SEPA payments explained

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Leila Kabbaj
January 31, 2023
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SEPA payments explained

SEPA was introduced by the European Union in 2008, providing an easy way to make cashless euro payments between European countries, including several non-EU nations. For those participating countries, all euro-denominated transfers must be collected using the SEPA payment scheme.

But how do SEPA payments work, exactly? And should your business consider using them? This article will explain everything you need to know, describing the different types of SEPA transactions and how they can transform your payment flows.

What is SEPA?

The Single Euro Payments Area (SEPA) is a payment initiative spanning 36 European countries, designed to simplify bank transfers for countries paying in euros. European countries, businesses and government bodies use the SEPA network to make payments by direct debit and credit transfer, making SEPA one of the most widely used global payment methods.

SEPA was created to make cross-border electronic payments as cheap and easy as domestic transfers. This was done by harmonizing standards between participating nations, which also helped boost the efficiency of the European economy as a whole. The SEPA area is regulated by the European Payment Council (EPC).

Read also: SEPA request to pay

Which countries are in SEPA?

The SEPA region consists of 36 European countries, including some non-euro zone and non-European Union nations.

The member states include:

  • 27 European Union countries, including Spain, France, Germany and Italy.
  • Four microstates that have special agreements with the EU: Vatican City, San Marino, Monaco and Andorra.
  • Four countries from the European Free Trade Association: Liechtenstein, Norway, Iceland and Switzerland.
  • The UK, even after officially leaving the EU.
Is the UK still part of SEPA?

Yes. Even though the UK public voted to leave the EU, UK Finance asked the EPC for permission to remain part of SEPA. This application was approved in March 2019.

Brexit has caused some minor changes to the UK’s involvement with SEPA. For instance, SEPA payments made from a UK corporation’s bank must now include the debtor bank’s postal address. Other than that, the UK’s involvement remains largely the same.


The Automated Clearing House (ACH) is a regulated financial network enabling electronic payments and money transfers across the US. SEPA is the European Union’s equivalent of ACH payments (often referred to as eChecks)– it was designed to simplify electronic payments in euros for European businesses and government bodies. Payments made on these networks are often referred to as direct debit payments.

Businesses and government agencies use ACH and SEPA to pay salaries and benefits, while individuals typically use these networks to pay bills, services and subscriptions. We’ll explain how these payments work in more detail below.

With such similar frameworks, ACH and SEPA also offer similar benefits for businesses. They both offer low processing fees, a reduced risk of payment failure, and access to millions of potential customers who regularly use those payment frameworks.

Of course, there are some differences. For example, you can get refunded for unauthorized SEPA payments for up to 13 months, but you only have 60 days to request a return under the ACH scheme.

Also, to collect SEPA payments, you need a customer’s BIC (Business Identifier Code) and IBAN (International Bank Account Number) rather than their account number and routing number.

Read next: What is an ACH debit & what are the benefits for businesses?

How does a SEPA bank transfer work?

There are four main types of SEPA bank transfers that come with distinct functions, which we’ll explain in this section.

SEPA Credit Transfer

SEPA credit transfers are normally used for one-off transfers, pushing funds from one bank account to another. It’s similar to an ACH credit, except the SEPA transfer uses the IBAN and BIC numbers of both the sender and recipient’s bank, rather than banking account information and routing number.

Once you’ve entered the IBAN and BIC numbers, the SEPA credit transfer moves funds from the sender’s account and moves it to the recipient’s account, typically within one business day. There are even faster ways to send money on the SEPA network, which we’ll explain below.

SEPA Instant Credit Transfer

Also known as SEPA Instant Payment, this type of SEPA transfers moves funds in as little as ten seconds. This electronic transfer bypasses the intermediaries and uses direct routing from the sender’s bank to the recipient’s, resulting in speedy transactions.

SEPA Instant Credit Transfers are available 24/7, 365 days a year, offering year-round access to quick payments, making them ideal for customer-centric businesses. Why? Simply because fast payouts means happier customers.

A quick note: to use SEPA Instant Credit Transfers, both the payer and payee must be registered as SEPA Instant Members.

SEPA Direct Debit Transfer

Unlike SEPA Credit Transfers, SEPA Direct Debit transfers are “pull” transactions that are initiated by the payee. Rather than pushing funds into another account, the payee requests the money transfer from the sender instead. It works in the same way as an ACH debit.

SEPA Direct Debits are typically used for recurring payments, such as rent, subscriptions, or loan repayments. In contrast, Credit Transfers are commonly used for one-off payments.

There are two types of SEPA Direct Debit Transfers:

  • SEPA Core Direct Debit Transfer – available to individuals, and must be offered by all banks in the SEPA scheme.
  • SEPA B2B Direct Debit Collection – only available between businesses, and banks may choose to provide it to their customers. It’s not mandatory.

This section refers explicitly to SEPA Core Direct Debit Transfers, which is typically used for recurring payments like utility bills and subscriptions. In the following section, we’ll discuss how the B2B Direct Debit Transfer differs.

How to set up a SEPA Direct Debit Transfer

Just like any SEPA payment, a direct debit requires the IBAN of both parties, who must also authorize the transaction for the Direct Debit to work.

The recipient first sends a request to the sender’s bank. Then, once the sender signs a mandate that authorizes the pull transaction, the SEPA Direct Debit Collection can go ahead.

Because these communications take place exclusively between the two banks, there are no credit card networks or fees to worry about, making SEPA transfers cheaper than credit card transactions, especially for businesses processing high-value transactions.

Read more: Direct debit mandate

SEPA B2B Direct Debit Collection

Also known as SDD B2B, this type of direct debit is exclusively for business-to-business transactions – not individuals or microenterprises. In contrast, the Core Direct Debit can be used by anyone inside SEPA.

How to set up a SEPA B2B Direct Debit Collection

The SEPA B2B Direct Debit works in a similar way to the Core Direct Debit. The payee initiates a transaction that pulls funds from the payer’s account, after authorization from both parties.

The payee needs to ensure that both banks offer B2B Direct Debits. Remember, unlike Core Direct Debits, it’s not mandatory for banks to offer B2B Direct Debits. The payer must also sign a SEPA B2B mandate that authorizes the transaction.

We recommend asking the debtor to send a copy of the mandate to your bank, which should help you deal with any potential direct debit rejections. It’s also a good idea to keep copies of the mandate to help you manage the transaction over time.

Learn more: A guide to payment processing for B2B companies

How long does a SEPA transfer take?

The length of time depends on the type of SEPA transaction:

  • SEPA Credit Transfer: 1 business day
  • SEPA Instant Credit Transfer: Within 10 seconds.
  • SEPA Core Direct Debit Transfer: 1 or 2 business days (depending on whether the transaction is sent before the cut-off time).
  • SEPA B2B Direct Debit Transfer: At least 3 business days.

SEPA transactions, especially Instant Credit Transfers, provide businesses a quicker alternative to wire transfers, enabling you to transfer funds in as little as ten seconds.

Accept SEPA payments with

Like the sound of SEPA? With Checkout, you can easily integrate SEPA with your payments flow, opening up your business to speedier transactions and more than 520 million potential customers already using SEPA.

SEPA facilitates over 20 billion transactions per year, offering quick and cost-effective direct debits across 36 European countries, helping to expand your reach and streamline your transaction flows. For more information on how SEPA can help your business, contact our sales team today.

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January 31, 2023 10:46
January 31, 2023 10:46