SEPA and SEPA Instant: What is the Difference?

Explanation of SEPA Payments

It is generally easy and fast to send money from one bank to another in a country. But when you try to make a cross-border payment, different factors come into play, and some may limit the speed and efficiency of the transaction. They include time zone differences, currency exchange rates, technological gaps in banking systems, and dissimilar regulations on fraud prevention and money transfers.

To overcome international barriers to money transfers, Europe developed a unified system of payment called the Single Euro Payments Area (SEPA). Cross-border payments between the members of this network are made in euros.

Is SEPA owned by the EU or any European government? No! The SEPA payment schemes were created by an international not-for-profit organisation called the European Payments Council (EPC), which is not an institution of the EU. Its mission is to develop instruments for harmonised electronic payments in a single currency (euro) across Europe. The goal of the EPC is to promote competitiveness and innovation for the benefit of payment service providers (PSPs) and their customers on the continent. Yearly, thousands of European PSPs use SEPA to facilitate more than 46 billion transactions.

What is special about SEPA?

SEPA was developed for the European banking and payment industry – to ease credit and direct debit transfers. Presently, the EPC is working on a scheme for payment cards and a new framework for mobile transactions. It hopes to realise these projects through a collaborative process.

Below are some other interesting things to know about SEPA.

• Geographical coverage (members): The SEPA zone comprises of 36 European countries, which are:
  • 27 member states of the EU;
  • 3 member states of the European Economic Area (EEA);
  • And 6 non-EEA countries.

NOTE: You can find the current list of countries in the SEPA zone here.

• Currency: All transactions are made in only euro (written as EUR or €).
   
• SEPA fees: Since 2001, financial institutions under SEPA were to credit payments to their customers free of charge. However, the equal fees principle was introduced in 2009 so that credit and direct debit transfers, card payments, ATM withdrawals, and cash remittances will attract the same fees in the SEPA zones. A recent development was the introduction of a cross-border payment rule in which natural persons and legal entities were to make euro transfers in domestic rates from 2018.
   
• SEPA vs SWIFT: SEPA and SWIFT are twin terms in international payments. In other words, speakers and writers often mentioned them together. However, they are not the same. While SEPA was developed for payments between European countries, SWIFT is a network for worldwide money transfers between banks and PSPs. You can read more about their differences in this article.
   
• Account format: SEPA uses the International Bank Account Number (IBAN) of the customer. Sometimes, the SWIFT Code or Business Identifier Code (BIC) of the bank or PSP is also required. 

Note: IBANs are currently used in over 70 countries across the globe, even though they were initially for transfers between banks in the Eurozone.

Advantages of SEPA 

SEPA has several advantages for individuals and businesses involved in making international payments. They are as follows:

• One system for all transactions: both domestic and international.
• Fast payment processing.
• Free transactions in most cases.
• Easy withdrawal of money from a customer’s account in one country to credit it into another within the SEPA zone (international direct debit).
• No need for currency conversion.
• A single terminal for payments via cards.
• Members of the SEPA zone can use any of the SEPA schemes by the EPC.

Meaning of SEPA Instant

SEPA Instant, or SEPA Instant Credit Transfer (often abbreviated as “SCT Inst”), is a scheme that was developed by the EPC to create a system for very fast euro payments between member states of the SEPA zone. It came into operation in November 2017.

What are the key features of SEPA Instant? 

The following are the features of the SEPA Instant Credit Transfer scheme:

• 24/7/365 operation – the service is available round the clock throughout the year.
• It excludes intermediaries and corresponding banks in the processing of transactions.
• After being sent, payments are confirmed or received within 10 seconds.
• Transfers are free of charge.
• Payments are not allowed to exceed 100,000 EUR per transaction.
• It is available to customers and PSPs in all member states of SEPA.

How does a SEPA Instant payment work?

To initiate a SEPA Instant payment, the accounts of the sender and receiver must be linked to the SEPA Instant Credit Transfer scheme. This kind of connection is usually made by the financial institutions that provided the accounts. The IBAN and BIC of the receiver and the receiving bank, respectively, are typically needed to process the transaction.

When making mobile or online money transfers, the customer can choose SEPA or SEPA Instant from the options provided by their bank, neobank, or PSP. If your financial institution is not connected to the SEPA Instant Credit Transfer scheme, you will not find this fast payment option on their digital platform. Please see the online register of the EPC for the up-to-date list of banks and PSPs in the SEPA and SEPA Instant payment schemes.

How is SEPA different from SEPA Instant? 

SEPA and SEPA Instant are different in various aspects, which include the transfer fees, time, maximum limits, and days of the week. However, for any kind of SEPA payment to be successful, both the sending and receiving banks, or PSPs, must be connected to the scheme as participants. We show how both payment schemes compare to each other using the table below.
 

Main Types of SEPA Transactions

SEPA has four payment schemes, which were developed by the EPC. They are the SEPA Credit Transfer (SCT), the SEPA Instant Credit Transfer (SCT Inst), the SEPA Direct Debit Core (SDD Core), and the SEPA Direct Debit Business-to-Business (SDD B2B). But in this article, we focus on the three main types of SEPA transactions, which are the first three schemes aforementioned.

SEPA Credit Transfer (SCT)

A SEPA Credit Transfer, also known as a SEPA transfer, is used to electronically move money in euros from one account to another within the SEPA network. It is often used for one-off payments. For example, you can send 1000 EUR from your local bank account in France to that of another person in Germany through an SCT and it will be received within a day. The transaction is processed free of charge like a domestic transfer.

SEPA Instant Credit Transfer (SCT Inst)

A SEPA Instant Credit Transfer, called a SEPA Instant payment as well, is used for urgent transactions. SCT Inst payments, which can be made anytime (24/7/365), are completed in less than 10 seconds. However, SEPA Instant payments are limited to 100,000 EUR only.

SEPA Direct Debit Transfer (SDD Core)

When you want to make recurring payments within the SEPA zone, the best option for such transactions is the SEPA Direct Debit Transfer. You can use this scheme to manage utility bills and rent payments effectively and efficiently. The money can take up to 14 business days to get to the receiver. Unlike SCT and SCT Inst payments, SEPA Direct Debit transfers are requested by the receiver and not the other way around. That is why the SDD Core is ideal for creditors or service providers who need to debit their customers’ accounts regularly.

The Bottom Line

The SEPA Credit Transfer and the SEPA Instant Credit Transfer are reliable methods for sending money from one account to another within the Single Euro Payment Area. While the former is ideal for one-off payments of any amount that can be received in one business day, the latter is your best choice for urgent transfers that will be completed in about 10 seconds, although with a limit of 100,000 EUR. In either case, the sending and receiving banks or payment service providers must be registered participants in SEPA to offer the various payment methods under the scheme.

Individuals and businesses will always need money transfer services. Consumers frequently prefer fast payments to slow ones. That is why, among the various SEPA payment methods, SEPA Instant Credit Transfer needs more development and professional attention than the others.