What is SEPA? Definition, objectives, origins,…

SEPA

Many of you are wondering what the SEPA acronym stands for…

As a payment solutions provider with a direct involvement in SEPA, Digiteal takes on an expert role to tell you more about the definition, objectives and origins of SEPA.

What is SEPA?

The acronym SEPA stands for Single Euro Payments Area. This European Union initiative is designed to harmonize and simplify electronic payments within participating countries.

More specifically, this agreement authorizes, onsumers and businesses in participating countries to pay in euros via their bank accounts. As the currency (the Euro) is the same, conversion costs are eliminated (or greatly reduced). It’s a fast, secure and efficient way to make bank transfers, just as you would make domestic payments.

Which countries are in the SEPA zone?

Currently, the SEPAzone includes 36 nations, giving it extensive geographic coverage (see map below).

It includes all member countries of the European Union but also certain countries of the European Economic Area that do not (or no longer) belong to the EU, and even other countries outside the European continent.

Here is the list:

The 27 countries of the European Union: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

3 European Economic Area (EEA) countries: Iceland, Liechtenstein, Norway.

6 non-EEA countries: Andorra, Monaco, United Kingdom, San Marino, Switzerland, Vatican.

What is an IBAN under SEPA?

Do you all know what the IBAN is – those 14 digits, preceded by BE for Belgium, on your bank card?

This set of numbers and letters is a standardized format for your bank account. International Bank Account Number, or IBAN, is the international number of your bank account.

Together with the BIC code (Bank Identifier Code), which identifies the bank linked to the account, it makes it possible to identify the account holder and their bank in a unique way, within the countries of the SEPA zone.

What are SEPA’s objectives?

The objectives can be summed up in one sentence: eliminating the differences between national and cross-border euro transactions, making them

faster (within seconds),
less costly,
more efficient (available 24h/24).

In other words, this harmonization aims to simplify intra-European payment procedures (and those of other SEPA countries) in order to strengthen the Euro monetary alliance.

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Where does SEPA come from?

In 2002, European banking institutions launched the SEPA project. Their aim was to facilitate intra-European payments by offering three European payment instruments: credit transfers, direct debits and instant transfers.

The SEPA Credit Transfer (SCT) protocol was created first. It was gradually introduced from January 2008 for cross-border payments and became mandatory for national payments in January 2014.

SEPA Direct Debit (SDD) was introduced in November 2009 for cross-border payments and became mandatory for domestic payments in August 2014. SDD was originally launched for direct debits in euros. This standardized recurring payments, such as monthly invoices.

Two years later, in 2016, countries outside the EU zone were also able to join the SEPA zone.

Then, since November 2017, SEPA Instant Credit Transfers (SCT Inst) have been introduced to speed up classic SEPA credit transfers. In November 2020, the European Central Bank (ECB) launched initiatives for these instant transfers to replace classic credit transfers. In October 2022, the European Commission, through DG-FISMA, proposed a law favoring the adoption of instant SEPA credit transfers (SCT Inst) by all banks in the European Union under the same conditions as classic credit transfers, so that instant payments become the norm and rapidly replace classic SEPA credit transfers.

2002
SEPA zone introduction
2008
SCT Introduction
SEPA Credit Transfer

= SEPA bank transfer
2009
SDD Introduction
SEPA Direct Debit

= SEPA domiciliation
2017
SCT Inst Introduction
SEPA Credit Transfer Instant

= SEPA Instantaneous Bank Transfer
2022
SCT Inst Normalisation

What are the SEPA payment instruments?

As part of the effort to harmonize payments within the EU, let’s take a look at SEPA transfers.

These payment instruments have been gradually introduced under SEPA to simplify financial transactions in euros within the SEPA zone, and have helped to make cross-border payments more efficient and uniform:

SEPA Credit Transfer

The SEPA Credit Transfer enables money transfers between bank accounts within the SEPA zone.

Also known as SCT, euro payments are processed in the same way as a domestic payment, facilitating cross-border transactions.

Funds are available in the creditor’s account on the same day or the following day, depending on how the banks are connected.

SEPA Direct Debit

SEPA Direct Debit (SDD) enables companies to collect payments directly from their customers’ bank accounts, provided they hold a compliant SDD mandate.

This SDD mandate is an official document that must be signed and managed by the biller in order for it to be authorized to collect/withdraw funds directly from the payer’s account. This document can also take electronic form. This is known as a SEPA e-Mandate. It is used to electronically collect a customer’s consent to a SEPA direct debit.

The SDD mandate can be a recurring mandate, for example, to pay a supplier on a monthly basis, or a one-off mandate to arrange a single direct debit in the future.

Other SDD mandate schemes can also be used, in special cases, such as the CORE scheme (mainly for direct debits from retail accounts) or the B2B scheme (for direct debits from corporate accounts).

SEPA Instant Transfer

To improve the speed of execution of SEPA credit transfers, instant credit transfers also known as SCT Inst (SEPA Instant Credit Transfer) were introduced in November 2017 for amounts of up to €100000. With these SEPA instant credit transfers, funds are available on the creditor’s account within 10 seconds.

In addition to its speed of execution, its strong point is its accessibility: 24 hours a day, 7 days a week, every day of the year. In comparison, the current processing time for a conventional SEPA credit transfer is one working day.

Please note that most banks charge for this type of instant transfer: the average cost of an instant transfer is around one euro.

Choose Digiteal for all your SEPA payments

Digiteal can help you take full advantage of SEPA by offering innovative solutions and services based on the principles of European standards and Open Banking.

This can include faster, less onerous and more secure transactions, as well as improved financial management and standardization.

Contact us to find out how we can help you with SEPA.

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