Are banks prepared for SEPA Direct Debits?

Local direct debits will soon turn into a pan-European maze. Starting in August 2014, direct debits will no longer be restricted as a national payment method for a large number of European countries but will turn into a true Euro-denominated solution for making fund transfers across the entire Euro-zone. This is good news for international corporations and online merchants who are selling their products and services across Europe, but is it also good news for the banks and payment service providers?

For consumers, the new SEPA direct debit is an interesting, and cheaper alternative to using credit cards as an “upfront” payment authorization solution. Consumers can easily authorize an electronic mandate for single or recurring payment collection for an online purchase, while merchants are ensured payment and can start delivering their goods to the consumer.

Accessibility always comes with a price. As the BBC wrote in an article in September 2013, “it is generally too easy for people to abuse the direct debit system because there’s very little security in the process of initiating a direct debit at all.” Last year the banks in the Netherlands lost 25 million euros in just a few fraud cases due to Internet direct debit requests from rogue payment service providers and corrupt merchants. Most of the fraud was related to service providers who submitted unauthorized direct debits to the collector bank.

Detecting rogue direct debits and malicious service providers

The ever-growing number of digital payments and channels pose a risk and fraud monitoring challenge for banks. There are systems on the market, like RiskShield that can help banks check consumer patterns and take into consideration such activities as rejected transactions, one-off refunds and recurring unauthorized transaction transfers. Implementing systems that can monitor large batches of transfers is key as it is common for banks to receive several thousands of direct debit requests, of which an increasing percentage might be incorrect.

A greater focus on fraud prevention will also reduce the chance of damaging a bank’s reputation. A powerful, self-learning, real-time fraud detection tool such as RiskShield is essential to identify anomalies in direct debit files that otherwise look normal. This type of transaction monitoring software should be seen as a safety net that monitors direct debit batches and stops further processing whenever an alert has been triggered. With the imminent launch of SEPA Direct Debits and with the European market opening up, the implementation of this kind of software is unquestionably the right step.

Download a full copy of our white paper and learn more about the safety risks of SEPA direct debits plus 10 useful tips for banks to avoid rogue transactions.

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About the author

  • Stanley Harmsen van der Vliet

    Stanley Harmsen van der Vliet is product marketing manager for RiskShield, a multichannel fraud prevention solution from INFORM GmbH. Stanley is specialized in banking, compliance and anti-fraud solutions and has been working in this market for more than 20 years.

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