The direct debit is a very commonly used method of payment within the Netherlands. This success can largely be ascribed to the flexible manner in which the Dutch banking community applies the rules with respect to the mandate signing process. As in most countries this process must also comply to certain rules in the Netherlands, but in practice some deviations to these rules are tolerated.
The main reason for this policy is that the use of the direct debit in the Netherlands in particular is based on mutual trust. The migration to the single euro payments area (SEPA) Direct Debit (SDD) scheme, with its strict business rules, will affect this policy and result in a more stringent compliance with the rules. Will this have an impact on the use of the direct debit instrument as a payment method in the Netherlands?
A clear example of the flexible way in which the direct debit rules are applied within the Netherlands can be observed in the very commonly used method of obtaining a mandate from consumers by internet shops. The consumer has only to tick a box to give their explicit authorisation for the collection of the amount of the purchased goods.
This has proven to be a very efficient and cheap way of making payments for both the internet merchant and their customers, but this process is, strictly speaking, not in compliance with the rules. No mandate is signed by the customer, either on paper or electronically. The SDD process requires a signature from the debtor in all cases and, as banks have committed themselves to adhering to the SEPA standards, it is not expected that the so-called ‘internet tick’ will be tolerated any longer as an alternative to a signed mandate. The same will apply to direct debit authorisations that are obtained via a recorded telephone call. These telephone mandates are currently considered valid mandates in the Netherlands.
The tighter SDD requirements are meant to provide the consumer with more protection. The recently adopted SEPA Regulation and the SDD Rulebooks have included several additional rights for the debtor to achieve the same goal. Here are several examples:
- Besides the possibility to block all direct debits or only direct debits of certain creditors, banks are also required to offer their customers the possibility to maintain a white list of creditors (i.e. only direct debits of included creditors will be processed).
- Debtors must have the possibility to limit direct debits to a certain amount and/or time period.
- Mandate related information must be sent with each direct debit transaction to inform the debtor properly. In the Netherlands, banks are required to offer their customers the possibility to receive an alert to notify them for each first direct debit that has been received for a certain mandate.
- Debtors can refuse a direct debit transaction prior to its due date.
- In the case of an amended mandate, the creditor must send the original mandate data together with the current mandate data to inform the debtor appropriately of this change. An electronic mandate administration becomes practically unavoidable for the creditor to comply with this requirement.
- When a mandate has not been used for 36 months, the creditor must cancel the mandate and may no longer present direct debits under this mandate.
- Just like the recurring direct debits, the one-off direct debits have a standard eight weeks refund period for the debtor on a ‘no questions asked’ basis. In the Netherlands the one-off collection currently does not have a refund possibility. The same applies to the Dutch-specific lottery collections. Until now, no suitable SDD product has been available as a replacement for these non-refundable recurring collections as the fixed amount SDD scheme has been put on hold.
In addition, the SEPA migration will probably also bring a number of already existing rights and obligations related to the direct debit processing back to the attention of the consumer, such as:
- On request of the debtor the creditor must provide a copy of the original mandate including any amendments to this mandate.
- Debtors can request a refund in the case of a disputed collection within 13 months of the debit date. Creditors will have to store the original mandates for another 14 months after a cancelled mandate. Continued use of the internet tick option also embodies the risk for the creditor of successfully claimed refunds for unauthorised direct debits.
- Creditors are required to pre-notify each collection to their debtors stating the amount and due date of the collection.
In the Netherlands, the number of bounced collections is relatively low, particularly in comparison to other EU countries. This is one of the reasons that the direct debit is seen as a very efficient method of payment by many companies. One of the often heard fears of creditors is that the new and stricter rules could lead to a higher percentage of bounced collections and, therefore, to higher costs.
On the other hand, one of the positive sides of the adopted SEPA Regulation is the confirmation that legacy mandates remain valid under the new SEPA scheme, if the refund conditions do not deteriorate for the debtor. For the Netherlands this was never an issue. The mandates of the ordinary recurring direct debit can be converted to a SEPA mandate, but the mandates for business-to-business (B2B) direct debit cannot.
Since the internet tick option has been tolerated for many years, the Dutch banking community will most likely decide that these existing given consents of the debtors may also be converted to SEPA mandates together with the telephone mandates. This would eliminate a huge potential migration issue for many creditors. However, for all new SEPA mandates a signed paper mandate will be required.
The many new rules regarding the processing of SDDs, the expected increase of bounced collections and the fact that only paper mandates are currently supported in the Netherlands, will not have a positive effect on the popularity of the SDD among Dutch creditors. The internet merchants, in particular, will be reluctant to switch to paper mandates. Other payment methods will in that case be preferable, such as credit card payments or the popular iDeal payments (Dutch standard for internet payments via a debit card). There is, however, another alternative: electronic mandates (e-mandates).
The SDD Rulebooks offer the legal means to sign a mandate with an electronic signature, or e-mandate. Several e-mandate solutions are available on the market varying from signing via a mobile phone, email or calculator. Crucial for the acceptance of the e-mandate is that a uniform standard is introduced in the Netherlands. Until this is reached some signals indicate that the risk exists that banks will still require a signed paper mandate from their clients.
The Dutch banking community is currently evaluating several e-mandate solutions from various providers. It is, however, very unlikely that a standard e-mandate solution is implemented in the Netherlands before the mandatory SEPA migration date of 1 February 2014. There is a strong demand to have an e-mandate solution earlier, because e-mandates are the key to a fully automated solution. Introducing a temporary paper flow will result in increased costs for many creditors and will not have a positive effect on their SEPA business case.
Continuation of the internet tick solution for SDD until a structural e-mandate solution is provided within the Netherlands is a frequently voiced option. It is the lesser of two evils: i.e. bearing the risk of refunds for unauthorised collections rather than having higher costs for a temporary manual process.
A Standard E-mandate Solution
It is clear that a standard e-mandate solution should be introduced in the Netherlands in the near future to ensure the popularity of the direct debit as a payment method for Dutch creditors. This e-mandate solution should give the consumer the same feeling of trust as currently obtained when paying through iDeal, where the consumer feels as though they are giving their payment authorisation within their own telebanking environment. This would increase the acceptance of such an e-mandate solution.
To date, the Dutch banking community have not given sufficient urgency to the implementation of a standard e-mandate solution in the country. Banks have been busy with their own SEPA implementations. The fact that mandates are, strictly speaking, a matter between creditors and their debtors has also not helped to give more priority to the development of an e-mandate solution.
As the mandatory SEPA migration date rapidly approaches, an emerging risk is that creditors will choose their own non-standardised e-mandate solution. This would be an undesirable scenario and would not contribute to a broad acceptance among consumers of the e-mandate. We urge the Dutch banking community to make more progress on the introduction of a standard e-mandate solution in the Netherlands.
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