What Is a SEPA Payment and How Does It Work?
A one-stop guide to SEPA payments and how they work, including the pros and cons as well as common uses.
What Is a SEPA Payment?
SEPA payments are transactions made under the Single Euro Payments Area initiative.
This system is the result of an effort within Europe that aims to facilitate instant cross-border payments. It is targeted at individuals and businesses.
SEPA was created in response to a lack of integration between various countries’ localised payments systems. Though the events leading up to SEPA’s creation have been ongoing since 2008, SEPA became fully operational in 2014 and is now a standardised payments system.
SEPA is largely supported by the European Payments Council. It also has various stakeholders, including the European Commission, the EU Parliament, and the European Commission.
The system has been adopted across almost all of Europe. Currently, SEPA has 36 members including the United Kingdom and the 27 member states of the EU. It includes the European Free Tree Trade Association (Iceland, Liechtenstein, Norway and Switzerland) and various other countries as well.
The service can be used in any of those countries.
How Do SEPA Payments Work?
SEPA payments are usually handled by banks or payment processors. Though each service’s requirements are different, the steps below describe how you can make a SEPA payment.
Step 1: Sign in to your bank account
First, initiate a SEPA payment from your online bank account.
If you cannot find the relevant page in your account or do not know whether your bank offers this service, find the bank’s support page and ask for assistance.
Step 2: Verify your identity
Sometimes, you must complete an ID check before making a SEPA transfer. This will ensure that your service provider complies with know-your-customer (KYC) and anti-money laundering (AML) laws.
Step 3: Agree to an exchange rate
SEPA transfers require funds to be sent as the euro.
As such, you must agree to an exchange rate if you are sending a different currency. If your balance is already in euros, you will not need to convert your funds to the euro.
Step 4: Send the money
Next, enter the International Bank Account Number (IBAN) of the individual who will receive the SEPA transfer. You may need to enter other information as well.
After doing so, finalise the amount of money that you want to send.
Your transfer will be directed to its destination. Changes in balance will be reflected in the accounts of both the sender and recipient, as with any other financial transaction. Banking fees paid by either party may also be reflected in each party’s account balance.
How Long Do SEPA Payments Take?
SEPA payments are designed to be rapid. In fact, SEPA and the European Payment Commission guarantee that transactions are settled within a specified time frame.
The amount of time that a transaction takes depends on the type of service used.
You can ensure that your SEPA transaction is processed as quickly as possible by using SEPA’s Instant Credit Transfer service, which settles transactions instantly---usually within ten seconds.
However, this is possible only if your transaction involves less than 100,000 euros. Furthermore, both the sender and the recipient must use banks that support instant transfers.
If instant transfers are not available, regular SEPA Credit Transfers are the next best option for fast payments. Transactions made through this method are settled within a single business day, and all SEPA banks must provide the core credit transfer service.
Other payments, such as direct debit payments, may take longer than the above estimates.
What Are The Fees And Costs Associated With SEPA Payments?
Fee 1: No basic fees
SEPA transfers do not have any basic fees. Most countries have sufficient banking infrastructure in place that SEPA services can be provided to customers at little or no cost.
Fee 2: Nominal bank fees
Though SEPA transfers are free at a basic level, some banks may charge a nominal fee. This cost may go toward a bank’s operational costs, or it may be a way of limiting transaction requests.
If your bank does charge a fee, it will likely be equal to the fee for other transfers. Early regulations mandated that banks charge the same amount for SEPA transactions as they do for domestic transactions. However, this rule does not apply to every country that uses SEPA.
Ask your bank or payment service whether they charge fees for SEPA transfers.
Fee 3: Conversion fees
If you must convert your money to euros before sending a SEPA transaction, you will likely need to pay a fee to convert between currencies. This fee is usually about 1% of a transaction’s total value, but the exact amount will be set by your bank or payment service.
What Are The Pros Of SEPA Payments?
Pro 1: Fast and inexpensive
SEPA payments are among the fastest and least expensive ways to transfer funds in Europe. SEPA eliminates the need for funds to move through various financial networks, meaning that banks and other payment services can offer the service at low rates with rapid settlement times.
Pro 2: Widespread coverage
As noted above, SEPA can be used in 36 member countries. This means that the network serves most of Europe, which contains 44 countries.
Some SEPA members are not official members of the Eurozone or the EU, meaning that coverage extends beyond Europe’s official borders. Furthermore, SEPA launched an effort in 2022 that could see SEPA expand beyond the Euro area for greater coverage.
Pro 3: Support for travelers
SEPA makes it easy for individuals who frequently travel been countries to maintain a single bank account regardless of where they are. Those who travel for work do not need to open a bank account in multiple countries. Instead, they can perform all relevant transactions from a single account.
Pro 4: Some transactions are reversible
SEPA ensures that customers can reverse charges made under SEPA Direct Debit for up to 8 weeks without giving a reason for the reversal. This feature is also known as a chargeback and is commonplace in many other types of payment services.
Reversible charges are only guaranteed for payments made from customers to businesses. Other SEPA charges may or may not be reversible depending on specific circumstances.
What Are The Cons Of SEPA Payments?
Con 1: Focus on traditional finance
SEPA is largely intended to facilitate bank transfers and card payments.
Though the European Payment Commission is working to integrate SEPA with mobile payment protocols, SEPA’s support for smartphone or mobile payments is limited.
However, many banks now offer online services, so you can make SEPA payments on any mobile device that can be used for online banking---including your smartphone or tablet.
Con 2: Euro transactions only
SEPA only supports transactions involving the euro. Though the euro is supported throughout Europe, it is not the main local currency of all member states. The U.K, for example, uses the British pound, while the Czech Republic, Denmark, Norway, and Sweden use local “crown” currencies.
Individuals who receive or send funds via SEPA may need to convert euros to and from their preferred currency, both before and after a transaction is made.
Con 3: No global coverage
SEPA is only used in Europe. This means that the vast majority of countries worldwide rely on other services such as SWIFT’s global messaging network. Additionally, some European countries and special territories within European countries are not included in SEPA and must rely on other services.
Con 4: Services may be limited
Not all banks offer every SEPA service. SEPA Direct Debit B2B and Instant Credit Transfers are not mandatory services, meaning that customers may be limited to SEPA Direct Debit Core and SEPA Credit Transfers. There may be additional differences in services between countries.
What Sorts Of Payments Are Best For SEPA?
SEPA has two main options for those sending payments: SEPA Credit Transfers and SEPA Instant Credit Transfers. These services are mainly set apart by their settlement time and transfer limits.
Type 1: SEPA Credit Transfer
SEPA Credit Transfer is SEPA’s main payments scheme. It can be used by businesses or individuals. The European Payments Council says that more than 20 billion transfers every year use this transaction method and that it accounts for the majority of SEPA transfers.
This option can be used to send large transactions. The maximum transfer limit is slightly less then one billion euros (€999,999,999.99). Usually, SEPA Credit Transfers are completed in one day.
Type 2: SEPA Instant Credit Transfer
SEPA Instant Credit Transfers are a faster version of credit transfers. This type of transaction can be used to send up to €100,000 and can be settled in ten seconds.
Instant credit transfers are faster than standard credit transfers because they route funds directly between banks. However, this service is not as widely available as regular credit transfers, as both the sender and recipient must use banks that participate in SEPA’s Instant Credit Transfer scheme.
Additional SEPA Services
SEPA provides two other types of transfers called direct debit transfers. In this type of transaction, one or both parties are businesses, and the receiving business must initiate the transfer.
Type 1: SEPA Direct Debit Core Transfer
SEPA Direct Debit is a payment method that handles a transaction between a business and a customer. The sender (ie. customer) must agree to regular transfers or otherwise authorise the transaction.
This type of transaction is often used to handle online purchases. While it can be used to handle single purchases, it can also be used to handle recurring payments, such as bills and subscriptions.
SEPA Direct Debit Transfers typically take a minimum of two business days. Delayed notifications mean that it may take the merchant up to 14 days to confirm a transaction’s success or failure.
These payments can be reversed by the customer within 8 weeks.
Type 2: SEPA B2B Direct Debit Transfer
SEPA B2B Direct Transfers work in much the same way as direct debit core transfers.
However, these transfers are intended for “business-to-business” transactions. Accordingly, they involve a transfer between two businesses rather than a business and an individual customer. B2B transfers also have stricter reversal limits than their counterpart.
This method is otherwise similar to direct debit core transfers. The receiving business initiates the transfer, the sender must agree to the payment, and transfers are completed over a few days.
Type 3: SEPA additional optional services
Banks that offer SEPA transactions can provide additional optional services. For example, France expands on SEPA’s Credit Transfers by adding options for payment reversals, while Belgium attempts to ensure that specific remittance data is included in SEPA transfers.
If additional services are found to be successful or popular, other countries may adopt these features, or they may be integrated into SEPA through the European Payments Commission.
How Payset Can Help
At Payset, we can help you facilitate SEPA transactions and other transfers. Below are the benefits of using our payments services when you need to make payments via SEPA.
Benefit 1: Sliding fee scales
Our fees are tailored to your risk level. Rates range between 5 GBP for low-risk SEPA transactions, 12 GBP for medium-risk SEPA transactions, and 20 GBP for high-risk SEPA transactions. Our other payments services also use a sliding scale of fees based on your risk level.
Benefit 2: Other transfer methods
Instead of using SEPA, you can also make transfers on Payset’s own internal transfer system free of charge. Plus, you can use other payments networks (such as SWIFT, ACH, or CHAPS) or use our built-in currency exchange to convert between currencies.
Benefit 3: Based in Europe
Payset is based in the United Kingdom. We comply with FCA and GDPR regulations, and all of our funds are stored with one of Europe’s leading credit institutions. This makes our service ideal for users who are located in Europe---and for users located around the world.
Click below to find out more or to register for an account.
Frequently asked questions
What is a multi-currency account/virtual IBAN?
A Payset multi-currency account allows you to receive money in 34 different currencies and send money in up to 38 currencies, all within the same account.
You can deposit and withdraw funds, convert currencies at competitive exchange rates, and hold your chosen currencies to capitalize on market movements.
A Payset multi-currency account allows startups and business owners to receive payments from clients virtually anywhere in the world and pay suppliers, staff, and contractors quickly and affordably in their chosen currency.
- Funds can be deposited and withdrawn from the account for a small fee.
- Account holders can send and receive money with other Payset users for free.
- Depending on your region, you can use various payment networks from your Payset account, including SWIFT, SEPA, ACH, Fedwire, Faster Payments, BACS, and CHAPS.
- Once you register an account, you will be provided with a Virtual IBAN (International Bank Account Number), which makes all of these transfers easy.
- We provide you with local payments and collections. For example, transactions in USD, EUR, CAD, and GBP are processed through the local payment networks, which is far cheaper and takes minutes as opposed to days
Are there limits on the amount of money I can send and receive?
No, there are no transaction limits on Payset multi-currency accounts.
However, higher-volume transactions may require additional anti-fraud verification. If you plan to make a large transaction, contact us in advance to avoid verification delays.
How is Payset regulated?
Payset allows you to receive payments in 34 currencies. You can send payments from your account in 38 currencies. For more details, check our payment guide.
How do I add money to my account?
How do I send money from my account?
Once you have opened your verified IBAN account and added money to a balance, transferring funds is simple.
Simply log in into your account and add a beneficiary, then simply “make a transfer” in your preferred currency to that beneficiary.
Types of Multi-Currency Accounts
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