SEPA Explained: A Comprehensive Guide to the Single Euro Payments Area

The payments landscape has undergone significant changes as the world has adapted borderless economies with the help of the internet. Nowadays, conducting cashless transactions has become effortless thanks to various systems that enable seamless business operations, transcending geographical boundaries.

Amidst this transformative shift in global payments, the Single Euro Payments Area (SEPA) assumes a vital role. If you reside or operate within Europe, you likely have encountered the term before and are probably using it, even though you did not know about SEPA already.

In this blog post, we will provide a comprehensive breakdown of SEPA, including its definition, functionality, and the multitude of benefits it offers.

What is SEPA? 

The Single Euro Payments Area (SEPA) was introduced in 2008 with the aim of harmonizing credit transfers within the Eurozone. Since then, the SEPA system has grown to become one of the most widely used payment transfer schemes in Europe, facilitating over 46 billion transactions annually.

At its core, SEPA is designed to enable seamless euro transactions among member countries through the adoption of shared standards, procedures, and infrastructure. It resembles the Fedwire and ACH networks in the United States, which serve a similar purpose by providing a consistent framework for standardized transactions for consumers.

“Thanks to the Single Euro Payments Area (SEPA), customers can now make cashless euro payments – via credit transfer and direct debit – to anywhere in the European Union, as well as a number of non-EU countries, in a fast, safe and efficient way, just like national payments.” - European Central Bank

SEPA’s Regulatory and Operational Scope 

Before delving into the regulatory scope of the SEPA system, it's important to note that SEPA currently encompasses 36 member countries. These include the 27 EU member states, as well as the UK, San Marino, Monaco, Vatican City, Andorra, Switzerland, Iceland Liechtenstein, and Norway. 

As such, the governance of SEPA rests with the European Payments Council (EPC), which comprises representatives from banks, payment institutions, and other stakeholders. The EPC works in collaboration with the European Central Bank (ECB) and the European Commission to ensure the effective implementation and ongoing development of SEPA.

How Does SEPA Work? 

To understand how SEPA functions, it is important to note that it currently comprises four payment schemes: the SEPA Credit Transfer, the SEPA Instant Credit Transfer, the SEPA Direct Debit Core, and the SEPA Direct Debit Business-to-Business schemes. Each of these payment schemes serves a different purpose and is guided by a distinct set of rules.

SEPA Credit Transfer (SCT) 

The SEPA Credit Transfer Scheme is one of the primary methods for euro credit transfers within Europe, handling over 20 billion transactions annually. This widely adopted scheme supports both one-time and recurring payments, providing convenience for various financial transactions, including rent payments, savings transfers, and bulk payments such as payroll processing. It ensures consistent rules for transferring funds in euros across the 36 SEPA member countries, offering seamless and efficient payment solutions for individuals and businesses. 

SEPA Instant Credit Transfer 

While traditional transfers between accounts often involve submitting a request and waiting for hours or even days for settlement, SEPA Instant revolutionizes the process by enabling real-time transfers of up to €100,000. With this method, any two account holders within the SEPA area can complete euro-based transactions instantly, regardless of the time or day, as they are processed immediately. Remarkably, 99% of SEPA Instant Credit Transfers are completed within five seconds, and the convenience extends to the ability to make these transfers using smartphones.

SEPA Direct Debit Core

SEPA Direct Debit Core Scheme is a consumer-oriented payment method for automated bill payments in European SEPA countries. It involves pulling Euro-denominated payments from the payer's account based on a mandate form. The entire transaction occurs between the payer's and payee's banks, without card networks. SEPA direct debit transactions are conducted in Euros and typically take a minimum of two interbank working days to process under the B2B scheme and three interbank working days under the core scheme. 

SEPA Direct Debit Business-to-Business 

As the name suggests, SEPA Direct Debit Business-to-Business Scheme, also known as SDD B2B, is an automated payment system designed for business-to-business transactions in European SEPA countries. It offers the advantage of allowing payment requests to be submitted only one interbank working day before the payment due date. This makes it the quickest option for cross-border SEPA direct debit payments, guaranteeing efficient and punctual transactions between businesses.

Getting Started with SEPA

When it comes to processing payments through the SEPA network, businesses can leverage the existing bank accounts they have without the need to open a dedicated SEPA account. Unlike a financial institution, SEPA functions as a system used by banks within member countries to facilitate payments. 

If your business bank account is based in a SEPA member country and you have an IBAN number, you already have access to the SEPA network and its range of products.

In addition to traditional banks, the emergence of Fintech payment service providers in Europe has provided businesses with alternative channels to access SEPA services. 

Peanuds is here to serve
As a service provider in this niche, Peanuds understands the importance of simplifying your payment processes and enhancing your business operations. We will offer a comprehensive suite of SEPA-related services tailored to meet your needs, ensuring streamlined transactions and improved efficiency.