9 min read 26.07.2021 574
Single Euro Payments Area (SEPA)
If you are not new to our blog, then you are already aware of SEPA transfers. Knowing this, we have finally decided to take a deep dive into SEPA transfers. SEPA is significantly different from other ways of transferring money online and in the traditional banking system. The number of differences is why SEPA has become an essential part of established and start-up fintech companies. The low fees and quick transfer times make SEPA a reliable money transfer option for businesses, enterprises, and individuals. This AskWallet blog post will give you all the information on making SEPA transfers and what to look out for?
What is SEPA? - Single Euro Payment Area
In the world of online money transfers and payment processing services, SEPA is an acronym that you must have come across a number of times. What does SEPA stand for? Well, it stands for the single euro payments area. That doesn't make it easier to understand what it is, so let's break it down further.
The single euro payments area is a system for making transactions specially created by the European Union for Europeans. SEPA allows for the harmonization of cashless money transfers among European countries. This makes it easier and faster for European businesses, consumers, and government agencies to receive and send money online respectively.
The SEPA system allows users to make and receive payments in several ways, including direct debit, card transfers, and credit transfers. The SEPA infrastructure provides business owners in any European country to make cashless payments and transfers across the borders. In comparison, they enjoy the exact fees and conveniences of making domestic transfers in the same region. The single euro payment area is regulated and overseen by the European Payment Council (EPC).
The idea and aim behind SEPA is one that is very simple and straightforward. It is simply getting money cross-border as quickly and at as low a cost as possible. SEPA isn't bound to any type of transaction but is available to every kind of transaction from retail transactions, debit transfers, and many more. Anyone can utilize SEPA transfers whether you are a business, individual, non-EU citizen traveling in the EU. Being able to move money from one place to another has so many advantages for European countries.
Some of those advantages include labor mobility and allows for economic integration amongst the SEPA member states. However, the most crucial benefit for consumers is that SEPA provides for competition in the online money transfer world, further lowering prices and allowing users to enjoy low fees.
SEPA allows for payment processing using four schemes. These schemes include:
- The SEPA Credit Transfer
- The SEPA Instant Credit Transfer
- The SEPA Direct Credit Core
- The SEPA Direct Debit Business-to-Business
The schemes mentioned above set the rules and guidelines for the regulation of money transfers in each member state and how they regulate the transfers amongst themselves.
There are a lot of transactions that are done via SEPA on a yearly basis by member states. It is said to have over 43 billion SEPA transactions take place every year in 46 countries. The countries that are part of the SEPA member states include 27 EU states and also the UK, Iceland, Monaco, Vatican City, Norway, Andorra, Liechtenstein, San Marino, and Switzerland.
Let's take a look at the schemes mentioned above and see how they work before going into how to make SEPA transfers:
SEPA Direct Debit
The SEPA direct debit is a method known as pull-based payment, making it a lot easier for creditors or business owners to debit a consumer's account. However, this can be done if the debtor or consumer has previously signed a mandate allowing businesses or merchants to withdraw money for their services. Keep in mind that this service is available exclusively in Euros.
One important detail when it comes to sending and receiving funds via SEPA Direct Debit is that the consumer must possess an IBAN account (International Bank Account Number). Many fintech companies provide IBAN accounts for businesses and individuals. Check our long list of IBAN account providers on AskWallet.
There are plenty of transactions that can be done with SEPA direct debit, whether for one-time payments or recurring transactions. Many EU citizens find direct debit as a quick and easy way to make regular payments, whether for subscriptions, insurance, rent, or any other expenses.
This service also allows for quick and easy cash flow from one country to another. This could really be good for businesses who have consumers abroad in other EU countries or SEPA member countries.
Creditors benefit from:
- Domestic and cross-border direct debit collection in 32 countries
- Capability to ascertain the precise date of the gathering
- Payment must be completed within a predetermined time frame
- Simple receipt of payments reconciliation
- Ability to handle exceptions automatically (refunds, returns, rejects)
Debtors can benefit from the following:
- A simple method of paying invoices in all 32 SEPA nations.
- Simple reconciliation of debits on account statements
- No-questions-asked return method that is quick and easy.
What is the Transfer Period for SEPA Direct Debit?
Direct debit is not a form of immediate payment. If you are using this form of payment transfer, you could be waiting for your payment to be delivered in 2-3 business days. However, this depends on what direct debit scheme you are utilizing. There are two direct debit schemes which are:
- SEPA Direct Debit Core
- SEPA Direct Debit B2B
SEPA Direct Debit Core
The method permits a creditor to collect cash from a debtor's account if the debtor has granted the creditor a signed mandate. The debtor and creditor must have arrangements with SEPA-compliant credit institutions; the credit institution performing the direct debit transaction must also be a scheme participant. The system can be used for one-time (one-time) or recurring direct debit collections, and the quantities are not restricted. The system is only applicable to euro transactions.
SEPA Direct Debit B2B
The SEPA Business to Business Direct Debit scheme (B2B) provides the foundation for the creation of specialized direct debit products and services that enable business customers to operate as debtors (payers) and make direct debit payments as part of their business operations.
Difference between SEPA Direct Debit Core and SEPA Direct Debit B2B
Let's take a look at some of the differences between SEPA Direct Debit Core and SEPA Direct Debit B2B:
- Businesses and enterprises are those who can make use of the SEPA Direct Debit B2B. However, the core can be made use of by private companies as well as individuals.
- One of the things that businesses and enterprises have to keep in mind when using SEPA Direct Debit B2B is that some banks do not accept them as a viable form of payment. Even though the EU government regulates SEPA, it is not mandatory for banks to accept SEPA B2B payments.
- The recipient must initiate the application of the collection at least 3 - 4 banking days preceding the payment due date and at least one or two days before the date for just about any consecutive payment collections under the B2C programme. The SEPA B2B system, on the other hand, requires the application to be made only one working day before the bill is necessary. This implies that the B2B direct debit system is the best option for making a cross-border SEPA immediate debit payment as quickly as feasible.
- Before making any direct debit payments, debtors must sign an agreement with their bank under the B2B program. The direct debit will be denied if the debtor fails to inform the bank.
- Clients of the B2B plan are not eligible for a refund, but consumers of the Core program are (the debtor needs to provide proof that the creditor was not authorized.)
SEPA Credit Transfer
Like the SEPA direct debit that we discussed above, SEPA credit transfer works in a similar method but has its significant differences. The SEPA transfer service is an interbank payment programme that follows a set of already established procedures and rules for credit transfers in the EU.
Just like any SEPA transaction, it can be set up for either one-time payments or recurring transactions. Users can also make payments in bulk (whether it has to pay employees at your business) or make individual payments easily.
Features of the SEPA Credit Transfer Program
- Payees can outsource their standard payment processing to other service providers using specific data components signaling the commencement and reception of 'on behalf of' transactions.
- The payer can provide up to 140 characters of remittance information. Whether unstructured (free language) or organized, these 140 characters help the beneficiary comprehend why they've been granted access to the cash. They also assist in reconciling incoming cash with invoice data.
- Complete payment of the original amount is paid, and no deductions are made. Credit transfers can only be charged to the customer's own PSP.
- The International Bank Account Number (IBAN) and Business Identifier Code (BIC) are used to identify the payer, payee, and their banks.
- One business day after payment is made, the recipient receives the money.
- Because there are no hidden fees, the beneficiary receives the whole amount of the grant.
- Using SEPA, the cost of a cross-border payment will be identical to the cost of a local transfer.
SEPA Instant Credit Transfer
This payment programme is also referred to as SEPA Instant Payment. What this scheme allows for is swift instant crediting of recipients in as quick as 10 seconds. However, this payment programme isn't available in all the SEPA member countries. In fact, you can only make use of the scheme in eight eurozone: Austria, Estonia, Germany, Italy, Latvia, Lithuania, the Netherlands, and Spain.
Users should keep in mind one more thing when using SEPA instant transfer: a maximum amount of €15,000 can be sent.
How much does it cost to make SEPA Transfers?
As we have mentioned in the section above, one of the most comfortable features of SEPA transfers is that they cost the same as domestic transfers. In most cases, your fee for transferring money with SEPA will likely be zero. Some banks might charge a minimal fee for transfers, so check with your bank and get the information needed before making a transfer.
Another great thing about SEPA transfers is that the charges or transfer fees stay the same regardless of where you are transferring money from. For example, if you are making a money transfer from a UK account, you will spawn the same fee as someone sending money from any SEPA member country.
How to make a SEPA transfer?
SEPA uses international Bank Account Numbers (IBAN) to facilitate transfers between bank accounts. To make a SEPA payment, you will need the following information:
- The IBAN of the person you are transferring money
- To make sure that the bank to which you are sending money is a member of the SEPA
Your bank or payment provider account will need to be accessed and the transfer set up as usual. Add the receiver by filling out the required information, add the IBAN of the recipient's bank account, and then pay for your money transfer by entering the information necessary. The receiver will be paid in Euros by the bank or transfer provider.
SEPA transfer time
SEPA assurance finished}transactions within two days or perhaps much less throughout financial working days. However, it is commonly quicker in contrast to financial institution transfer times. The transactions made via the SEPA generally take 24-hour. The residential SEPA transfers are cleared several times a day, so the funds are moved in a matter of hours. The majority of abroad SEPA financial institution transfers obtain funds for their transaction the following early morning, as long as the transaction is confirmed and made before 5 PM. Both days fall on business days.
Can I send out numerous currencies making use of SEPA transfers?
All SEPA transactions have to remain in Euros, even if the appropriate accounts are not in Euros. If a currency exchange is called for, it depends on the payee's financial institutions, the payer, and the cost they bill for this service. There might be a price entailed as well, as this might be presented in the form of a currency exchange mark-up cost.
Cons and pros of SEPA Transfers
The primary gains of SEPA payments are actually cost-effectiveness and simplicity. It allows customers to use one payment account to generate euro payments anywhere within the SEPA zone. The sole major downside is the limited access of its, as payments via the network are just possible in Europe. Here's a better look at the advantages and disadvantages of SEPA payments.
- It allows for easy cross border bank transfers within Europe
- Quick transactions
- Cross-border direct debit of euro between bank accounts anyplace in the EU
- Transparent fee system without any hidden fees
- It helps create much better business opportunities by enabling permission to access a broader European market
- Limited; it's only offered in thirty-six European countries