For companies operating in the digital world, where payments play an increasingly important role, you doubtless have heard of several types of product for managing your recurring transactions.
When it comes to recurring transactions, there are two main options: the SEPA Direct Debit, carried out once the SEPA Direct Debit mandate has been signed, and the payment card direct debit, carried out once the debtor has entered the information required to authorise the direct debit.
Choosing the right payment method for your recurring direct debit needs is crucial for your company’s long-term cash flow and for customer satisfaction (in terms of cost, security, reliability, etc.).
Let’s compare these two payment methods – payment card direct debit and SEPA Direct Debit – so that we can identify the pros and cons.
What is the difference when setting up SEPA Direct Debits and payment card direct debits?
Setting up these two payment methods requires the input of a certain amount of data.
→ SEPA Direct Debits require authorisation in the form of a SEPA mandate, which must detail the essential details of the future direct debits (amount, creditor’s bank details, due dates, type of direct debit, etc.).
Once completed and signed by the customer, this form becomes a formal direct debit authorisation that authorises the creditor company, you as the merchant, to debit a third-party bank account, that of the consumer.
The fact that the SEPA mandate authorisation is exchanged between the parties involved implies a certain legal framework, requiring time to set up the mandate and time to carry out the direct debit.
→ In the case of payment cards, initialisation takes place when the consumer enters their physical card data (card number, expiry date, validation code).
Hence, direct debit by payment card does not require a formal direct debit authorisation, as is the case for SEPA Direct Debits, which makes them simpler to use.
What is the cost difference between SEPA Direct Debits and payment card direct debits?
By using SEPA Direct Debit, funds are transferred from account to account, i.e. directly from the debtor’s bank account to the creditor’s bank account, without going through the traditional card networks such as VISA and MasterCard.
This means that there is no charge for any direct debit made in France and in the Single Euro Payments Area (SEPA).
However, if you want to expand beyond the SEPA area, direct debit by payment card offers the advantage of enabling you to take payments in other geographical areas via the Visa, MasterCard, CB and American Express card networks, i.e. in more than 200 countries.
It should be noted that the basic fees charged by these networks average between 1.3% and 3.5%, and there are sometimes additional fees if you decide to use a solution to manage your recurring payments, particularly B2B solutions.
What is the difference in security between SEPA Direct Debits and payment card direct debits?
The failure rates for automatic and recurring SEPA Direct Debits are much lower than those for payment card direct debits, whether by debit card or credit card.
When it comes to security, there are a number of points to bear in mind when choosing a suitable payment solution.
When it comes to the security of payment card transactions, multi-factor authentication plays a key role, as it provides a check on the identity of the person validating the initial payment.
You should also bear in mind the lifespan of payment cards, which have a set expiry date (currently between 3 and 6 years), whereas the SEPA Direct Debit has no expiry date.
→ A SEPA Direct Debit only expires if no direct debit order is made within 36 months of signing the SEPA Direct Debit mandate.
What is the difference between SEPA Direct Debits and payment card direct debits when transactions are disputed?
It is legally possible to dispute SEPA Direct Debits within 8 weeks of the debit transaction.
Note that the bank must issue the refund within 10 working days of the dispute being filed and recorded.
For payment cards, it should be noted that the payment order is said to be irrevocable, though there are a few cases where it can be disputed, particularly if the amount of the direct debit has changed significantly since the previous period.
→ It is thus slightly more difficult to dispute a payment due by payment card direct debit than by SEPA Direct Debit.
Conclusion
To determine which solution is best suited to meet your needs for recurring payment services, you need to consider the following points:
- The customer journey you want to put in place: Is it via a formal SEPA Direct Debit mandate authorisation to be returned to the creditor or simply the input of card data?
- Geographical area: the SEPA Direct Debit is a good tool for Europe, but if you are looking for a solution to cover a wider geographical area, you will certainly need to think about creating a combination of direct debit by SEPA mandate and direct debit by payment card, to give your customers a choice.
- Associated costs: as we have seen in this article, the costs are not the same for the SEPA area (free direct debit payments) and payment cards (variable cost depending on the network used).
By paying close attention to these three essential points, you will be able to define the payment method best suited to your needs and issues.
Read also :
→ Using SEPA Direct Debit for your subscriptions and recurring payments – 2024 Guide
→ SEPA area: Europe, single economic area, history and regulations
→ Eurozone countries: How can transaction costs be optimised in Europe?
→ Cancellation of a SEPA Direct Debit: how it works and the impact for merchants.
→ Banking mobility: Good or bad for your recurring payments?
