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What is a SEPA transfer?
SEPA transfers are cross-border bank transfers between the Single Euro Payments Area (SEPA). There are 36 countries in SEPA. These include 27 EU member countries and 9 non-EU member countries, including the UK. SEPA is designed to make cross-border euro transfers within these areas something similar to a domestic transfer within your own country. Because SEPA transfers are a standard procedure, all PSPs within the SEPA area will use them to transfer money across Europe. Whilst most SEPA transfers only involve Euros, a SEPA transfer to the UK will require currency conversion from Euros to Pounds.
What are the different types of a SEPA transfer?
The EPC has created five distinct schemes. All but one of them can be used by individuals as well as businesses.
1. The SEPA Credit Transfer (SCT) scheme - This is the most common type of SEPA transfer to the UK. SCTs are very popular. According to the European Payments Council (EPC), more than 20 billion SEPA credit transfers are made annually across Europe.
SCT transactions can be one-off spending (for a single purchase) or recurring payments (such as a standing order to pay a monthly bill). You can also make bulk payments, which are a bit like a pay roll. Bulk payments are when one amount is debited from the payer’s account, which is then split into multiple credit payments to different beneficiaries.
2. The SEPA Instant Credit Transfer (SCT Inst) scheme - Introduced in November 2017 to meet consumer demand for fast payment services. And boy, does it deliver! The SCT Inst scheme enables pan-European credit transfers with funds available in the recipient’s account in less than ten seconds. Providing this level of speed is important. In a digital world where e-commerce has been made even more popular by the widespread use of smartphones, consumers can make internet purchases anywhere and at any time.
On the other hand, retailers appreciate the certainty of being paid quickly for their goods and services. The SCT Inst scheme fulfils these expectations. It also stopped several European countries from creating their own solutions to the challenge of rapid payment. SEPA claims that such national schemes would have stopped at national borders, creating a fragmented European financial landscape at a time when direct debits and credit transfers were already possible through SEPA.
3. The SEPA Direct Debit Core (SDD Core) scheme – The EPC has created two SEPA Direct Debit (SDD) schemes. SDD Core is designed primarily for consumers. SDD B2B is available only for businesses to pay other businesses. Both schemes can be used for one-off transactions and recurring payments.
Between them, SDD Core and SDD B2B facilitate over 20 billion transactions yearly in SEPA. Similar to a direct debit, these are used for recurring cross-border payments within Europe and are usually done through your bank.
Both schemes operate similarly. The biller requests payment from the payer, and the sum is credited to the biller’s account on a specified date. For this to happen, the payer must sign a direct debit mandate to confirm that they agree to this. The direct debit mandate is prepared by the biller and can be issued in either paper or electronic format.
4. The SDD Business-to-Business (SDD B2B) – This scheme has been designed to be used exclusively by businesses to pay one another. SEPA created the SDD B2B scheme to ward off other countries from creating their own version of this scheme. It offers the billers and the business payers efficiency gains from payment processing automation in addition to improved liquidity from bills being paid automatically when they are due.
5. The One-Leg Out Instant Credit Transfer (OCT Inst) scheme - This is the latest EPC scheme. It is specifically for international instant credit transfer and has been designed to support payments where one party i.e., ‘one-leg’, whether sender or receiver, is ‘out’ of the Eurozone.
Let’s take an example of a business headquartered in the Eurozone that pays wages to factories in a non-euro area. Before this scheme was created, the money would be transferred abroad and converted in the process, and then the wages would be paid via a domestic transfer using the business’s local account. Now, with the OCT Inst scheme, all wages worldwide can be instructed from European headquarters, in euros, in real time, without the business needing to use a foreign bank account.
What is the Single Euro Payments Area?
The Single Euro Payments Area, or SEPA for short, is an initiative designed to make it easy for PSPs to make cashless payments from one member country to another. SEPA was launched in January 2008 and is regulated by the European Payment Council (EPC). SEPA only offered credit transfers until November 2009, when direct debits and debit cards were introduced. SEPA instant credit transfers were launched in November 2017.
SEPA serves a similar purpose to the ACH and Fedwire networks in the US. It aims to facilitate standardised transactions between financial institutions in a consistent framework. The adoption of shared standards, procedures, and infrastructure for transferring funds has reduced the costs of moving capital throughout the SEPA member countries. It has also created a popular mechanism for cashless transfers, boosting economies where it operates and providing convenience for consumers and businesses across the planet.
Which countries are included in SEPA?
The SEPA region currently consists of 36 countries. There are 27 EU member countries and 9 non-EU member countries. The EU member countries include Austria, Belgium, Bulgaria, Cyprus, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Republic of Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovenia, Slovakia, Spain, and Sweden. The 9 non-EU member countries are Iceland, Norway, Liechtenstein, Switzerland, Andorra, Vatican City, Monaco, San Marino, and the UK.
How to make a SEPA payment
Since 2008, SEPA transfers have been the industry standard for transferring money within the 36 mainly EU member countries. Some 46 billion SEPA payments are made yearly, so you don’t need to do anything out of the ordinary. It is a tried and tested process.
To make a SEPA payment, you will need details of the fund recipient, such as their name, the IBAN of their account, their Bank identifier code (BIC), sometimes also called the SWIFT code and the country in which the bank account is registered. You will also need to know your currency and the currency you’re converting to.
Once you have this information, there are four easy steps:
Step 1: ID check – A standard requirement for all international money transfers. A scan or photo of your passport and a recent utility bill is usually sufficient to satisfy anti-money laundering regulations.
Step 2: Secure an exchange rate - A SEPA transfer from Europe to the UK will involve a euro-to-pound exchange rate. Once agreed, the exchange rate is locked in for your transfer.
Step 3: Send in your money – Whilst banks typically require you to send your funds before allowing you to lock in an exchange rate, currency brokers will often secure rates before receiving your funds.
Step 4: Money is converted and transferred – The money is sent to the recipient’s account once the currency conversion has taken place.
Euro-to-euro transfers are usually completely free. Otherwise, there is often a tiny cost to each SEPA transfer, but these are so small that your PSP normally covers them. SWIFT transfers are normally more expensive than a SEPA transfer, and the main cost comes from the exchange rate.
Do I need a SEPA account?
No. There is no such thing as a SEPA-specific account. That’s because SEPA is not a financial institution but rather a system used by financial organisations located within member countries.
You do not need a specific bank account to process payments within the SEPA network. If your business bank account is based in a SEPA member country and you have an IBAN, then you already have access to the SEPA network and the three main products that operate within it.
What are the benefits of SEPA transfers?
SEPA payments are designed to make Europe-wide trade simple, convenient, and efficient. With SEPA, consumers only need one payment account and card to make euro payments anywhere in Europe. There are several benefits to using SEPA:
- They are safe, quick, and, unlike other international transfers such as SWIFT, do not incur transfer fees.
- Standardising payments makes it easier to process and simpler to identify transactions. This leads to a faster settlement of debts.
- With a simple payments system, SEPA makes doing business in Europe easy, reducing the risk and improving European trade.
- SEPA eliminates the need to have a number of different bank accounts in separate European countries. This allows businesses to cut costs whilst also improving their cash visibility.
- SEPA transaction fees are lower than traditional cross-border payment methods such as SWIFT.
- Direct Debits can be collected from any of the 36 countries in the SEPA zone.
- SEPA payments can be routed to countries offering the best terms.
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