Guide To SEPA/EU Payments

What is the Single Euro Payments Area (SEPA)?

The Single Euro Payments Area (SEPA) is a European Union initiative designed to simplify and standardize cashless, euro-denominated payments across 36 countries. Whether you're a business expanding into Europe or a customer in the EU, SEPA makes bank payments faster, cheaper, and easier by harmonizing the payment process across borders. 

Managed by the European Payments Council (EPC), SEPA processes over 46 billion transactions annually. There are four key payment schemes:

• SEPA Credit Transfer (SCT) - introduced in 2008

• SEPA Direct Debit (SDD Core and B2B) - introduced in 2009

• SEPA Instant Credit Transfer (SCT Inst) - launched in 2017 for real-time payments

Before SEPA’s introduction, individual countries operated separate systems, leading to inefficiencies and high costs for cross-border transactions. Today, SEPA is credited with making 95% of EU bank payments faster, more reliable, and affordable.

 

Who Are the SEPA Members?

SEPA includes 36 countries, covering all EU member states and several non-EU nations. Member countries can process cross-border credit transfers and direct debits in euros just as easily as domestic payments.

SEPA Members:

• EU Nations: Sweden, Germany, France, Belgium, Austria, Finland, Denmark, the Netherlands, Ireland, Spain, Italy, Poland, Portugal, Hungary, Greece, Slovakia, Slovenia, Bulgaria, Croatia, Romania, Cyprus, Czech Republic, Estonia, Latvia, Lithuania, Luxembourg, Malta, and non-eurozone members.

• Non-EU Members: Norway, Switzerland, Liechtenstein, Iceland, Monaco, Andorra, San Marino, and Vatican City.

Notably, SEPA members aren’t required to use the euro as their national currency. For instance, Sweden and Denmark participate in SEPA but retain their own currencies.

Countries Outside of SEPA zone

It’s important to note that the UK and Switzerland are included in the SEPA zone, despite not being EU member states, along with Iceland and Norway. SEPA membership is not limited to EU countries, and several EU member states, such as Sweden and Denmark, participate in SEPA without adopting the euro as their national currency.

While SEPA covers most of Europe, some countries, like Kosovo and Montenegro, are excluded despite using the euro as their currency. Similarly, other countries like Turkey and Ukraine use IBANs but are not SEPA members. Businesses targeting these markets must consider different regulations.

 

How SEPA Works

SEPA payments are euro-denominated and involve transactions between bank accounts within the SEPA zone. Each transaction adheres to strict technical and operational standards to ensure speed, cost-efficiency, and security.

The Four SEPA Payment Schemes:

1. SEPA Credit Transfer (SCT): For one-off or recurring payments.

2. SEPA Instant Credit Transfer (SCT Inst): Real-time transactions processed in seconds.

3. SEPA Direct Debit Core (SDD Core): Designed for recurring consumer payments.

4. SEPA Direct Debit B2B (SDD B2B): Tailored for business-to-business transactions.

SEPA payments involve clearing and settlement mechanisms (CSMs), payment service providers (PSPs), and account holders. PSPs play a crucial role in managing the transfer and receipt of payments while also holding creditors' and debtors' accounts. Initially, only banks participated as PSPs in SEPA, but the introduction of regulations such as PSD2 in 2016 has allowed other types of PSPs to join the ecosystem.

 

Payment Method Statistics (SEPA)

Payment data in EU/EEA

The latest ECB statistics show card payments leading in volume (56%) but contributing only 3% of value, while credit transfers dominate in value (75%) with 21% of volume. Direct debits account for 15% of volume and 7% of value, while e-money remains modest at 6% of volume. Cheques and others are minimal and declining, reflecting a shift to digital payments.

Source: European Central Bank, Payment Statistics 2024

 

Payment data: SEPA

SEPA stands as the eurozone's dominant payment scheme, facilitating the majority of transactions across the region. The latest data shows that SEPA Credit Transfers (SCT) account for 96% of all credit transfers, while SEPA Direct Debit Core (SDD Core) represents 99% of direct debits by volume. Additionally, nearly all SEPA payments are initiated electronically, with just 6% of credit transfers conducted via paper or in-person methods.

Source: European Central Bank, Payment Statistics 2024

 

The Functionality of IBANs and BICs

What is an IBAN?

A key aspect of SEPA is its use of the International Bank Account Number (IBAN) standard to standardize account numbers across the 36 countries within the SEPA zone. While this approach isn’t exclusive to SEPA—over 80 countries globally use the IBAN format—some major economies, including China, Japan, Canada, and the US, have yet to adopt it.

Within SEPA, the IBAN serves as the main account identifier and can contain up to 34 alphanumeric characters, adhering to the ISO 13616 standard. Each IBAN begins with a two-letter country code, followed by two check digits, and concludes with the Basic Bank Account Number (BBAN). The BBAN itself includes the bank identifier code (BIC) and the account number.

The length of an IBAN varies by country within SEPA. For instance, France utilizes a 27-character IBAN, while Belgium’s is 16 characters long. Despite differences in length, the IBAN structure remains consistent.

Here’s an example of a German IBAN: the first two letters represent the country code, followed by two check digits, an eight-digit bank code (referred to as the BLZ code in Germany), and a ten-digit bank account number. Together, the bank identifier and account number form the BBAN.

For payments within the SEPA zone, specifying an IBAN is mandatory. This requirement enhances the efficiency and security of transactions by minimizing the likelihood of misrouting payments. If an invalid or non-existent IBAN is provided, the payment will not be processed.

What is a BIC?

Bank identifier codes (BICs), also known as SWIFT codes, are used to identify payment service providers (PSPs), including banks, within the SEPA zone. Managed by the global financial messaging network SWIFT, these codes ensure precise identification of financial institutions in payment transactions.

Defined by the ISO 9362 standard, BICs are alphanumeric codes that come in two formats: eight characters (BIC8) or eleven characters (BIC11). A BIC8 identifies a specific PSP within a country, while a BIC11 specifies a particular branch of the PSP.

Each BIC is made up of four components: a bank code, a country code, a location code, and an optional branch code. For example, the BIC for HSBC’s UK division illustrates this structure. The first four characters indicate the bank code, followed by the two-character country code, a two-character location code, and an optional three-character branch code.

Since IBANs already include BIC information, there is no need to provide a BIC separately for payments within the SEPA zone. While the use of BICs is declining, some banks may still require them, especially for cross-border transactions.

Clearing and Settlement (SEPA)

 

Clearing and settlement are essential steps in processing SEPA transactions, ensuring payments are managed smoothly and efficiently. Clearing focuses on exchanging (transmitting), verifying (reconciling), and confirming payment details between the sender's and recipient's banks, while settlement handles the actual movement of funds between them.

Clearing and Settlement Mechanisms (CSMs) manage this crucial process, acting as intermediaries that facilitate transactions between Payment Service Providers (PSPs). Settlement is carried out using PSPs’ accounts maintained at the European Central Bank (ECB). Within the SEPA zone, PSPs must connect to a CSM to participate in SEPA payment schemes. These mechanisms include both local and pan-European CSMs.

CSMs in the SEPA region are broadly divided into two categories:

• Retail payment systems - handle payments for individuals and businesses,

• Large-value payment systems (LVPS) - focus on transactions amongst financial institutions or PSPs.

Retail Payment Systems (SEPA)

Retail payment systems in the SEPA zone are designed to handle payments for individuals and businesses, primarily managing large volumes of low-value transactions like credit transfers and direct debits. These systems oversee the clearing process, while final settlements between financial institutions are completed via large-value payment systems (LVPS).

By mid-2023, the euro area operated 34 retail payment systems, complemented by a single pan-European system, STEP2, which is managed by EBA Clearing, a consortium of leading European banks. Among the local systems, France’s CORE, operated by prominent French banks, and Germany’s RPS are the largest, both under the supervision of their respective national central banks. Combined with STEP2, these three systems handle approximately 70% of all retail payment activity in the eurozone.

Large-Value Payment Systems (SEPA)

Once payments are cleared through retail systems, they are settled using accounts maintained at the European Central Bank (ECB) via large-value payment systems (LVPS).The SEPA region’s two main large-value payment systems are EURO1, launched by EBA Clearing in 1999, and the Eurosystem’s T2, a real-time gross settlement system that succeeded the previous TARGET2 system in 2023.

While LVPS also process interbank transactions, their primary role in retail payments is to finalize settlements. These systems facilitate money transfers by updating the ECB's internal ledgers, debiting one institution’s account and crediting another with the net settlement amount.

Instant Payment Systems (SEPA)

The significance of instant or real-time payments has grown steadily over the past few years. In the SEPA region, instant payments are defined by the SEPA Instant Credit Transfer scheme, which mandates that transactions must be completed within ten seconds. While the upgraded Eurosystem T2 system processes 99.9% of transactions in under a minute, this performance falls short of the requirements for instant payments.

Implementing instant payments demands a specialized infrastructure designed to support real-time settlement at any hour, every day of the year. This approach represents a significant departure from the traditional batch-based systems that settle payments once per business day.

To accommodate the shift, a new real-time gross settlement (RTGS) platform has been introduced. Eurosystem developed TIPS as an extension of T2, providing instant payment capabilities for retail customers in the eurozone. Additionally, Sweden and Denmark’s central banks have begun transitioning to TIPS to facilitate instant payments in their respective currencies.

Payment Methods (SEPA)

SEPA Credit Transfer (SCT)

Facts:

Introduction Year: 2008
Managed By: European Payments Council
Participants: All Payment Service Providers (PSPs) in the SEPA region
Availability: Limited to business days
Processing Time: Up to 2 business days
Transaction Limit: €999,999,999
Typical Fee: Approx. €0.20 per transfer

The SEPA Credit Transfer (SCT) was the first payment scheme introduced under SEPA in 2008. It facilitates euro-denominated fund transfers between PSPs with IBAN accounts, making it widely used for consumer transactions across SEPA. All participating banks and PSPs are required to support SCTs.

An SCT is classified as a push payment, meaning the payer (debtor) initiates the transfer to the recipient (creditor). While most SCTs are single transactions, they can also be set up as recurring payments through standing orders. Common uses include personal transfers, paying invoices, processing salaries, pensions, and distributing social benefits.

To initiate an SCT, the payer must provide the recipient’s IBAN, name, and the payment amount. There is no minimum transaction value, and the maximum is capped at €999,999,999. Unlike some other payment systems, SEPA rules ensure that the recipient receives the full payment amount without any deductions for fees.

If errors occur, SCTs can be recalled within ten business days in cases of duplicate payments or technical issues. In situations involving suspected fraud, senders have up to 13 months to request a refund. Although banks and PSPs determine their own charges for SCT processing, the typical fee is approximately €0.20 per transaction.

Availability of SEPA Credit Transfers (SCT)

Each PSP or bank participating in the SCT scheme has its own cut-off times for processing payments. If a payment is initiated before the cut-off time, it will be credited to the recipient’s account on the same business day. Payments made after the cut-off time are processed the following business day.

SCT payments are only processed on business days. If a transfer is initiated on a non-business day, such as a weekend or public holiday, the payment will be processed on the next available business day.

SCT Remittance Information

Debtors can attach a reference to each SCT payment to provide additional context. SCTs typically use unstructured remittance information, allowing up to 140 characters per transaction. This reference field is intended for including details such as invoice numbers or other identifiers that help the recipient identify the purpose of the payment.

SEPA Instant Credit Transfer (SCT Inst)

Launch Year: 2017
Managed By: European Payments Council
Participants: 2,323 (PSPs) across 29 countries (61% of eligible institutions) July 2023
Availability: Always operational—24/7, 365 days a year
Settlement Speed: Real-time, completed in under 10 seconds
Transaction Limit: €100,000
Typical Fee: Approximately €0.20 per transaction

Launched in 2017, SEPA Instant Credit Transfer (SCT Inst) was designed to facilitate instant payments throughout Europe. As a push payment system, the transaction is initiated by the payer (debtor). While SCT Inst supports common uses like peer-to-peer transfers and invoice payments, its real-time capabilities make it especially suitable for ecommerce transactions, QR code-based payments, and request-to-pay scenarios.

Since its introduction, SCT Inst adoption has expanded quickly but remains incomplete, as participation by banks and PSPs was initially optional. By January 2023, 2,323 institutions across 29 countries had joined the scheme, covering 61% of financial institutions within the SEPA zone. Starting in October 2024, all eurozone PSPs will be required to support instant payments, with non-eurozone PSPs expected to follow by April 2026. Additionally, uniform pricing rules for SCT Inst will come into effect by that time. As of May 2023, instant payments made up 14% of all SEPA credit transfers, with usage expected to rise as the system becomes more accessible.

To initiate an SCT Inst payment, the payer must provide the recipient's IBAN, name, and the payment amount. In 2020, the transaction limit was raised to €100,000, making the service more versatile for both individuals and businesses. Similar to standard credit transfers, SCT Inst payments can be reversed within ten business days in case of errors, and senders have up to 13 months to request a refund if fraud is suspected.

At present, banks and PSPs determine their own fees for processing SCT Inst payments. While the average fee is approximately €0.20 per transaction—similar to standard SEPA Credit Transfers—some PSPs impose higher charges.

SCT Inst Availability

SCT Inst guarantees the completion of transactions within 10 seconds, with funds immediately deposited into the recipient’s account. This service is available 24/7, every day of the year. The European Payments Council reports that over 99% of SCT Inst payments are processed in under five seconds.

SCT Inst Remittance Information

Like standard SEPA Credit Transfers, SCT Inst allows debtors to include a reference with each payment. This reference can contain up to 140 characters of unstructured information, which is often used to include invoice numbers or other identifiers to help recipients identify the purpose of the transaction.

 

SEPA Direct Debit Core (SDD Core)

Year Introduced: 2009
Managed By: European Payments Council
Participants: 3,100 PSPs as of January 2024 (79% of eligible institutions)
Availability: Business days only
Settlement Time: Up to two business days
Maximum Amount: No limit
Typical Fee: Approx. €0.20 per transaction

SEPA Direct Debit Core (SDD Core) was launched in 2009 to facilitate automated direct debit payments across the SEPA zone. Designed primarily for consumer transactions, SDD Core is also widely used for business-to-business (B2B) payments. The system supports pull payments, where creditors receive authorization (via a mandate) to collect funds directly from the debtor’s account under pre-agreed terms.

SDD Core is commonly employed by businesses to collect recurring payments, such as subscriptions, rent, loan repayments, utility bills, and insurance premiums. Additionally, it can handle one-off payments when needed. To participate in the scheme, businesses must have a contractual agreement with a PSP or bank in the SEPA region, enabling them to process direct debit transactions. Businesses also require a Creditor Identifier (CID), which is issued by a national authority or central bank (e.g., Deutsche Bundesbank in Germany).

Participation in SDD Core is not mandatory for banks or PSPs, but it is widely adopted throughout SEPA. Fees for processing transactions are set individually by banks, with the average cost around €0.20 per payment.

Refunds and Returns in SDD Core

One of the key features of SDD Core is the refund policy. Debtors have the right to request a refund for authorized transactions within eight weeks of the debit date. Refunds are processed automatically and cannot be contested by the creditor.

In cases of unauthorized transactions—such as those conducted without a valid mandate or for incorrect amounts—the debtor can dispute the collection for up to 13 months from the debit date. Additionally, banks can return transactions up to five business days after the collection due date in cases of errors, such as insufficient funds or a closed account. Returned transactions typically incur fees ranging from €2 to €5, which are charged to the creditor.

Mandates in SDD Core

For an SDD Core transaction to take place, the debtor must sign a mandate before the first payment. This mandate can be integrated into a digital payment or onboarding process, making it easier for users to provide authorization. The mandate must include the following mandatory details, as outlined in the SDD Core rulebook:

• Scheme type (SEPA Direct Debit Core)

• Unique mandate reference

• Debtor's name

• Debtor’s IBAN

• Debtor's bank BIC

• Creditor’s name

• Creditor Identifier (CID)

• Creditor's full address

• Signatures and the signing date

Processing Cycle for SDD Core

To ensure smooth processing, debtors must be notified at least 14 calendar days before a collection, unless a shorter notification period has been agreed upon. For initial or one-off collections, the creditor must send the payment instruction to the bank at least one business day before the collection date. For recurring payments, the instruction must also be submitted at least one business day prior to the due date. This ensures timely settlement and avoids unnecessary delays.

 

SEPA Direct Debit B2B (SDD B2B)

Year Introduced: 2009
Managed By: European Payments Council
Participants: 2,646 PSPs as of January 2024 (68% of eligible institutions)
Availability: Limited to business days
Settlement Time: One business day
Maximum Amount: No limit
Typical Fee: Approx. €0.20 per transaction

SEPA Direct Debit B2B (SDD B2B) is designed exclusively for business-to-business (B2B) transactions, such as loan repayments or significant purchases. This scheme operates as a pull payment method, where creditors are authorized to withdraw funds directly from the debtor's account. Although primarily used for recurring payments, it can also accommodate one-time transactions. Unlike SEPA Direct Debit Core (SDD Core), SDD B2B applies only to businesses and excludes consumer transactions.

To use SDD B2B, businesses must establish a contractual arrangement with a PSP or bank within the SEPA region to facilitate collections on their behalf. Participation in SDD B2B is §optional for PSPs and banks, leading to lower adoption rates compared to SDD Core.

SDD B2B transactions tend to have lower volumes, largely because setting up mandates is more complicated. However, a key benefit of the SDD B2B scheme is that payments cannot be refunded once a valid and authorized mandate is in place, unlike SDD Core payments. Moreover, there is no requirement to notify the debtor in advance before initiating a collection. Transaction fees for SDD B2B can vary, but the average cost per payment is approximately €0.20.

Refunds and Returns in SDD B2B

Refunds for SDD B2B payments are not permitted if the collection was authorized through a valid mandate. However, in cases of unauthorized collections, such as when no active mandate exists or the wrong amount is debited, the debtor can dispute the transaction for up to 13 months.

Banks may return collections up to two business days after the due date if technical issues arise, such as insufficient funds or closed accounts. When a collection is returned, banks and PSPs typically charge fees ranging from €2 to €5, which are passed on to the creditor.

Mandates in SDD B2B

Before the first collection can be made, an SDD B2B mandate must be signed by the debtor. Unlike SDD Core mandates, which are frequently signed electronically, SDD B2B mandates typically require a traditional handwritten (wet ink) signature, although some banks may allow digital signatures. Once signed, a scanned copy of the mandate must be sent to the debtor’s bank for registration.

As specified in the SDD B2B rulebook, the mandate must include the following information:

• Scheme type (SEPA Direct Debit B2B)

• Unique mandate reference

• Debtor's name

• Debtor’s IBAN

• Debtor's bank BIC

• Creditor's company name

• Creditor Identifier (CID)

• Creditor's full address

• Signatures and the signing date

SDD B2B Processing Cycle

Debtors must be informed at least 14 days in advance of the collection date for SDD B2B payments unless a shorter notice period has been mutually agreed upon. To ensure the payment is settled on time, creditors are required to send the collection instruction to their PSP or bank no later than one business day before the due date.

 

The Future of Instant Payments in the SEPA Zone

Significant changes in how money is sent and received are set to transform the SEPA zone starting in 2025. New legislation will make instant payments the standard, allowing money to reach recipients’ accounts in seconds, regardless of the time or day. This means no more waiting for transactions to clear or dealing with delays caused by weekends and public holidays. The new rules aim to provide fast, seamless payment options across all participating countries, from Sweden to the broader European Economic Area.

As instant payment systems become the norm, businesses will need to enhance their payment processes. Automating payment initiation and reconciliation will be critical for keeping up with the pace of real-time settlements. Features like live payment tracking, automated retries for failed transactions, and faster approval workflows will play a vital role in enabling continuous, efficient payment processing.

The move toward universal instant payments represents a paradigm shift in the SEPA zone’s financial ecosystem. With faster, more reliable payment systems, businesses and consumers alike will benefit from greater convenience and efficiency. As PSPs and businesses modernize their systems to align with these changes, the future of payments in Europe promises to be both dynamic and innovative.

 

How can Plusius help?

Plusius offers full support for SEPA payment schemes, enabling you to effortlessly automate payments and streamline cash management across the SEPA zone while continuing to use your existing banking partners.

With Plusius, you can send, receive, and reconcile payments via an API or process one-off payments.. This saves hours of manual work each week and eliminates the need for costly engineering resources to build and maintain direct bank integrations.

As instant payments become the new standard, businesses must adapt their processes and infrastructure to keep pace. Plusius is fully equipped with built-in support for real-time payments, providing a seamless, end-to-end solution for managing money movement with speed and ease.

Let’s Connect

If your business is looking to automate payments across Europe or handle SEPA transactions efficiently, Plusius is here to help. Schedule a meeting today and discover how we can simplify your payment processes.