code is sent to the mobile phone number provided. This code is entered on the mandate website as confirmation. The end customer then receives an SMS notification of the direct debit charges authentication In authentication, a confirmation is sent to the address provided. The mandate is confirmed by clicking on the link provided in the ( opt-in) Quality call When selling goods over the telephone, authentication is carried out by recording a Quality Call in which the direct debit charge is confirmed and recorded by phone. All of the aforementioned procedures ensure that a mandate is properly issued in accordance with the transmission by telecommunications requirement stipulated by law. The documentation for this mandate is also securely passed to external bodies, such as the merchant s bank (first collection point), the end customer s bank (paying agent) as well as to the customer and the merchant, via a mandate server. It should be noted that the online purchase between the merchant and end customer is fulfilled based on the absence of formal requirements. 20 SEPA Direct Debit in e-commerce

21 The end customer is obliged to pay the benefits irrespective of the payment method selected. The proposed e-mandates are an extra addition to the purchase agreement, intended to document payment by direct debit and reduce the risk borne by the merchant and to reduce the period in which direct debits can be returned. The obligation to pay still exists in the event of a returned direct debit; at any rate, the chances of successfully enforcing receivables via debt collection companies are significantly increased by using the proposed e-mandate system and the risk of non-payment significantly reduced. Preparing a mandate SEPA Transaction System SEPA Merchant Payment Page SEPA Direct Debit e-mandate Generator Mandate Server Merchant Bank 5 1 SEPA-Processing System Customer Customer Bank 1 Order placed online 2 Payment made in shop with SEPA Direct Debit 4 e-mandate saved on the Mandate Server 5 Mandate ID generated 3 e-mandate generated Product characteristics Software as a Service (SaaS), so all updates are included Mandates available in the end customer s national language Various methods of authentication Electronic signature PIN/TAN authentication SMS authentication authentication Quality Call National bank account details converted into IBAN and BIC Address validation: Is the specified address actually valid? IBAN validation in accordance with ISO 13616:2007 BIC validation: does the BIC actually exist and is the bank located within the SEPA area? Communication (pre-notification) with the customer via or SMS Automatic country recognition and presentation of the e-mandate page in the end customer s language e-mandate page individually designed for each online merchant SEPA mandate created in accordance with national SEPA guidelines SEPA Direct Debit in e-commerce 21

22 Online order example 1 SEPA product page 2 Address information A product is put on sale in an online shop. After the product is selected, the contents of the shopping cart are paid for.t The end customer leaves their address information with the shop. The SEPA mandate is later sent to the address provided. 3 SEPA mandate 4 Signature Customer signs in the signature box using the mouse. Der Endkunde erhält das nationale SEPA-Formular für sein Land und in seiner Sprache angezeigt. Validiert werden IBAN / BIC und ob die Zielbank (Zahl- Kapital Z) diese SEPA-Methode unterstützt. The end customer receives the SEPA form for their country, displayed in their language. IBAN / BIC are validated, as well as whether the target bank (Zahl- Kapital Z) supports this method. 5 Payment completed 6 Signed mandate The end customer can view and cancel their mandate at any time. Once the purchase has been completed, the mandate is sent to the address provided. The mandate can also be made available for download in the shop. The signed mandate is saved as a PDF on the Mandate Server. The merchant, end customer, end customer s bank and merchant s bank have access to this Mandate Server to check the mandate in question. 22 SEPA Direct Debit in e-commerce

23 11.2. SEPA Mandate Server The authorised e-mandate is given a Mandate ID and filed on a secure e-mandate server. To view your e-mandate, the banks involved (end customer s bank, merchant s bank), merchant and end customer all have read permissions on the Mandate Server. The mandate is managed for the entire lifecycle of the direct debit mandate. If a subsequent mandate is generated when ordering online, that mandate only needs to be created once. No new mandates need to be created for subsequent entries; instead, the Mandate ID can refer to the original mandate. Access to e-mandate Server SEPA Transaction System SEPA Merchant Payment Page SEPA Direct Debit e-mandate Generator Mandate Server Merchant Bank SEPA-Processing System Customer Customer Bank Product characteristics Software as a Service (SaaS), so all updates are included Mandates available in the end customer s national language Mandates can be accessed online by the: merchant end customer creditor s bank debtor s bank Core and B2B direct debits Unique Mandate References generated Mandates last for at least 14 months from last entry/validity in accordance with Section 257 HGB and Section 147 AO Mandates digitised and archived Mandates saved in a tamper-proof, autonomous mandate system Secure access for paying agent (end customer s bank) and collection point (merchant s bank) Access security for web access using mandate router End customer has access to mandate, including option to cancel mandate sent to end customer including mandate The Mandate Server is offered as a hosting or server solution. In the case of the server solution, you receive your own server cluster consisting of two redundant database and web servers. The servers are located in a secure computer centre and managed in accordance with the PCI Standard of credit card companies. SEPA Direct Debit in e-commerce 23

24 11.3. SEPA Processing System The SEPA Processing System organises and handles the processing of SEPA transactions between the online shop and your bank. Once the e-mandate has been generated via the neutral payment page and saved on the Mandate Server, the Unique Mandate Reference is generated and combined with the payment data and Creditor ID. A PAIN file is created; this is configured by the merchant s bank using the secure and convenient EBICS protocol. The system controls the transmission of SEPA transactions and monitors the timing control (AVIS period). The management and reversal of returned direct debits are processed in the PAIN.002 format and communicated to online shops or merchandise management systems via XML. Returned direct debits are assigned to the original direct debits (matching) Risk management The SEPA Processing System connected to several scoring and risk management providers and has its own risk mechanisms to minimise default risk. Individual threshold values/parameters can be defined for the various merchants/products. Connection to several external scoring and risk management providers Internal blacklist created from historical data The checking methods used are: Address validation Name, address, , IP, telephone number Account validation With control algorithms (IBAN/BIC plausibility check) Comparison with database of banks Revocation lists Blacklists (including individual) Whitelists (including individual) Plausibility checks IP/IBAN check Velocity checks Number of transactions Transaction volumes Additional risk checks National credit agencies International credit agencies 24 SEPA Direct Debit in e-commerce

25 Bank file generation The SEPA Processing System automatically generates SEPA XML files in a bank-specific format (PAIN or PACS), based on guidelines provided by the European Payments Council. The SEPA Processing System exports successful transactions from the SEPA Processing System once a day and generates bank-specific bank files. The timing for exporting these files can be individually specified. Generation of bank files in SEPA formats PAIN 008 and PAIN 001 PACS 008 and PACS 001 Treatment of SEPA formats in special cases e.g. ZKA format in Germany Automatic calculation of AVIS period SEPA Direct Debit types CORE B2B COR1 SEPA Credit Transfer Bank communications The SEPA Processing System takes over direct communication with the banks upon request. The SEPA Processing System automatically transfers the bank files to the creditor bank via EBICS, SFTP or another specified method. The bank ensures and checks receipt of these files using processing logs. Automatic technical communication with creditor bank to exchange bank files EBICS (DE and FR) SFTP other methods possible Bank file processing As banks generally view each entry individually and do not make connections with other entries themselves, the SEPA Transaction System assumes this task. The system can automatically process electronic account statements in different formats (e.g. MT940, camt.054 and CSV) and creates a reference to the original transactions in the SEPA Transaction System. As a result, it is possible to view returned direct debits and incoming payments in their original filings on the SEPA Transaction System. Importing bank return files MT940 CAMT 054 PAIN 002 CSV other file types possible SEPA Direct Debit in e-commerce 25

26 SEPA entries SEPA Transaction System SEPA Merchant Payment Page SEPA Direct Debit e-mandate Generator Mandate Server Merchant Bank SEPA-Processing System Customer Customer Bank 1 Order placed online 2 Paid in shop by SEPA Direct Debit 3 e-mandate generated 4 e-mandate saved on Mandate Server 5 Mandate ID generated 6 Entry / AVIS 7 PAIN file created 8 PAIN file transferred to bank using EBICS 9 Processing from merchant bank to customer bank 10 Back to bank in event of returned direct debit 11 Matching 12 Feedback to shop / merchandise management system Product characteristics National bank account details converted into IBAN and BIC Address validation: Is the specified address actually valid? BIC validation: Does the BIC actually exist in the SEPA area? IBAN validation in accordance with ISO 13616:2007 Comprehensive risk checks (BIN check, IP check...) SEPA processing in customer-bank format. In this situation we are responsible for adjusting the details of each bank, as the customer-bank format is different for each bank Periods and payment dates calculated Mandate periods managed (one-off / recurrent mandates) Pre-notifications generated (letter, ) Data imported from CSV, DTA and XML files Returned direct debits allocated to their original direct debits (matching) Unique Mandate References generated Merchant s Creditor ID communicated 26 SEPA Direct Debit in e-commerce

27 12. SEPA ready for e-commerce The SEPA system s modular structure can be integrated into your online shop either as a complete system or as individual solutions. The SEPA system has been specially developed for the specific requirements of e-commerce. The XML connection makes it simple, quick and secure to integrate the SEPA system into any online shop. SEPA transactions can be imported into the merchant s bank using EBICS access or made available for further processing using the merchant s SFTP. With the SEPA system, you can continue to use the national direct debit process until 31 January 2014 and switch seamlessly to the SEPA Direct Debit on the migration date. The only additional prerequisite is a bank that enables SEPA Direct Debit payments and has EBICS access. Thanks to the SEPA system, you can concentrate on your online business, continue to benefit from the advantages of direct debit with SEPA Direct Debit, minimise the risks of returned direct debits and tap into new international markets. SEPA Direct Debit in e-commerce 27

28 ISBN