euro sepa

SEPA Stalemate

Jonny Darling Insight Leave a Comment

It used to be that we could just lash our bank account number and sort code into a payment form, tick the direct debit box, and press confirm. Then along came SEPA. All businesses and non-profit organisations in Ireland generating direct debits had to comply with this EU Directive by January 2014. However due to “lower than expected transition rates”, this was pushed to 1st August 2014 – Irish businesses it turned out were not Ready for SEPA!

Irish SMEs Paralysed in SEPA Stalemate

Ready for SEPA?

SEPA stipulates that debit transactions use BIC and IBAN bank details and that banks request an XML direct debit file instead of the old EFT. The upshot, merchants must change their online payments process. SEPA also shines a light on PCI compliance – security standards for protecting customers’ payment card information that are required for all merchants that store, transmit, or process payment card information.

Now we’re talking about data storage, privacy and security. It’s getting technical. That’s what payment gateway providers like Realex are for, right? So you’d think!

The dawn of SEPA accelerated the sunset for RealEFT, Realex Payments’ legacy Direct Debit processing and storage solution. Various customer support tickets confirm that Realex will no longer be servicing electronic direct debit mandates. Stripe & WorldPay acknowledge as much. Forms such as these are to be a thing of the past – Debit, it seems, is doomed!


Direct Debit Unsupported

Cashflow is the lifeblood of a business. Charities especially need recurrent revenue in the form of regular monthly donations to survive. The revelation that website direct debit forms were no longer supported by e-payment services providers left me dumbstruck. I set about finding a solution!

In accordance with PCI regulation, charities I work with use Ardbrook’s DEFT for SEPA software product. This local financial data management software complies with SEPA whereby bank account details can be entered in to the system, encrypted, stored and exported in XML format for upload to online banking. Up to now, charities could access their Realex RealVault panel online to securely view direct debit sign-ups from their website, manually transcribe or auto import them into DEFT and raise monthly authorisations on these mandates with their chosen bank.

The break in the chain comes when Realex refuses to collect and store customer bank details entered on a charity website, stating they only service credit card payments. Customers can make scheduled credit card payments but not direct debits. This occludes a considerable market-share, as not everyone has a credit card associated to their bank account. More to the point, not all those who do want to migrate from debit payments to credit payments (there’s expense and security issues at play here, which is perhaps why financial institutions are pushing the agenda so forcefully!).

SEPA Cloud Solution

If Realex will not hold bank account details, and doing so in-house is riddled with regulation, then why not use a third-party service provider to harvest and store customer financial information remotely? Dublin-based  Achta quoted me for cloud direct debit management system. It would go like this:

  1. Development of a set of forms to collect the SEPA DD mandate instruction data
  2. The customer will access the online facility through your own site using IFRAME integration
  3. In terms of the actual donation amount a customer will be able to enter this as a free text amount
  4. All SEPA mandatory information will be captured on the forms that will allow the creation of a mandate instruction on the Ardbrook DEFT system
  5. Once the customer has completed the information it will be stored on the ACHTA cloud platform
  6. A user login facility will be developed which will allow authorised users to log in and view the records that have been captured
  7. The functionality will be provided to allow users to export all available records into a csv file and save it locally
  8. Once the records have been downloaded their status will be updated and they will appear under a processed tab to avoid the re-importing into the Ardbrook system

The Cost of SEPA

It used to be so straightforward for the charity accounts financial controller. Pay Realex once a month and they’d handle all credit and debit payment transactions on the website. Sure there was some programming involved to sync the website up with an e-commerce gateway and integrate via API to Realex, but there are development products available off-the-shelf to do just that.

Now we’re looking at multiple ticket items:

  • Realex service charge
  • Transaction fees
  • DEFT by Ardbrook subscription
  • Achta customised portal development fee
  • Achta hosting fee
  • PayPal transaction costs

Ultimately the cost of doing business online is getting more expensive, not less. e-Commerce is a fixed and variable expense item for the P/L sheet.

SEPA Compliant

The SEPA extension date of August 1 2014 looms and I strongly suspect many merchants have yet to address the direct debit debacle! Who’d blame them? It’s like cutting off the nose to spite the face! Charities and businesses all have to face SEPA yet I hazard most will simply cut off their direct debit channel to meet compliance regulation, or carry on regardless collecting, managing and processing debit mandates themselves, failing to adhere to data protection directives. We’ve seen this with the EU cookie law. Neither are good outcomes.

There is a work-around to SEPA direct debits, either through internal server security I.T restructure or cloud partners, but both come at considerable expense. SEPA is proving a stumbling block to conducting business online. e-Payment technology providers have been slow to adapt and release fully-compliant elegant plug ‘n play solutions, resting the onus on merchants to scramble with ugly alternatives.

EU VAT Compliance

SEPA should act as a warning shot to the financial services providers. Change is resisted, adoption is slow and consumers need simple solutions to facilitate pain-free change-over. According to Taxamo, EU VAT compliance Irish software co. –
Since 2003 non EU e-service/digital good provider selling into the EU should have been accounting and paying VAT to the country of their customers but according to the EU less than 0.5% are doing so. Up to now there has been very little focus on non compliance of non EU e-service providers but with the new B2C VAT rules regarding the place of supply coming into effect on the 1st of January 2015, this law will bring non compliance into main stream focus for e-service providers.

e-Commerce represents a golden opportunity for merchant and financial services industry. It’s disrupting traditional banking models and transaction payments processes, and re-writing market economics. The end users, buyers and sellers, shouldn’t need to be financial or technology aficionados to take advantage of open markets. The winners in this game-changing environment will be those who move fast, are agile, forecast future demand and deliver easy-to-use products that solve regulation headaches. My bet is on Taxamo to do just that!

Realex Payment Infographic