Fixing first-payment failures: The end of blind mandate acceptance

The riskiest moment in recurring payments is often the first one.
A customer signs up, a Direct Debit mandate is created, the service begins. Then, the first collection fails.

By that point, the business is already exposed. The customer may have accessed the service, cover may have started, credit may have been drawn, or a billing relationship may already be live.

What looked like successful onboarding has turned into a recovery problem.

This is the issue with blind mandate acceptance. It asks merchants to start a recurring relationship before they know whether the customer can, or will, pay.

It is also the moment that decides whether the relationship starts with confidence or uncertainty. 

Key takeaways

• Direct Debit does not confirm payment at signup, so merchants may start recurring relationships before knowing whether the first collection will succeed.
• Most first-time Direct Debit failures are caused by insufficient funds (50-60%) or fraud and chargebacks (around 30%), according to Trustly internal data.
• Open Banking payment solutions lets merchants verify payment readiness before a recurring relationship begins, without replacing Direct Debit as the long-term collection method.
• Combining first payment confirmation and mandate setup into a single journey reduces failed collections, fraud exposure and drop-off at signup.
• Trustly Pay & Repeat brings first payment confirmation and Direct Debit mandate setup into a single journey, so merchants can start recurring relationships with certainty.

The first payment has become the pressure point

Direct Debit remains one of Europe’s core recurring payment rails. In the first half of 2025, Direct Debits in the euro area reached 11.3 billion transactions, worth €5.6 trillion. It works very well for repeat collections. Merchants and consumers prefer it. The issue is the first step.

Recurring relationships now start in real time. A customer switches energy provider, buys insurance, signs up for broadband, sets up a repayment plan, or activates a subscription and expects everything to begin immediately.

The merchant, meanwhile, needs confidence that the first payment will succeed.

That creates a difficult choice: grant access immediately and risk non-payment, or delay access and risk losing the customer.

The reason is built into how Direct Debit works. Unlike bank-based push payments, where the customer authorises money to be sent and the merchant gets confirmation quickly, Direct Debit is a pull payment. The customer first submits the information needed to create a mandate. Once that mandate is processed and created, the merchant has permission to collect later. But the first collection outcome is still not confirmed until the payment is attempted.

Under the 2025 SEPA Direct Debit Core rulebook, collections must be received at least one inter-PSP business day before the due date.

Put simply, there is a delay between mandate setup, collection and final payment outcome. During that window, the merchant may already be supplying the service before knowing whether the customer will have sufficient funds when the first collection is attempted.

That is the fundamental risk of Direct Debit at signup: payment certainty comes later.

For payment leaders, this is a performance problem. For finance leaders, it is a cash flow and margin problem. For operations and customer teams, it creates avoidable work and friction.

The cost is bigger than the failed payment

A failed first collection rarely ends with one missed transaction. It can trigger reminders, retries, customer support, manual reconciliation, dunning, disputes and service disruption.

The impact looks different by sector, but the pattern is the same: the business has already started the relationship before payment certainty exists. For utilities, a failed first payment can become arrears from day one. For insurers, it can create uncertainty around coverage and policy activation. In lending, it can expose the business before repayment behaviour has been proven. And in telcos, it can mean failed Direct Debit setup, manual rework, fraud checks and drop-off during broadband or handset onboarding.

Fraud pressure makes this timing even more important.

The 2025 AFP Payments Fraud and Control Survey found that 79% of organisations experienced attempted or actual payments fraud activity in 2024. That does not mean every failed mandate is fraud, but it reinforces the broader point: verification needs to happen before exposure, not after it.

‍Better onboarding is already changing the model

The telco impact is already visible in real-world Open Banking adoption.

Virgin Media O2, a UK telecoms leader serving more than 30 million customers across broadband, mobile and business lines, worked with Trustly to simplify broadband and mobile onboarding into a single digital flow. In this case, nearly 60% of customers chose automated Direct Debit via Open Banking. That helped reduce manual entry, failed payment setups and back-office rework.

The lesson goes beyond telcos. When payment setup, verification and onboarding happen together, the first customer interaction becomes faster, safer and easier to complete.

From blind acceptance to verified starts

The future of recurring payments solutions will not be about abandoning Direct Debit. It will be about strengthening the point where Direct Debit-only flows are weakest.

Instead of starting the relationship while mandate setup and first collection are still playing out, merchants can confirm the first payment upfront while setting up the Direct Debit mandate for future collections.

This is where Open Banking changes the model: changing the timing of certainty. Instead of waiting for a delayed Direct Debit outcome after onboarding, merchants can confirm the first payment upfront through Pay by Bank or relevant local payment methods such as iDEAL and Wero, while creating the Direct Debit mandate for future collections.

The product detail matters less than the principle: recurring relationships should not begin with delayed visibility. They should begin with confirmation.

A customer can authenticate through their bank, confirm the first payment and set up the recurring mandate in one connected journey. The merchant gets earlier payment certainty. The customer gets a simpler start.

Trustly’s Pay & Repeat is one example of this shift. It combines upfront Pay by Bank payment confirmation with Direct Debit mandate creation in a single flow, helping merchants reduce uncertainty at signup without walking away from Direct Debit.

Closing this gap in practice means rethinking Pay by Bank for recurring payments, especially where merchants still rely on Direct Debit-only flows at signup.

Blind mandate acceptance has lasted because businesses learned to manage around it. But managing failure is not the same as preventing it.

The advantage now goes to merchants that verify earlier, recover less later and treat the first payment as the foundation of the relationship.

Frequently asked questions

What is blind mandate acceptance?

Blind mandate acceptance is when a business accepts a Direct Debit mandate and starts the customer relationship before knowing whether the first payment will actually succeed.

A mandate setup often gives users access to a merchant’s services. Once the mandate is created, the submitted details have been validated for mandate setup. But the mandate still does not confirm that the customer will have sufficient funds when the first collection is attempted, or that the first payment will be successful.

Why do Direct Debit first payments fail?

First Direct Debit payments can fail for several reasons, including insufficient funds, account restrictions, chargebacks or fraud. In many cases, the issue is not that the mandate was created incorrectly. It is that payment certainty only arrives when the first collection is attempted.

Trustly internal SEPA Direct Debit data across merchants shows that 50–60% of first-time Direct Debit failures are caused by insufficient funds, while around 30% are linked to fraud or chargebacks on first collection. This matters because many of these failures are only discovered after the customer has already been onboarded.

What happens when a first Direct Debit payment fails?

When a first Direct Debit payment fails, the business often has to move into recovery mode.

That can mean retrying the payment, sending reminders, contacting the customer, handling support queries, reconciling exceptions, managing dunning workflows or pausing access. In utilities, this can create arrears from day one. In insurance, it can create uncertainty around policy activation. In telcos, it can lead to failed onboarding, manual rework and fraud checks. The cost is rarely just the missed payment. It is the operational work that follows.

How does Open Banking reduce Direct Debit failures?

Open Banking can reduce Direct Debit failures by helping merchants verify the customer and confirm the first payment before relying on future collections.

Instead of asking customers to manually enter bank details and waiting for the first Direct Debit collection to succeed, merchants can use bank-based payment methods to confirm the first payment upfront while creating the Direct Debit mandate for future payments. Depending on the market, that upfront confirmation may happen through Pay by Bank or relevant local payment methods such as iDEAL and Wero.

‍