SEPA Direct Debit (SDD) is a euro payment scheme in which the biller, not the payer, initiates the payment, pulling funds from the payer's IBAN under a signed mandate; utilities, insurers, gyms and B2B suppliers use it for fixed-schedule collections across the Single Euro Payments Area. Each mandate carries a Unique Mandate Reference and the biller's Creditor Identifier, and collections pass from the biller's bank to the payer's bank on the due date. Under SDD Core, payers can claim a refund within eight weeks without a reason, or within 13 months if no valid mandate exists. SDD B2B is for business payers only and is final after collection. Providers offering SDD carry the refund exposure if merchants fail.
How does SEPA direct debit work
The biller prepares a mandate, which the payer signs on paper or electronically. Each mandate is identified by a Unique Mandate Reference combined with the biller's Creditor Identifier, so every collection can be traced back to the biller and the authorisation. The biller then sends collections through its own bank, which passes them to the payer's bank for debit on the due date.
Under the Core scheme, the biller stores the mandate and the payer's bank receives the mandate details with the first collection. The payer's bank does not check the mandate in advance.
SDD Core vs SDD B2B
The two schemes differ on who carries the risk. SDD Core is for consumers and businesses alike and gives the payer strong refund rights. SDD B2B is only for business payers: the payer's bank must confirm a valid mandate before the first collection, and once collected the payment is final.
SEPA direct debit refund rights
Under SDD Core, the payer can request a refund within eight weeks of the debit with no reason required. If the collection was not covered by a valid mandate, the refund window extends to 13 months. Under SDD B2B there is no refund right for authorised collections; the payment becomes final three business days after the debit date.
An illustrative case: a subscription service collects €29 a month from 40,000 customers under SDD Core. If 0.8% use the eight-week refund each month, 320 payments, about €9,300, come back after the service has already been delivered. The same collections under B2B would be final, but consumers cannot sign B2B mandates.
Risk for payment providers
A provider that offers SDD collection to merchants carries the refund exposure if the merchant cannot repay. A merchant that fails in month two can leave the provider facing eight weeks of refundable collections, plus 13 months of exposure on any collections made without proper mandates. Providers manage this with collection limits, reserves and mandate audits, similar to card chargeback management.
SDD in a fintech acquisition
For a buyer of a payment institution offering direct debit, refund rates by merchant, the volume of collections still inside the eight-week window and the quality of stored mandates measure contingent liabilities that do not appear on the balance sheet. A target that cannot produce mandates for a sample of collections has 13-month exposure on every one of them. For recurring payment businesses, the split between Core and B2B volume shows how much revenue is reversible.