What are SEPA payments?

A comprehensive guide to understanding SEPA payments.

SEPA payments have transformed commerce and payments in Europe, making it quicker, easier and cheaper to live, work and trade within the region.

However, the benefits of SEPA payments can sometimes get lost. That’s partly because EU policymakers and bureaucrats are fond of talking in abstract terms. And partly because payments people speak a language of all their own, often peppered with three-letter acronyms.

This guide acts as a plain-text translation to SEPA payments. We’ll cover:

All about SEPA

1. What is SEPA?

2. What are SEPA payments?

3. What are the differences between the two SEPA Credit Transfer schemes?

4. Which countries are included in SEPA?

5. How do SEPA payments work?

6. What is the future of SEPA payments?

Timings, execution times and cut-offs

7. How long does a SEPA payment take?

8. What are the SEPA transfer times at weekends?

9. What are SEPA cut-off times?

10. Are SEPA payments instant?

All about SEPA

1. What is SEPA?

SEPA stands for single euro payments area. The SEPA initiative set out to do what its name suggests: make cross-border euro payments as easy as domestic payments. Or in the words of the European Commission, “harmonise the way cashless payments in euro are made across Europe.”

SEPA applies to electronic payments – specifically, credit transfers, direct debits and card payments – denominated in euro.

2. What are SEPA payments?

SEPA payments comprise several schemes:

• SEPA Credit Transfer
• SEPA Direct Debit Core
• SEPA Direct Debit B2B
• SEPA Instant Credit Transfer
• SEPA Request-to-Pay

SEPA Credit Transfer (SCT)

A SEPA Credit Transfer (SCT) is a bank-account-to-bank-account payment initiated by the payer. This makes it a ‘push’ payment.

SCT payments in euro can be made in 36 SEPA countries.

Payments are made for the full original amount – there are no deductions. A payer may only be charged by their own payment provider.

Payments typically take one business day.

Most euro credit transfers in SEPA every year – more than 20 billion – are made via the SCT scheme.^[1]

SEPA Direct Debit (SDD)

There are two SEPA Direct Debit schemes used to make over 20 billion transactions annually within SEPA^[2]:

• SDD Core, primarily for consumers
• SDD B2B, exclusively for businesses

Both SDD Core and SDD B2B are ‘pull’ payment methods. The payee requests money from the payer with their prior approval and the sum is credited to the payee’s account.

The payer must sign a mandate prepared by the payee to consent to the debit from their account. This is issued in either paper or electronic format.

The payee is responsible for storing the original mandate, and any information regarding changes or cancellation.

A SEPA direct debit must be made in euros to accounts located in the SEPA area. But the accounts themselves do not have to be denominated in euros.

SDD payments typically take a minimum of two business days.

If they participate in SEPA Direct Debit, payment service providers (PSPs) must offer SDD Core for consumers. PSPs may offer the SDD B2B service in addition if they wish.

SEPA Instant Credit Transfer

A SEPA Instant Credit Transfer (SCT Inst) is a real-time bank-account-to-bank-account payment initiated by the payer.

SCT Inst is available 24x7x365. Payments can be sent and received at all times of the day – evenings, weekends, holidays – every day of the year. Payments are instantaneous, meaning that funds must be available on the beneficiary’s account within ten seconds.

SCT Inst payments are final. Once payments are processed, they cannot be recalled. So, there’s no concept of a chargeback as with pull-based card payments. Each payment is individually confirmed to both payer and payee or rejected, which gives certainty to both parties.

SCT Inst was launched in 2017 as an optional service. Participants must adhere to scheme rules. However, they have flexibility to enter into agreements with other participants on shorter execution times or maximum transaction amounts higher than the scheme maximum of €100,000.

SEPA Request-to-Pay

SEPA Request-to-Pay (SRTP) scheme covers the set of operating rules and technical elements (including messages) that allow a payee to request the initiation of a payment from a payer in a wide range of physical or online use cases.

The fourth version (v4.0) of the SRTP scheme rulebook is expected to come into force in November 2024.

3. What are the differences between the two SEPA Credit Transfer schemes?

SEPA Credit Transfer (SCT) and SEPA Instant Credit Transfer (SCT Inst) have confusingly similar names. While they are both push-payments initiated by the payer, there are some important differences as summarised below.

The key to instant payments is not to regard them as the same old payments done faster. Instant payments create new opportunities for participants to offer value-added products and services, leveraging the speed, transparency and richer data.

The message format of instant payments can carry more data. This is especially useful when positioned to B2B customers to improve cashflow, supply chain management, stock control and reconciliation. Or to gig economy employers needing to compete strongly against peers by paying their workers at the end of a job or shift.

Instant payments also power various B2C use cases, such as real-time peer-to-peer money transfer systems, often with a mobile front-end. As funds are confirmed on the beneficiary’s account within ten seconds or rejected, it’s as quick as sending an e-mail or SMS.

4. Which countries are included in SEPA?

Geographically, SEPA applies to 36 markets as at 2 January 2023. That’s the 27 EU member states, three members of the European Economic Area (EEA) (Iceland, Liechtenstein and Norway), and six non-EEA countries to which SEPA has been extended (Andorra, Monaco, San Marino, Switzerland, United Kingdom, and the Vatican City State).

5. How do SEPA payments work?

The European Commission establishes the legal framework for SEPA, particularly with the first Payment Services Directive (PSD), later revised as PSD2.

The SEPA payment schemes rely on common legal and technical standards. These are designed and overseen by the European Payments Council (EPC), a banking and payments association.

All payment service providers offering their customers euro credit transfers and direct debits had to migrate to SEPA by August 2014 (euro area) or October 2016 (non-euro area).

Having common legal and technical standards helps to simplify and speed up payment handling across the SEPA zone. Plus, helps reduce processing costs and interbank charges, which translates into a better experience for end customers, and better business for providers.

Almost 530 million people live in the SEPA zone and make more than 145 billion electronic payments every year, says the EPC. That’s a huge potential addressable market, whether you’re a bank, payment institution or fintech.

6. What is the future of SEPA payments?

The three basic SEPA schemes – SEPA Credit Transfer, SEPA Direct Debit Core and B2B – are more than 10-years-old. They are mature and stable. The future involves enhancing them with surrounding schemes.

This includes SEPA Request-to-Pay, which allows a payee to request the initiation of a payment from a payer. And One-Leg Out Instant Credit Transfer, a scheme dedicated to international instant credit transfers. The One-Leg Out refers to the fact one of the banks, either the sending or receiving bank, is outside SEPA.

The European Payments Council (EPC) is also working on a SEPA Payment Account Access (SPAA) scheme. This will allow banks and those who manage payment accounts on behalf of customers to exchange account-related data and initiate transactions, driving ‘open payments’ within the SEPA region.

The SPAA scheme rulebook v1.1 was effective in November 2023.

Additionally, the EPC is working on a Verification of Payee (VOP) scheme. As the name suggests, this allows the bank or payment service provider (PSP) of the payer to instantly send a request to the PSP of the payee to verify information. For example, the IBAN, name of payee, VAT, company or social security number of the payee (recipient of funds) to help combat instances of authorized push payment (APP) fraud. This is when a payer is tricked into making bank transfers to an account posing as a legitimate payee.

The first VOP scheme rulebook is expected in September 2024 and will enter into force in October 2025.

7. How long does a SEPA payment take?

Execution times for SEPA payments depend on the scheme.

For SEPA Instant Credit Transfers, funds are on account instantly, that’s in 10 seconds or less.

For SEPA Credit Transfers, funds are on account in one business day.

For SEPA Direct Debits, funds are on account in a minimum of two business days.

Timings, execution times and cut-offs

8. What are the SEPA transfer times at weekends?

The two batch SEPA payment schemes: SEPA Credit Transfer and SEPA Direct Debit do not work at weekends.

Whereas the SEPA Instant Credit Transfer scheme is an RTGS (real time gross settlement) system and is available 24x7x365. Funds are available on the payee’s account within a maximum of 10 seconds.

SCT Inst is good when speed is of the essence, for example P2P payments, instant business payments to suppliers, marketplace sellers or gig economy workers.

9. What are SEPA cut-off times?

Cut-off times for the two batch SEPA payment schemes (SEPA Credit Transfer and SEPA Direct Debit)are outside the scope of the EPC rulebook.

This means that individual payment service providers (PSPs) may agree their own cut-off times with counterparties and customers, communicating them as appropriate.

Cut-off times may vary depending on whether it is an incoming or outgoing payment.

SEPA Instant Credit Transfer is available 24x7x365. There are no cut-off times.

10. Are SEPA payments instant?

No, not all SEPA payments are instant.

SEPA Credit Transfer and SEPA Direct Debit take between one and two business days. Whereas SEPA Instant Credit Transfer are instant, as the name suggests. Funds are available on the payee’s account within a maximum of 10 seconds.

[1] https://www.europeanpaymentscouncil.eu/what-we-do/sepa-credit-transfer

[2] https://www.europeanpaymentscouncil.eu/what-we-do/sepa-direct-debit