July 26th, 2021

The Single Euro Payments Area (SEPA) was originally an EU initiative, but there are 36 countries that use SEPA today. In sum, it has introduced new electronic payment methods and has ensured that all payments made in euros within the SEPA area are standardized. In this way, SEPA also eliminates separate rules per country, simplifying payments as a result.

SEPA enables consumers, businesses, and governments within the use area to make and receive the following types of transactions under the same basic conditions:

  • Remittances
  • Direct debit payments
  • Card payments 

In cooperation with European banks, SEPA was introduced by the EU on February 1st, 2014. Today, the European Payments Council (EPC) develops and manages the payment schemes to ensure standardization. At the technical level, the European banking industry works together with the EPC as they strive to achieve the harmonization of electronic payment methods.

Based on the ISO 20022 standard (which is XML-based), SEPA has introduced three new electronic payment methods, all of which are in use today: SEPA Credit Transfer (SCT), SEPA Instant Credit Transfer, and SEPA Direct Debit.

How Does SEPA Credit Transfer (SCT) Work?

With SEPA Credit Transfer (SCT), any individual or business can transfer money (in euros) to any other individual or business in any of the 36 countries in the SEPA area in a simple way—it’s just as easy as transferring money to a local bank account from your own bank. However, an IBAN (International Back Account Number) is required for this. In some countries, like the Netherlands, company IBANs can be easily located online. For foreign payments, the IBAN can be requested from (the bank of) the recipient.

How Does SEPA Instant Credit Transfer (SCT Inst) Work?

SEPA Instant Credit Transfer (SCT Inst) is the first ever payments scheme to enable transfers of up to 15,000 euros across 36 countries in less than 10 seconds. SCT Inst is also available 24/7, 365 days per year, making it a unique, convenient, and secure electronic payment option. It can be used by consumers and businesses alike, offering payments in real time and improving cash flow as a result.

How Does SEPA Direct Debit Work?

SEPA Direct Debit enables companies to collect money from account holders at banks in the 36 countries within the SEPA area. Today, it is a popular way of paying for services, subscriptions, donations, and much more. When direct debit is used, the account holder must always give permission for a payment (one-off, monthly, etc.) to be collected. This authorization is often referred to as a SEPA mandate.

There are two variations of SEPA Direct Debit:

1. Standard SEPA Direct Debit
This allows both private and business account holders to issue one-off or recurring payments to a collector. With this type of direct debit, the paying party always has eight weeks to reverse the payment.

2. SEPA Business Direct Debit
With this type of payment, only corporate account holders can issue a one-time or recurring payment to a biller. The paying party must register certain details of the authorization with the bank, and there is no option to reverse the payment.

Why Use SEPA Direct Debit?

SEPA Direct Debit is a safe payment method, as payments are directly taken from the payer's bank account, eliminating the risk of fraud. For the same reason, it is also a quick payment method—much faster than checks!

Aside from the benefits listed above, there are even more advantages to using SEPA Direct Debit. For example, control. After all, you can collect payments whenever you want. There is also less administration and less manual work, which, in turn, saves time. Furthermore, it is an easy payment method for customers (when offered). This results in less follow-up for payment collection and a healthy cash flow.

As a side note, if direct debits have to be sent to multiple account holders (which is often the case), there is a handy solution for this: The collector can create a SEPA batch for bulk payments. In fact, many banks offer business account holders the option of downloading an Excel template for these situations. After completing it, the spreadsheet can then be imported and processed automatically.