How Fraudsters Kite Funds with SEPA Direct Debit B2B—And How to Shut the Door
How Fraudsters Kite Funds with SEPA Direct Debit B2B—And How to Shut the Door
1. Legitimate B2B Direct‑Debit Timeline
| Day | Creditor Bank | Clearing / CSM | Debtor Bank |
|---|---|---|---|
| D‑2 | Receives pain.008 ; often pre‑credits creditor’s account. | ‑ | ‑ |
| D‑1 | Forwards file. | CSM distributes collection. | Must hold validated mandate. |
| D (settlement) | Pre‑credit funded if DB accepts. | Settlement final. | Posts debit; no refund right post‑D. |
2. The Exploit—Synthetic Float in Five Steps
- Steal credentials — victim’s IBAN and Creditor Identifier (CID).
- Open or hijack creditor account at a lax bank/fintech.
- Submit inflated B2B file; bank pre‑credits on D‑2/D‑1.
- Siphon funds via instant SCT or same‑day transfer before settlement.
- Return hits; pre‑credit already emptied—bank absorbs loss.
3. Behavioural Red Flags
| Layer | Red Flag | Why It Matters |
|---|---|---|
| Creditor Bank | Single debtor ≥ 90 % of file value | Normal corporates batch many payers. |
| Mandate Data | CID owner ≠ creditor legal name | Likely stolen identifier. |
| Account Activity | Instant SCT within 30 min of pre‑credit | Classic float exit pattern. |
| Debtor Bank | No mandate record for B2B debit | Must reject (MD06). |
4. Controls That Close the Gap
- CID↔KYC match at onboarding—decline mismatches.
- Hold funds for new CIDs until inter‑bank settlement.
- API mandate check with debtor bank before value dating.
- Velocity trigger: block large SCTs right after SDD pre‑credit.
- Return‑code analytics: spike in MD06/MD07 ⇒ auto‑pause.
- Educate clients: never publish full CID or signed mandates online.
5. Key Take‑Aways
- Pre‑credit is the weak link—tie it to mandate verification.
- Instant SCT converts 48‑hour float into 5‑minute money; monitor live.
- B2B equals zero refund once settled—debtor banks must reject upfront.
- CID not matching KYC? Block immediately.
- Watch R‑transaction codes—they are your early‑warning radar.
B2B direct debit fraud is low-volume but high-impact. If you’re a financial institution running SEPA rails, you need to assume that stolen identifiers and synthetic float will be exploited unless your controls are proactive—not reactive.
This article is for informational purposes only. It does not constitute legal, risk management, or cyber-security advice. Institutions should conduct their own internal reviews and regulatory consultations before implementing control changes.
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