INTRODUCTION
SEPA rules for the execution of payment transactions in euro for credit transfers are implemented in the Republic of Croatia from 6 June 2016, by which the Republic of Croatia has met its obligations under Regulation (EU) No 260/2012 within the prescribed period.
The national SEPA project in the Republic of Croatia also foresees the introduction of SEPA standards for credit transfer and direct debit transactions in kuna.
Thus, from 6 June 2016, credit transfers in kuna are executed in compliance with the HRK SCT Scheme Rules. The national scheme for credit transfers in kuna complies with the SEPA scheme for credit transfers in euro.
The execution of direct debits in kuna in compliance with SEPA rules, based on the HRK SDD (Core and B2B) Scheme Rules, is enabled from 5 June 2017.
As a response to public inquiries and due to the importance of a successful migration to SEPA standards in the Republic of Croatia, below are the answers to the basic questions on SEPA direct debits.
- WHAT IS A DIRECT DEBIT?
The Payment System Act (Official Gazette 66/2018) defines 'direct debit' as a payment service for debiting a payer's payment account, where a payment transaction is initiated by a payee on the basis of the payer's mandate given to the payer's own bank, to the payee, or to the payee's bank. In order to enable its execution, the direct debit service has to be contracted, i.e. on the one hand between a payer and the bank operating the payer's account and, on the other hand, between a payee and the bank operating the payee's account.
An example of such a payment service is when a payer (consumer) gives mandate for debiting the payer's account with a bank against a payee's order (e.g. utility company) for the amount of an invoice issued based on a monthly calculation of services provided by the utility company. The payee submits payment orders for the provided utility service by debiting the payer's account under the conditions from the mandate.
- HOW IS THE EXISTING DIRECT DEBIT SERVICE EXECUTED TODAY?
According to the current solution, direct debits are executed at banks under different names, such as a "direct debit", "mandate", "authorised withdrawal", "statement", etc. Payers most often give mandates for the execution of direct debits to their bank with which they have an open account. On the other hand, payees (e.g. utility companies), must contract the direct debit service with each bank with which an individual payer has an open account to be debited for the execution of the direct debit. Since service users (e.g. users of utility services) hold accounts with different banks, payees have to open bank accounts with a larger number of banks (Figure 2). In the execution of existing direct debits no special payment infrastructure or clearing are used; instead, direct debits are settled on the accounts of payees and payers held with the same bank (Figure 1).
Figure 1 Course of execution of existing direct debits
- Payees must have a contractual relationship with each bank within which payer's accounts are held.
- The payer gives a mandate to own bank for debiting the payer's account with the bank.
- The payee sends a payment order to each bank with which the payer holds an account for the purpose of execution of a direct debit based on a provided service.
- The bank debits the payer's account held with that bank.
- The bank credits the payee's account held with that bank.
Figure 2 Payee's contractual relationships in the execution of existing direct debits
- WHAT IS A SEPA DIRECT DEBIT IN COMPLIANCE WITH THE HRK SDD SCHEME AND HOW IS IT EXECUTED?
The HRK SDD Payment Scheme is a single set of rules, standards and implementing guidelines agreed between banks, which are the participants of the scheme, which allows the execution of direct debits in kuna in the Republic of Croatia in compliance with SEPA rules, i.e. the execution of SEPA direct debits. The course of execution of SEPA direct debits is shown in Figure 3.
In a SEPA direct debit, in compliance with the HRK SDD scheme, a payee initiates a payment transaction through own bank, irrespective of the bank with which the payer has an open account, based on a mandate for a direct debit previously given to the payee by the payer, provided that both the payee's bank and the payer's bank are HRK SDD scheme participants. In this way, a contractual relationship with only one bank with which the payee has an open transaction account (Figure 4) is sufficient for the payee.
Figure 3 Course of execution of SEPA direct debits
- The payee and the payer enter into contractual relationships with the bank with which they hold a transaction account. The contractual relationship with only one bank is sufficient for the payee, irrespective of the bank with which the payer has a contracted SEPA direct debit service.
- The payer gives a SEPA direct debit mandate to the payee.
- The payee sends a pre-notification to the payer about the amount and the date of execution of a SEPA direct debit.
- The payee initiates the collection of a SEPA direct debit for delivered services or goods by means of a payment order the payee sends to own bank.
- The order for a SEPA direct debit is cleared on the specified execution date through the National Clearing System.
- After the clearing of the SEPA direct debit order, the payer's bank account is debited and the payee's bank account is credited.
- The payer's bank debits the payer's account for the amount of the SEPA direct debit order on the specified execution date, and the payee's bank credits the payee's account for the amount of the SEPA direct debit.
Figure 4 Payee's contractual relationships in a SEPA direct debit
- WHAT IS A SEPA MANDATE?
A SEPA mandate is the authorisation given by the payer to the payee, based on which the payee initiates a SEPA direct debit order by debiting the payer's transaction account.
A mandate can be given for:
– recurrent SEPA direct debits, in which case the payer's mandate is used for a series of payment transactions initiated by the payee (e.g. for the payment of utility services) and
– one-off SEPA direct debit, in which case the payer gives a mandate for a single payment transaction and such an authorisation cannot be used for any other transaction (e.g. for the payment of the annual subscription to a magazine when a buyer has contracted a one-off payment through a direct debit).
The data a mandate must contain are defined by HRK SDD Scheme Rules.
| Mandatory elements of a SEPA mandate | |
| 1 | Mandate identifier (given by the payee) |
| 2 | Payer's details (name and surname, address) |
| 3 | Payer's IBAN |
| 4 | Payee's details (name, address) |
| 5 | Payee's identifier (given by the payee's bank) |
| 6 | Type of payment (one-off or recurrent) |
| 7 | Place and date of signing |
| 8 | Payer's signature |
- WHAT ARE THE DIFFERENCES BETWEEN THE EXISTING DIRECT DEBITS AND SEPA DIRECT DEBITS?
Below are the basic differences between the existing direct debits and SEPA direct debits:
| EXISTING DIRECT DEBITS | MANNER OF EXECUTION | SEPA DIRECT DEBITS |
| Payers most frequently give mandates for a direct debit payment service to their bank. | – mandate – | The payer gives a SEPA direct debit mandate to the payee. |
| The payee must hold an account with each bank with which payers have contracted direct debit. | – number of contractual banks – | Only one account with a single bank is sufficient for the payee. |
| Only consumers (natural persons) can be payers. | – payment service user – | Consumers (natural persons) and non-consumers (business entities) can be payers of a SEPA direct debit. |
| Direct debits are executed without the intermediation of a payment infrastructure. | – used infrastructure – | SEPA direct debits are cleared through the National Clearing System. The settlement of SEPA direct debit payment transactions is executed in central bank's money in the CLVPS. |
| A payment service user has the right to refund of an authorised direct debit payment transaction in the cases prescribed by law. Refund is not automatic. | – right to refund – | A payment service user – consumer, with respect to law, has an extended right to unconditional refund of the amount of the executed SEPA direct debit payment transaction within eight weeks. Automatic refund is enabled. |
| Data on the direct debit mandate form are not standardised and vary from bank to bank. | – standardised form – | Data in the SEPA direct debit mandate form are standardised. |
- SHORTCOMINGS OF THE EXISTING DIRECT DEBIT SERVICE FOR PAYEES
| SHORTCOMINGS OF THE EXISTING DIRECT DEBITS FOR PAYEES | |
| 1 | Direct debit mandate forms are not standardised and vary from bank to bank. |
| 2 | The payee must hold an account with each bank with which payers have a contracted direct debit. |
| 3 | Payees most frequently do not have control over signed mandates given to the bank by the payer, which makes the simple matching of collections with issued invoices more difficult. |
| 4 | In conditions of the execution of a direct debit, payees most often lack the information about the reasons for the failure to execute a collection (e.g. insufficient funds on the account, account is closed, account is blocked, etc.). |
| 5 | The payee is not ensured an unambiguous (standardised) procedure with direct debit orders sent to banks due to different procedures, which are set up in each individual bank with which the payee has concluded a contract. |
- WHAT ARE THE ADVANTAGES OF SEPA DIRECT DEBITS FOR PAYEES?
Below are the advantages of SEPA direct debits for payees.
| ADVANTAGES OF SEPA DIRECT DEBITS FOR PAYEES | |
| 1 | The standardised mandate form for SEPA direct debits for all payees and for all banks allows easier communication with clients, safer and simpler execution and monitoring of execution of direct debits, keeping of mandate bases and management of changes in such bases. |
| 2 | It is sufficient for the payee to open only one account, i.e. enter into a contract for SEPA direct debits with only one bank, irrespective of the bank with which the payer has an account (in accordance with his/her business decision, the payee may still hold several accounts with a number of banks and can still choose which payment orders to execute through the individual bank) through which the payee can initiate SEPA direct debit orders by debiting the payers' accounts, which are held with any of the banks that have adhered to the HRK SDD scheme. |
| 3 | Thanks to a unique format and standardisation of the SEPA direct debit execution with all banks, the transfer of the direct debit service is made easier for the payee in the case of any bank change. |
| 4 | Payers sign the mandate for the execution of SEPA direct debits at the payees themselves, which allows for a full control of the signed mandates, the possibility of differentiation between the payer of the invoice from the service user, a simple harmonisation of collections and issued invoices, etc. |
| 5 | In the conditions of execution of a SEPA direct debit, payees are always informed about the reasons for the failure to execute a collection by standardised messages (e.g. insufficient funds on the account, account is closed, account is blocked, etc.). |
| 6 | The execution of a SEPA direct debit complies with single European standards (ISO XML 20022, IBAN, BIC). The above standards are also used for the HRK SCT scheme and have become dominant in the financial industry by allowing the linking of different financial services and the compiling of technical platforms for their provision. |
| 7 | Thanks to the high standardisation and the use of payment infrastructure, SEPA direct debits ensure a high level of automation, clarity and security of the execution of payment transactions based on a single payment execution format. |
| 8 | The introduction of unique and modern standards into the internal systems (ISO XML 20022) allows the receipt of statements with more data, which may be important for the operation and which enable a reliable reconciliation procedure. |
| 9 | The execution of a SEPA direct debit complies with EU regulations, which refer to the execution of payment transactions in euro and fully meets the requirements for the execution of payment transactions in this currency at the time of introduction of the euro as the official currency of the Republic of Croatia. |
- WHAT ARE THE ADVANTAGES OF SEPA DIRECT DEBITS FOR PAYERS?
The execution of SEPA direct debits for a payer who is a consumer, i.e. a natural person, is carried out in compliance with the Rules of the HRK SDD Core Scheme. Payers, who are consumers, will be able to use certain benefits in using SEPA direct debits.
| ADVANTAGES OF SEPA DIRECT DEBITS FOR PAYERS | |
| 1 | Payers can limit the collection of a SEPA direct debit by debiting their account for a specific amount or by a specific timeframe or both. |
| 2 | Payers can prohibit the execution of all direct debits to be debited from their account. |
| 3 | The HRK SDD scheme allows the payers to request a prohibition of execution of all direct debits against the order of one or more payees ("black list"). |
| 4 | It is possible to request the execution of SEPA direct debits to be debited from their own account only against the order of one or more of the named payees ("white list"). |
| 5 | If a SEPA direct debit is executed, the payer (consumer) has the right to unconditional refund of the amount of the authorised SEPA direct debit from his/her bank, within eight weeks of the date of payment transaction execution. |
- CAN BUSINESS ENTITIES IN THE CAPACITY OF PAYERS USE THE NEW SEPA DIRECT DEBIT PAYMENT SERVICE?
Yes, they can. The execution of SEPA direct debits for payers who are non-consumers, i.e. business entities, is carried out by applying the Rules of the HRK SDD B2B Scheme.
Before the execution of the first direct debit order, a payer must, due to potentially high amounts, provide the bank with data from the mandate. Before debiting the account, the payer's bank will verify the compliance of these data with data on the SEPA direct debit order.
According to the Rules of the HRK SDD B2B Scheme, the payer may request a complete prohibition of debiting the payer's own account for any direct debit order.
According to the HRK SDD B2B scheme, due to the implementation of stricter controls in the execution of a SEPA direct debit, the payer does not have the right to a refund for an executed authorised payment transaction.
- WHAT CHANGES FOR PAYEES WITH SEPA DIRECT DEBITS?
Payees will store intact the mandates signed by the payer in compliance with the Rules of the HRK SDD scheme in either paper or electronic form, together with any related amendments or information concerning its cancellation, suspension or lapse.
The payee, according to the HRK SDD scheme, can only be a non-consumer – business entity.
Payees initiate direct debit orders in the pain.008 message SEPA XML format according to ISO 20022 standard, based on the obtained payer's mandate.
- DO ALL BANKS PROVIDE THE SEPA DIRECT DEBIT SERVICE?
The SEPA direct debit service is provided by those banks that are participants in the HRK SDD scheme.
The banks in the Republic of Croatia that have signed the Agreement on Adherence to at least one of the HRK SDD schemes (Core and/or B2B) may be participants in the HRK SDD schemes, by which they are bound to execute SEPA direct debit payment transactions according to the Rules of the HRK SDD Scheme.
The list of banks providing the SEPA direct debit payment service on 5 June 2017 (a total of 16 banks) is available at the Register of Participants who adhere to the HRK SDD scheme.
- WHICH CONSUMERS AND BUSINESS ENTITIES CAN USE THE SEPA DIRECT DEBIT SERVICE?
In order for a consumer or a business entity to be able to use the SEPA direct debit service, the following three conditions must be met:
- the bank with which the consumer or business entity (e.g. user of utility services) holds an account must adhere to the HRK SDD scheme
- the consumer or business entity (e.g. user of utility services) must contract the use of the SEPA direct debit service (e.g. by accepting general terms and conditions, which include the SEPA direct debit service) with the bank with which they hold an account
- the payee (e.g. utility service provider) must conclude a contract with own bank on the SEPA direct debit service.
- HOW WILL EXISTING DIRECT DEBITS MIGRATE TO SEPA DIRECT DEBITS?
The migration of existing direct debits to SEPA direct debits implies the implementation of a legal, administrative and technical adjustment of the existing direct debits to direct debits executed according to SEPA rules.
For the purpose of allowing a gradual migration of the existing direct debits to SEPA direct debits, in the transitional period banks will continue with the provision of direct debits in the existing manner. At the same time, banks will also be able to provide SEPA direct debits for payees, which decide to migrate to SEPA direct debits in compliance with the HRK SDD scheme.
| PROCESS OF MIGRATION OF EXISTING DIRECT DEBITS TO SEPA DIRECT DEBITS | |
| 1 | Banks will migrate the execution of existing debits during a transitional period over the next two years (i.e. from 5 June 2017 to 3 June 2019). |
| 2 | For existing direct debits, banks will allow migration to SEPA direct debits for payees on five pre-agreed dates. |
| 3 | Until the time of migration to SEPA direct debits, banks will execute the existing direct debits according to the previous procedure and for the existing payees accept new payers and execute direct debits for them in the existing manner within this period. |
| 4 | In accordance with regulations and at least two months in advance, banks will provide detailed information on adherence to the HRK SDD scheme as well as on all rights and obligations related to the direct debit service in compliance with this scheme to all of their payers for which they execute direct debits in compliance with the existing procedure. |
| 5 | At the time of signing the contract with a payee on direct debits in compliance with the HRK SDD scheme and for payers to be as informed as possible, banks will instruct such a payee to inform each of the payee's existing payers about it not less than within four weeks before the migration of the existing direct debits to the execution according to the HRK SDD scheme. |
- WHAT DO EXISTING PAYEES SHOULD DO TO MIGRATE TO THE SEPA DIRECT DEBIT SERVICE?
The payees using the existing direct debit service should adjust their systems to the new SEPA direct debit service. For migration purposes, payees should hold a transaction account with their bank, they should be technically trained for the SEPA direct debit and must obtain the mandate for the initiation of SEPA direct debits from the users of their services (payers). Banks will allow gradual migration from the existing direct debits to SEPA direct debits to existing payees during the two-year transitional period, i.e. from 5 June 2017 to 3 June 2019, according to the following dates:
| Dates of migration to the HRK SDD Core Scheme | |
| Beginning of implementation of the scheme | 5/6/2017 |
| First migration date | 9/10/2017 |
| Second migration date | 9/4/2018 |
| Third migration date | 10/9/2018 |
| Fourth migration date | 9/2/2019 |
| Fifth migration date | 3/6/2019 |
- HOW WILL PAYERS BE INFORMED ABOUT THE MIGRATION OF EXISTING DIRECT DEBITS TO SEPA DIRECT DEBITS?
Banks will submit the notification on amendments to the framework contract or applicable general terms and conditions to their payment service users (payers), not later than within two months before the beginning of their implementation and inform them about the new SEPA direct debit service, about the advantages of this service relative to the existing one, about the rights they have under the Rules of the HRK SDD Core Scheme, etc.
Banks will also notify their service users – payers that an individual payee will begin to execute direct debits as SEPA direct debits not less than within eight weeks before the payee's planned migration to SEPA direct debits. Payees will provide them with the same notification not less than within four weeks before the planned date of migration to the SEPA direct debit.
The payer wishing to continue meeting his/her obligation with respect to the payee by using the SEPA direct debit service does not need to undertake any additional activities. For such a payer, the bank will continue executing the existing direct debit service as a SEPA direct debit service. If a payment service user does not want to agree to the new service and to migration from the existing direct debit to the SEPA direct debit, such a payment service user may cancel the service free of charge for each individual payee.
The bank will provide the payees with any data on the payers, which are necessary for the execution of SEPA direct debits according to the Rules of the HRK SDD Core Scheme through the contents of information, which the bank is due to provide to the payee after the execution of an individual payment transaction.
- CAN NEW PAYEES USE THE CURRENT DIRECT DEBIT SERVICE AFTER 5 JUNE 2017?
From 5 June 2017, banks offer only the SEPA direct debit service to new payees (new contracting parties).