Complete Guide to Single Euro Payments Area (SEPA)

In the world of finance and payments, certain tools and initiatives are designed to make the transfer of funds easier. One of them is the Single Euro Payments Area (SEPA). Depending on where in the world you live, you may or may not have heard of it. However, SEPA is one of the most important payment structures in the modern world, facilitating billions in transactions.

As such, everyone should have a grasp of what SEPA is, how it is used, and why it is important. In this guide, we dive into SEPA, its inner workings and history, and tell you all you need to know about it.

What Is SEPA?

The first thing to know about the Single Euro Payments Area (SEPA) is that it is a creation of the European Union (EU) and exists to make payments and financial transactions within the EU simpler.

Every year, millions of people move around the EU area for all sorts of reasons. As they do this, they need to make purchases, send funds back and forth, receive payments, and so on. These cashless payments would typically be cumbersome and costly as they are being done between different countries.

But this is where SEPA comes in. SEPA is basically a payment structure that unifies payments within the Eurozone. Individuals and businesses in the EU use SEPA to enjoy payment services that are as easy as those done in the same country and at the same cost.

SEPA applies to payments denominated in euros that are made as direct debits, credit transfers, and debit transfers. It is through SEPA that someone living in one EU country can make a payment in another and have their account debited with ease. It is also through SEPA that a person working in one EU country can have their compensation paid to their bank account in another.

History of SEPA

While SEPA came into play in the 2000s, the groundwork for it had been laid as early as the 1990s. Keep in mind that one of the biggest goals of the European Union was to strengthen ties between member states. One way to do that was through the introduction of the euro as a common currency between these states in 1992. 10 years later, the first euro coins and notes went into circulation, which meant that they could be spent in member states with ease.

But as digital payments became more commonplace, even surpassing the use of paper and coin money, some updates needed to be made. In 2007, the European Union passed the Payment Services Directive, which was designed to create an open and secure payment system for the Eurozone. It was this directive that would form the foundation of SEPA, which was formally created in 2008.

There are several schemes under SEPA and each was introduced at a different time. The SEPA credit transfer scheme was introduced in 2008, while the SEPA Direct Debit and B2B schemes were launched in 2009. By 2014, SEPA was fully implemented in the Eurozone and its credit transfers and direct debit constituted a majority of payments in the Eurozone.

The mentioned schemes will be discussed in detail later.

Even though SEPA has been around for years, updates are constantly being made. In 2019, for example, a law was passed banning financial institutions from charging customers extra for euro transfers between EU countries. In 2020, another SEPA scheme was introduced, the request-to-pay scheme.

SEPA Payment Schemes

As mentioned earlier, the Single Euro Payments Area (SEPA) is made up of four different schemes, namely the SEPA credit transfer, the SEPA instant credit transfer, the SEPA direct debit, and the SEPA request-to-pay.

The SEPA credit transfer scheme was the first to be approved and is the payment system that allows payments to be sent from a payer to a payee. This scheme has a maximum execution time of 1 business day and a maximum credit time of 2 business days. The payments can also be recalled and canceled in some situations.

The SEPA instant credit transfer is similar to the former but is faster, with a maximum credit time of 10 seconds. While it is more convenient for users, it does not allow these transactions to be canceled or recalled under any circumstances.

The SEPA direct debit scheme comes in two different forms: the SEPA direct debit core and the SEPA direct debit B2B. Direct debits are standing orders approved by the account owners that allow money to be taken out of the account by certain parties to settle bills. The core scheme is typically used for consumers paying bills like electricity and rent while the B2B scheme is used for businesses to pay other businesses or government organizations.

The SEPA request-to-pay is not a way to make payments per se but is a way to request permission from an account holder to initiate payment. When a request-to-pay is sent, the customer can choose to approve or deny the request immediately or at a later time. The customer can also choose to allow the payment then or at a later date.

SEPA vs SWIFT

If you do not live in the EU, you might not have heard of SEPA. However, many people around the world have heard of the Society for Worldwide Interbank Financial Telecommunications, better known as SWIFT. SWIFT has been in existence since the 1970s and allows financial transactions in virtually every country on the planet. Certain details are needed to complete a SWIFT payment, such as an International Bank Account Number (IBAN) and a Bank Identifier Code (BIC).

Besides having a wider reach than SEPA payments, SWIFT translations can take up to 4 days to complete and there are fees associated with them depending on the financial institution being used.

Ultimately, the choice between the two comes down to a few factors. First, you’d need to consider your location. If you are completing transactions between two EU countries, SEPA would be the better option. Also, if you want your transaction completed faster or wish to avoid fees, SEPA would be preferable. However, if you are making transfers in a currency other than the euro, SEPA will not be an option for you and so, you’ll have to use SWIFT.

Benefits of SEPA

The Single Euro Payments Area system has been in use for almost 20 years and continues to be a staple of the business sector in the EU because of the following benefits:

• Simplicity. Without SEPA, residents of the EU would have to open multiple accounts with financial institutions to allow them to complete their necessary transactions. Thanks to it, they can conduct their affairs in a simpler manner.
• Cost-saving. SEPA and various laws in the EU ensure that consumers are not charged fees for sending and receiving funds.
• Time-saving. SEPA, especially the SEPA instant credit transfer scheme, allows these transactions to be completed in seconds, saving much time and affording convenience.
• Increased business opportunities. The ease of transactions across the EU means that there are more opportunities for businesses to operate and for workers to travel and seek employment.
• Unity. The goal of SEPA was partially to unify the EU states and by allowing free-flowing financial transactions, this goal can be further pursued.

Countries Included In SEPA

If you’re considering ever using the Single Euro Payments Area (SEPA), it is important that you know what countries it operates in. As of 2024, SEPA is available for euro transactions in the following EU countries: Austria, Cyprus, Spain, Croatia, Czech Republic, Lithuania, Denmark, Estonia, Finland, France, Germany, Greece, Poland, Portugal, Romania, Hungary, Republic of Ireland, Italy, Latvia, Luxembourg, Belgium, Bulgaria, Malta, Netherlands, Slovenia, Slovakia, and Sweden. Besides there, a few non-EU countries support SEPA, including the United Kingdom, Vatican City, Iceland, Norway, Liechtenstein, San Marino, Switzerland, Andorra, and Monaco.

Bottom Line

The Single Euro Payments Area (SEPA) is a truly remarkable development that has managed to make financial transactions throughout the EU simpler, faster, and cheaper than ever. SEPA can be seen as a continuation of efforts to financially unify the EU that have been in place since the 1990s.

The benefits of SEPA have been felt by both individuals and businesses alike and when compared to legacy structures like SWIFT, is often a better option. Anyone who finds themselves needing to complete cross-border transactions within the EU might want to consider SEPA as a reliable option.