SEPA: The Ultimate Guide

If you’re dealing with money transfers to your relatives and friends or consider lowering the costs of sending and receiving funds from your business partners and clients, this guide will give you all the information you’re looking for. In this comprehensive guide you will learn more about SEPA and the ways you can benefit by using it for your private and corporate transactions.

We made sure to answer the FAQs and cover various issues related to SEPA payments — the top transfer option that improves daily transactions for millions of people and companies in the Single Euro Payment Area.

If you are not acquainted with SEPA payments, we suggest you study this guide carefully to learn the basics of how the system works. Should you be interested in specific questions, please refer to the Table of Contents to find the section that will give you a comprehensive answer

Single Euro Payments Area is a payment integration initiative of European countries, which simplifies the execution of transfers in euro, both in terms of speed and costefficiency

What are the use cases of SEPA transfers?

European citizens and residents use SEPA for different motivations. These include but are not limited to billing for services or products, receiving salaries, pensions, and various regular payouts, sending money to friends and family, etc. Many businesses fully rely on SEPA within Europe, as the system help them satisfy their main needs: purchasing raw materials, buying and selling ready products, sending salaries to their employees, clearing money obligations with their partners, and the list goes on.

Although certain banks may apply small commissions for the Single Euro Payments Area transactions, the system is completely free on a general scale. Moreover, as all payments are in Euro only, customers also save on exchange rates. Any given transfer that amounts to less than 50,000 EUR will only require a couple of hours to reach the beneficiary. Besides, the instant credit transfer option that takes 10 seconds at most, is being gradually integrated all over Europe.

The euro currency and its coverage

Euro has the status of national currency in nineteen countries of the Eurozone, as well as in nine other non-EU territories, including two states outside Europe.

Euro is the only available currency in the SEPA system, as it covers not only the EU member-states, but also Norway, Denmark, Poland, and other countries. Open financial and customs borders give businesses in these countries an opportunity to conveniently trade and operate in Euro, alongside the local currency.

The thirty-six territories that support SEPA greatly boost the economic capacity of the region. At the moment, the SEPA zone consists of twenty-eight EU member-states: Germany, France, Estonia, Belgium, Spain, Denmark, Italy, Greece, Finland, Hungary, Austria, Slovenia, Ireland, Bulgaria, Malta, the Netherlands, Lithuania, Poland, Croatia, Portugal, Sweden, Cyprus, Latvia, Romania, the Czech Republic, Luxembourg, Slovakia, and the United Kingdom.

However, SEPA is not only about the EU countries. Such territories as Norway, Iceland, Liechtenstein, Switzerland, Andorra, San Marino, and Monaco, are also part of the network.

Considering the population of the above-mentioned states, almost half a billion people reside in the SEPA area and generate more than 120 billion SEPA transactions each year.

This makes SEPA the primary means for Euro transactions in the EEU. All citizens and businesses residing or possessing bank accounts in the countries of the SEPA zone can enjoy international Euro transactions of the same speed and convenience as the ones executed domestically.

Despite the fact that GBP is the national currency of Great Britain, SEPA transfers are still available for its citizens and residents.

Despite Brexit, the UK has retained its SEPA membership, as the system is an excellent tool that currently has no analogs for private and corporate transactions in Euro. This payment method combines a perfect set of standards for improving the efficiency of cross-border transactions and merging separated local markets into one.

In Europe, any customer can make a transfer Euro to a UK bank account using the SEPA system. Moreover, such transactions won’t require currency exchange or any relevant commissions. Euro accounts in the UK come with IBANs that are no different from the ones issued in Europe.

A SEPA transfer can also be chosen to execute a transaction between the USA and the United Kingdom, given that the American party has a Euro account opened in an EU banking institution.

In order to open a current account in Euro, the UK citizens and businesses only have to provide the very basic personal data, which falls under European requirements.

So, what are the privileges of having a Euro current account? Because current accounts in Euro allow you to transact without inquiring extra commissions and extensive waiting times.

You are free to open a Euro account anywhere beyond the Eurozone; the conditions will be quite similar as those relevant for the local currency in that jurisdiction. Most banks also offer very competitive fees for the conversion of local currency to Euro.

No matter what EU country we are speaking about, having a private or business account in Euro has become an essential requirement for hassle-free international travels and smooth cross-border trade.

Although currency exchange is very simplified within Europe, it is best to open a Euro current account in countries that use Euro as national currency.

Even though the two may sound quite similar, SEPA CT and Direct Debit are two different ways to send money and come with different requirements. Both support transactions in Euro, but the mechanism is distinct for each.

SEPA Credit Transfer is a simple money transfer, which only requires the recipient’s IBAN. It is most frequently used to make single payments for services or goods within the SEPA network. For instance, if a person living in Italy purchases an item from a supplier in the Netherlands, he can use SEPA Credit Transfer as a payment method. In most cases, the beneficiary receives the payment in one business day after the transaction is executed.

Alternatively, SEPA Direct Debit is managed by the customer’s bank, credit union or another money institution, on his behalf. This process works under the conditions of signed authorization.

Having a much simpler option like the SEPA Credit Transfer on the other side, this may sound too complicated, however, sending a Direct Debit payment doesn’t require immediate personal approval of every transaction by the customer.

Most of the Direct Debit transfers are recurring payments of a certain amount that are executed every month, or another set timeframe; they can also take the form of conditional cashless payments, like sending a particular amount to the beneficiary after the account balance hits an indicated threshold. Direct Debit is widely used to subscribe for services, pay debts or rent. Businesses heavily rely on this option, as lengthy contracts may include several predefined payments.

Within the SEPA system, all transactions require the sender’s and beneficiary’s IBAN, or International Bank Account Number, which is a unique code that serves as an address from and to which the payment is sent. IBAN contains the bank identifier, the country code, and the account number in the bank itself, which makes it sufficient to execute most payments, especially Credit Transfers.

An IBAN contains the bank chain number or code, a two-digit country code, a checksum to ensure its integrity, and the account number in the financial institution itself. A regular IBAN looks like this:

DE89 3704 0044 0532 0130 00

Here, DE — is the code for Germany, 89 is the control number, calculated using all other digits, 3704 0044 is the code of the bank, as well as of the bank office the account was opened at, and 0532 0130 00 is the account number. Such a precise coding system minimizes the possibility of errors and ensures that every transaction reaches its recipient.

It is worth mentioning, that in different countries IBANs may contain extra letters together with digits; however, the length and overall appearance is generally identical.

Business Identifier Code, or BIC, is a unique short code that serves for the identification of banks, their branches, credit unions, and other money institutions. For SEPA CT within the Eurozone, these are usually not needed, but sometimes a bank may require this information to issue Direct Debit payments.

A BIC contains four digits that stand for the bank code, a two-digit country code, and two to five digits (letters or numbers) that indicate the exact bank office. Here’s an example:

STUALT21XXX

Here, STUA is the designated code for Satchel, LT is the country code of Lithuania, and 21XXX is the company’s designation for the central office in Vilnius.

SWIFT is another cross-border wire transfer network, which is accessible from pretty much anywhere. Currently, over 10,000 banking institutions in 210 states are connected to SWIFT. Its rules are practically identical to those of SEPA; however, SWIFT transactions are executed in pretty much any currency. Businesses located in Europe use SWIFT for their financial operations, but there are several key differences that make SEPA much more convenient for Euro payments.

Unlike SEPA, SWIFT is not free. Any bank is allowed to set and charge commissions, for both incoming and outgoing transactions. Not all financial institutions are connected to SWIFT without third parties, but instead use correspondent banks that act on their behalf, following mutual agreements. Thus, one simple transaction may sometimes be subject to fees from a couple of different institutions!

Another difference is transaction speed. While SEPA instant credit transfers only need ten seconds to be executed, some SWIFT transactions may take up to a few working days.

SWIFT supports any currency, and this is both an advantage and a drawback. Let’s say, the recipient and sender operate in two different currencies. In this case, the funds will be converted automatically using exchange rates that are not beneficial to the parties, along with institutional commissions.

SWIFT is a fundamental worldwide payment instrument that is, however, slowly giving up to SEPA transfers, as more and more businesses outside of Europe are opening Euro current accounts to operate within the system.

It is worth mentioning that since these two methods are different, SWIFT transfer cannot be received on a SEPA account, and vice versa.

Since 2017, financial institutions in eight Eurozone countries started offering SEPA Instant Credit Transfers, also known as SCT Inst. Essentially, these are credit transactions that are usually processed in under 10 seconds, and under unusual circumstances - in up to 20 seconds. Currently, SEPA Instant payments are executed in all the Eurozone states.