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What is SEPA? - A complete guide to the Single Euro Payments Area

The Single Euro Payments Area (SEPA) is designed to standardise euro transactions across Europe. For businesses making payments in euros or regularly dealing with international payments, it’s important to understand what SEPA is and how it works. This can help you to save on transaction costs, streamline payments, and ensure faster, more efficient cross-border transfers.

17 min

by Access Paysuite

In this guide, we’re going to explore the initiative in detail, including how SEPA payments in the UK work, the different types of transactions within the scheme, and the benefits for businesses and consumers. By the end, you’ll have a clear understanding of SEPA payments, meaning your business will be able to handle euro transactions with ease. 

What is SEPA?

The Single Euro Payments Area (SEPA) is a European initiative designed to simplify and standardise euro transactions across participating countries. It was created to streamline cross-border payments, making them as easy and efficient as domestic ones. This system allows consumers and businesses to send and receive funds seamlessly between SEPA countries within the Eurozone. 

Businesses and individuals can make cross-border payments in euros using SEPA, meaning that transactions are more cost and time efficient. The scheme’s large scale, international connectivity and reduced payment processing costs provide modern businesses with more opportunities to expand operations overseas. SEPA payments can also be used for domestic euro transactions, helping businesses to manage local euro payments more efficiently. 

The idea behind SEPA began in the early 2000s, with the first major milestone occurring in 2008 when SEPA Credit Transfer was introduced. Since then, SEPA has evolved, integrating various payment methods and adding more member countries to enhance the efficiency of Eurozone payments. The European Payments Council (EPC) plays a critical role in this development, setting the rules and standards for SEPA transactions and working closely with banks and financial institutions to ensure smooth operation. 

Differences between SEPA and UK Direct Debit

While SEPA Direct Debit and UK Direct Debit both enable businesses to collect payments directly from customers’ bank accounts, they operate under different frameworks:

Geography

SEPA Direct Debit: Covers the Single Euro Payments Area, which includes 36 European countries.
UK Direct Debit: Limited to UK bank accounts and governed by UK banking regulations.

Currency

SEPA: Transactions are always in euros (€).
UK Direct Debit: Payments are made in pounds sterling (£).

Scheme rules

SEPA: Managed by the European Payments Council, with two schemes; Core (for consumers) and B2B (for businesses).
UK Direct Debit: Operates under the Bacs system and the Direct Debit Guarantee.

Mandate process

SEPA: Requires a signed mandate that can be stored electronically or on paper.
UK: Mandates are typically set up online, over the phone, or via paper forms.

Processing times

SEPA: Standard lead time is at least one business day before collection.
UK: Usually three working days for initial setup and collections.

SEPA Direct Debit is designed for cross-border euro payments within Europe, while UK Direct Debit is tailored for domestic sterling payments under UK rules.

Benefits of SEPA payments

The unified approach of SEPA payments encourages economic integration within Europe, enhancing the overall efficiency of financial transactions across SEPA countries. It also offers a variety of benefits for businesses and consumers. 

For businesses, it means reduced banking fees, faster payments, and a more straightforward way to manage cash flow across different countries. For consumers, the system provides easier access to cross-border banking, enabling them to make SEPA euro payments quickly and at lower costs. 

Different types of SEPA payments 

The EPC has developed three SEPA schemes that establish a set of regulations, practices, and standards for interbank transactions. These schemes are known as SEPA Direct Debit (SDD), SEPA Credit Transfer (SCT), and SEPA Cards Framework (SCF). Let’s explore these three schemes in a little more detail. 

SEPA Direct Debit 

SEPA Direct Debit (SDD) operates just like a standard Direct Debit, in that it allows businesses to collect funds from their customers’ bank accounts with authorisation. However, this payment method is specifically for transactions within the European Union. 

SEPA Credit Transfer  

SEPA Credit Transfer is the most common type of SEPA payments, allowing businesses and individuals to send Eurozone payments quickly and securely. Funds are typically transferred within one business day, providing a reliable way to manage both domestic and cross-border transactions. 

SEPA Instant Credit Transfer  

SEPA Instant Credit Transfer takes this a step further, enabling real-time payments 24/7, 365 days a year. This means that funds are credited to the recipient’s account within seconds, making it ideal for urgent payments. However, not all banks in SEPA countries currently offer this service, so it’s worth checking availability with your provider. 

How SEPA payments work

SEPA payments operate in much the same way as any their standard equivalents in how they’re set up and processed. However, as they’re designed for cross-border transactions, you’ll need the recipient’s International Bank Account Number (IBAN) and sometimes their Bank Identifier Code (BIC). This standardised use of IBANs and BICs eliminates the need for the more complex details that are normally required for cross-border transactions, simplifying the payment process.

SEPA Direct Debit

SEPA euro payment fees 

Conventional cross-border payments often involve multiple intermediaries, leading to higher fees. SEPA payments, on the other hand, benefit from fewer intermediaries, making them a more cost-effective way to send money. However, it’s important to remember that SEPA payments in the UK and any other country can only be made in Euros. While many banks offer SEPA euro payments with no extra charges for domestic or cross-border transactions, you may still incur a non-sterling transaction fee.

SEPA payment processing times 

Using fewer intermediaries throughout the payment process allows for faster Eurozone payments. SEPA Credit Transfers are usually processed within one business day, while Instant Credit Transfers occur in real time. For SEPA Direct Debits, you should allow at least 2 business days for processing, depending on which type of SEPA Direct Debit scheme you're using, which we’ll explore in more detail below. Remember as well that variables such as holidays and bank cut-off times can delay the process. 

What are the different types of SEPA Direct Debit?

SEPA Direct Debit (SEPA DD) allows businesses to collect payments from customers across SEPA countries in euros. It works by giving companies the ability to pull funds directly from a customer’s bank account with prior authorisation, known as a mandate. There are two main types of SEPA Direct Debit schemes: Core and B2B. 

SEPA Core

The Core scheme is available to both consumers and businesses, making it the more commonly used option. It allows a debtor (the customer) to authorise payments, which can then be debited from their account by the creditor (the business). Customers also benefit from refund rights, which allow them to reclaim debited amounts within eight weeks, providing an extra layer of protection.

SEPA B2B

On the other hand, SEPA B2B is exclusively for business-to-business transactions and requires both parties to have registered for the scheme. It operates similarly to Core but doesn’t allow for refunds, making it faster and more secure for businesses by reducing the likelihood of returns. 

How does SEPA Direct Debit work?

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Just like a standard Direct Debit payment, a SEPA DD requires a mandate from the customer authorising the collection of funds. This mandate remains valid for future payments, streamlining regular transactions like subscription fees or recurring bills. The SEPA mandate process involves collecting key information, including the customer’s IBAN and BIC, and storing it securely. 

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One important requirement is that businesses must issue a pre-notification before collecting any funds via SEPA Direct Debit. This is typically sent 14 days before the payment is taken, ensuring transparency and allowing customers to prepare for upcoming debits. 

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SEPA Direct Debit transactions are submitted in advance, with different submission periods for processing depending on the bank. Core transactions are submitted at least 5 business days before the due date for the first payment, then at least 2 days in advance for subsequent transactions. In the B2B scheme, the timeline is slightly shorter, with only 1 business day required for submission. 

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There are also processes in place for handling R-transactions, which refers to rejected, returned or refunded payments. Common causes for R-transactions include insufficient funds, incorrect account details or mandate-related issues. These issues are typically resolved by the banks of the debtor and creditor, ensuring a smooth payment process even when things go wrong. 

What are the SEPA countries?

The SEPA zone currently includes 36 countries, spanning across the European Union and extending to several non-EU countries. The inclusion of non-EU members highlights SEPA's broad appeal and its focus on creating a unified payment landscape. For businesses, especially those operating across multiple countries, SEPA payments simplify cash flow management and reduce transaction fees. 

The current SEPA countries are as follows: 

EU members 

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 

Non-EU members 

Iceland 

Liechtenstein 

Norway 

Switzerland 

United Kingdom 

Participating microstates 

Andorra 

Monaco 

San Marino 

Vatican City 

Important considerations for SEPA countries 

While SEPA exists to facilitate easier cross-border Eurozone payments, there are certain exceptions relating to participating countries. For example, the UK remains a SEPA country even after Brexit, allowing British businesses to continue making and receiving SEPA payments without disruption. This has been a crucial factor in maintaining smooth trading and financial relationships between the UK and the rest of Europe. 

It’s also important to note that there are some countries that use the euro but are not part of SEPA. For example, Kosovo and Montenegro both use the euro as their currency but don’t participate in the SEPA scheme. This distinction is vital for businesses engaging in international trade to make sure they’re using the correct payment frameworks. 

The SEPA zone has expanded over time, with new countries joining to facilitate easier euro payments. Initially limited to EU member states, the scope gradually grew to include non-EU nations, strengthening economic ties and simplifying cross-border euro transactions across Europe. Over time, we could see countries outside of Europe participating, potentially expanding the reach of SEPA Euro payments to a global scale. 

Need support managing SEPA payments for your business?

By connecting countries via a unified payment system, SEPA has transformed the way euro transactions are processed, offering businesses and individuals a fast, cost-effective solution for domestic and cross-border payments. 

From the simplified process of setting up regular and one-off payments to the broad geographical reach of the scheme, SEPA can help your business to operate efficiently within the Eurozone. Whether you’re based in the SEPA UK zone or transacting with customers in other SEPA countries, having the right payment tools can help you to grow your business. 

Access PaySuite’s secure SEPA Direct Debit solution has been designed to support businesses making payments in euros both within and outside the Eurozone. Its seamless integration with your existing accounting and CRM software helps to streamline processes and maximise efficiency while keeping costs down. 

To find out more about how we can support your growing business, get in touch with us or book a free demo of our powerful payment solutions. 

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