SEPA Payments — The Effortless Euro Transfers
529 million people in this particular location make around 184 billion transactions payments every year
Can you guess which area we’re talking about?
Here’s a clue, it has the dreamiest spots in the world and many films are shot in those scenic locations.
Think you have already guessed it!
Drumroll, please… The area is the Euro Zone, and that massive number of payments is made through Single Euro Payments Area, popularly known as SEPA!
Kommen Sie, lassen Sie uns mehr über SEPA erfahren! (Come on, let’s find out more about SEPA)
SEPA?
SEPA is a standardized system for cashless payments within the Eurozone. Introduced by the European Union (EU), it simplifies transactions like direct debits and credit transfers for governments, businesses, and individuals. It aims to create a single, integrated market for electronic payments across participating countries. Furthermore, this initiative is under the governance and oversight of the European Payment Council (EPC).
What SEPA Payments Do?
- Enable seamless cross-border transactions across diverse countries.
- Allow individuals and entities to make cross-border payments with the same convenience and cost as domestic transactions.
- Eliminate friction in processing cross-border transactions by unifying fragmented national markets.
- Establish shared standards, procedures, and infrastructure for fund transfers, adopted by every member state.
- Minimize barriers to fund transfers between accounts.
- Reduce the costs associated with moving capital throughout the EU and surrounding countries.
- Boost the economies where SEPA operates.
- Provide convenience for consumers and businesses globally.
Countries included in SEPA
SEPA currently encompasses a total of 38 countries and territories:
- 27 Member States of the EU
- 3 countries of the European Economic Area (EEA)
- 8 non-EEA countries, to which the geographical scope has been extended
The 27 Member States of the EU includes:
Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden.
The 8 non-EEA countries are:
United Kingdom, Switzerland, Monaco, San Marino, Andorra, Vatican City State/Holy See, Montenegro and Albania.
The Non-EEA Territories includes:
Saint-Pierre-et-Miquelon, Guernsey, Jersey, Isle of Man
SEPA Transfer
SEPA transfers can be initiated via online banking, at the sender’s bank branch, or through a payment service provider (PSP) and they are suitable for both one-off and recurring payments.
Requirements for a SEPA payment:
- Recipient’s Name: Ensures the payment reaches the correct person.
- IBAN: The International Bank Account Number (IBAN), required for all European accounts involved in the transaction. It identifies both the sender’s and recipient’s accounts.
- BIC: In some cases, the Bank Identifier Code (BIC) is also needed.
- Authentication: The sender needs to authenticate the payment using a PIN, one-time password, or biometric data.
- Fees: Vary depending on the type of SEPA payment, the facilitating institution, and whether currency conversion is needed.
Once all necessary information is provided, the money is deducted from the sender’s account and credited to the recipient.
SEPA Payment Schemes
- SEPA CREDIT TRANSFER
- SEPA INSTANT CREDIT TRANSFER
- SEPA DIRECT DEBIT
- ONE-LEG OUT INSTANT CREDIT TRANSFER
1. SEPA Credit Transfer (SCT)
SCT are euro-based payments made between banks using IBAN codes. These transfers are commonly used for consumer transactions within SEPA countries, where both the sending and receiving banks must be located. Businesses outside the SEPA region typically do not use SCT. In most cases, these transfers clear within one working day. Each year, over 29 billion credit transfers are processed across Europe under the SCT scheme.
2. SEPA Instant Credit Transfer (SCT Inst)
SCT Inst enables real-time euro payments up to €100,000 between SEPA account holders, 24/7 and 365 days. Most transfers are completed in under ten seconds and can be accessed via smartphones. PSPs can agree on higher amounts and faster execution times bilaterally or multilaterally.
3. SEPA Direct Debit Transfer
EPC offers two distinct SEPA Direct Debit (SDD) schemes for automated electronic fund transfers within the Eurozone:
- SEPA Direct Debit (SDD) Core scheme: Primarily for consumer payments, this scheme is mandatory for PSPs handling euro direct debits for consumers. It utilizes a delayed notification system, with transaction outcomes confirmed after processing, which can take several days.
- SDD Business-to-Business (B2B) scheme: Designed exclusively for business transactions, this scheme is optional for PSPs. Settlement typically takes up to 3 business days.
These SDD schemes facilitate a significant volume of transactions, exceeding 21 billion transactions annually.
4. One-Leg Out (OLO) Instant Credit Transfer (OCT Inst)
The newest EPC scheme focuses on international instant credit transfers, establishing rules and standards for seamless interoperability within SEPA. It enables PSPs to offer faster international payment execution, enhanced transparency regarding costs and parties involved, and improved traceability of payment statuses. This scheme aims to enhance the efficiency and reliability of international transfers within the Euro area, ensuring a seamless experience for both businesses and consumers.
Well!
Though the completion of the migration to SCT and SDD schemes marks a significant milestone, the SEPA project continues to evolve. EU regulators aim for further harmonization, particularly in mobile and online payments. The EPC is dedicated to enhancing the ease and convenience of payments for European citizens and businesses, ensuring a seamless and unified payment experience across the region.
P.S: What topic do you think we should explore next? Let us know in the comments.
