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What is a single euro payments area (SEPA)?

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SEPA, or the Single Euro Payments Area has the primary goal of improving cross-border payments. It simplifies bank transfers, and allows customers to make cashless Euro payments to and from certain regions with the same ease as they can within their own country.

What is SEPA Payment Method?

SEPA payments are cashless payments in euro currency, processed by the Single Euro Payments Area network to carry out cross-border bank transfers. The SEPA payment method enables fast and inexpensive cross-border transfers.

The SEPA payment method includes payment processing rules from the European Payments Council, (also known as schemes) that Payment Service Providers (PSP) use to make SEPA payments.

SEPA payment schemes include direct debit and direct credit, as well as instant payments to e-commerce businesses through instant credit transfer.

EU SEPA regulation stipulates that banks must make the same charges for domestic and cross-border electronic payment transactions in euro, though conversion fees may apply. The equal charges principle applies to:

  • Credit transfers
  • Direct debits
  • Withdrawals at cash dispensers (ATMs)
  • Payments by debit and credit cards
  • Money remittance

Which countries are included in SEPA?

As of 2023, there are 36 members of SEPA, including the 27 EU member states, the 3 EEA countries – Norway, Liechtenstein and Iceland, plus Switzerland, San Marino, Monaco, and the United Kingdom.

How does SEPA work?

SEPA functions as a borderless system, where payments can be made based on common rules and standards. A paperless SEPA transfer in Euros takes between one and two working days, while transfers in foreign currencies can take up to four working days. If you have the receiver’s bank information, businesses or individuals can make a SEPA transfer using their online banking, in-branch at their local bank, or by using a payment service provider.

There are four major Euro payment schemes:

Credit transfer: An electronic payment from one account to another. These can be one-off payments, or recurring, and they can be single payments or bulk payments. Using an IBAN number, the payment service providers can validate and process the transaction within one business day. There are no deductions from SEPA.

Direct Debit (Core): This scheme allows consumers to automate their recurring transactions, reducing the risk of missing any payments and incurring penalties. They are a secure method of sending money, and consumers can request a refund within 8 weeks, even for an authorized payment. This scheme is aimed at consumers, not businesses.

Business to Business: For business use, Business to Business is SEPAs Direct Debit choice. The payer must be a business customer, although the biller can be a private individual. The payment will be considered final after 3 business days, and the payer is not entitled to the same refund protection as they are for Core transactions.

Instant Credit Transfer: Under the Instant Credit Transfer scheme, funds can be available in as little as 10 seconds, and up to 100,000 Euros. This service is aimed at reducing the friction of cheques and cash, and is available 24/7/365. It is currently not available for all SEPA countries, but the goal is to gradually expand its reach.

When can you use a SEPA payment transfer?

SEPA offers convenience and efficiency when making payments within the 36 regions covered, allowing transfers to be made as quickly and cost-effectively as they could within a business’ own country. As SEPA continues to add functionality for payment harmonization and cost-effective transfers, it is a powerful tool for any company working inside the EU or with overseas customers and employees. Processing payroll payments with SEPA can be one of the solutions for global companies that have European employees.

How to make a SEPA payment

Every bank account in the SEPA area has an International Bank Account Number (IBAN), much like a US bank account number. A SEPA transfer requires the IBAN identification codes of all European accounts involved in the transaction. There are a few different types of SEPA:

SEPA Credit Transfer

SEPA Credit Transfers are one-time funds transfers between banks with IBAN codes. These transfers are completed in euros and are usually for consumer purchases in SEPA countries.

SEPA Instant Credit Transfer

SEPA Instant enables real-time transfers up to €100,000. Any two account holders in the SEPA area can complete transactions immediately.

SEPA Direct Debit

Direct Debit is a way for non-EU companies to do business with accounts within SEPA.

How long do SEPA payments take?

Most SEPA payments are completed within one business day. In 2017, many banks within SEPA member countries implemented SEPA Instant Credit Transfers, which can settle payments of up to €15,000 within 10 seconds. Businesses in the US who processing SEPA Direct Debit payments from customers in the SEPA area can expect payout to take three to six days.

Do I need a SEPA account for my business?

Businesses do not need a specific bank account to process payments SEPA’s network. SEPA is not a financial institution that maintains its own accounts. Instead, it is a system banks within member countries use.

If a company has an IBAN number bank account based in a SEPA member country, it can use the SEPA network. Businesses that are not based in SEPA member countries, (including the US), can still utilize SEPA for consumer payments from customers who reside in SEPA member countries.

If a business has European subsidiaries or operates in SEPA member countries, an IBAN and a local bank account may make operations smoother. A bank account within the SEPA system grants companies access to SEPA Credit Transfers and Instant Credit Transfers, and inexpensive cash withdrawals across Europe.

SEPA Payment Processing Schemes

SEPA payment schemes are a set of rules for Payment Service Providers (PSPs) created by the European Payments Council (EPC) for electronic payment processing transactions. Here are the various schemes:

  • SEPA Credit Transfer Scheme: Payment service providers use this scheme to transfer money between two SEPA bank accounts
  • SEPA Instant Credit Transfer Scheme: This scheme makes instant cashless payments through bank transfer to retailers and other online sellers in European SEPA countries.
  • SEPA Direct Debit Core Scheme: The direct debit scheme is for consumers paying reoccurring bills in European SEPA countries. SEPA direct debit is only conducted in Euros.
  • SEPA Direct Debit Business-to-Business Scheme: The automated payment scheme is used for paying bills and transaction automation in European SEPA countries.
    Benefits of SEPA payments

One of the biggest benefits of SEPA is that it enables Global ACH payments in a timely manner without high transaction fees. The SEPA system also eliminates the need for using paper checks.

Using SEPA allows businesses to track global ACH payments via a payments platform, which provides a bird’s eye view of all payments, including payment status updates, invoice due dates, and failed payments.

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