What is SEPA? The cross-border payment method explained

SEPA payments have become the standard in the Eurozone, let’s see what SEPA stands for and how it’s transformed the payment industry.

Why SEPA payments have become the standard in the Eurozone

SEPA payments have transformed the payment industry by enabling easy, quick, and low-cost transfers within the Eurozone. SEPA, the Single Euro Payments Area, has enabled instant bank transfers in Euros. Cross-border payments in the region have become as simple as making a local bank transfer.

With consumers expecting bank payments to be as instant and easy as card payments, the banks across the Eurozone felt pressured to improve the speed of money transfers across the region. Previously cross-border B2B payments would take days to settle. The incompatible systems made the transfers complex, slow, and expensive. The instant SEPA transfer was then created to increase mobility in the EU. All countries from the European Union, four from the European Trade Association, and some microstates with special monetary agreements with the EU and UK are currently part of SEPA.

The instant SEPA transfer is a bank technology that enables payments to be made within seconds.

Transactions are processed independently of weeks’ time and day. When two countries are part of the SEPA scheme, the transfer will be instant or take a maximum of ten seconds to complete.

Unlike regular bank transfers that are processed in batches and cleared and settled at the end of the day, the SEPA transfers are processed on a transaction basis. Due to Open Banking technology, payment service providers can process and clear the transactions instantly.

SEPA bank transfers are divided in three categories: SEPA credit transfer, SEPA instant credit transfer and SEPA direct debit transfer.

SEPA credit transfers takes one business day, SEPA instant credit is from instant to up to 10 seconds, SEPA core direct debit takes at least two business day, and SEPA B2B direct debit transfer takes minimum of three business days. The transfers that take longer are the ones used for B2B recurring payments. The SEPA instant credit transfers are accessible 24/7 and 365 days a year, which is an advantage compared to bank transfers that get delayed because of weekends and public holidays.

Critical advantages of SEPA instant transfers for businesses 

Even though there is a cap limit of 100.000 euros per transaction, most business payments are below this limit, making it possible to make most of the payments instantly. In a competitive world, speed is primordial for businesses, and receiving and sending money immediately positively influences the cash flow. Most international transfers take up to 3 days. With SEPA, transactions are instant, which makes business operations flow without interferences.

Besides, SEPA transfers are flexible in terms of the payment instrument, clearing arrangements, and settlement. They are also available to be initiated 24/7, which gives a lot of flexibility and the possibility for businesses to focus on other more critical areas.

With all these advantages, there are no doubts why SEPA transfers have become the preferred method in the Eurozone.

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