The European Payments Council (EPC) has developed the Single Euro Payment Area (SEPA) with the strategic backing of the European Central Bank (ECB) and the European Commission.  Its objective is to streamline electronic euro payments across Europe, thus supporting the European Union’s (EU’s) vision of an integrated market.

What is SEPA?

The Single Euro Payments Area (SEPA) was developed to harmonize and simplify electronic euro payments across Europe. SEPA offers a common set of rules and standards to enable sending money from one European country to another as simply as within the country. Companies and consumers benefit from a faster, more secure, and less expensive system that reduces errors and increases clarity.

The EU rolled out various forms of SEPA payments in stages. Credit transfers were introduced in 2008, direct debits in 2009, and the euro area was fully implemented in 2014, and for non-euro SEPA countries in 2016.

Which European Countries Are Covered Under The Single Euro Payment Area?

The Single Euro Payments Area (SEPA) covers 41 countries, facilitating faster, cheaper, and more transparent euro transactions across borders. It includes all European Union member states, along with several non-EU countries such as Iceland, Norway, Switzerland, and the United Kingdom.

Apart from this, some other European microstates like Andorra, Liechtenstein, Monaco, San Marino, and Vatican City (Holy See) also participate in SEPA under some agreements, thus achieving the same convenient payment benefits in the region.

What is SEPA Payment and How Does it Work?

SEPA transactions rely on common account identifiers across Europe: the IBAN (International Bank Account Number) and the BIC (Bank Identifier Code). Both are taken from the ISO 20022 messaging standard, which means payment instructions must be accurate, unambiguous, and freely interpretable by banks. The codes assist European banks in identifying accounts and directing payments properly, regardless of the recipient’s location.

If a SEPA payment is made, it is made electronically using the provided account details. All participating countries have similar rules. It helps cross-border financial transactions be efficient and reliable.

A SEPA payment is normally settled on the next working day. However, SEPA Instant Payments are settled within 10 seconds even on weekends and public holidays.

Customers do not have to fill out distinct foreign international forms or incur foreign exchange charges since all transactions are made in euros within a single regulatory framework. This standardization is what makes SEPA efficient and convenient.

What Payment Schemes Does SEPA Include?

Single Euro Payments Area (SEPA) comprises a number of payment schemes which are implemented to simplify and secure euro payments in the respective countries. The European Payments Council (EPC) formulates and administers these schemes predominantly, along with enabling frameworks that support innovation and improve anti-fraud protection techniques.

EPC Payment Schemes:

1. SEPA Credit Transfer (SCT)

This scheme provides straightforward euro credit transfers between accounts within the SEPA region. The funds are typically credited to the beneficiary within one business day, and it is thus a popular choice for cross-border as well as domestic transactions.

2. SEPA Instant Credit Transfer (SCT Inst)

The instant scheme enables payments of up to €100,000 (limit variable) to be settled in near real-time, 24/7, including weekends and holidays. It sends instant confirmation, enhancing convenience for both businesses and consumers.

3. SEPA Direct Debit (SDD)

The direct debit scheme permits authorized payees to collect funds directly from a payer’s account, based on prior consent. It is divided into two versions: Core (for consumer payments) and B2B (for business-to-business payments).

4. One-Leg Out Instant Credit Transfer

This newer scheme brings the benefits of instant payments to cross-border payments where one side of the payment is within the SEPA region. This extension broadens world connectivity at the same speed and transparency as SCT Inst.

Other Schemes:

1. SEPA Request-to-Pay (SRTP)

A complementary service that allows a payee to send an electronic payment request to a payer. The service increases billing and e-commerce flexibility since it gives the option to the payers to accept, decline, or delay the payment.

2. SEPA Payment Account Access (SPAA)

This scheme aligns third-party access to payment accounts provision with open banking in Europe. It enables the use of advanced APIs and stimulates financial service competition and innovation.

3. Verification of Payee (VOP)

A fraud prevention facility that guarantees the payee’s name is verified against the entered IBAN. By preventing errors, misdirection, and fraudulent payments, it strengthens confidence in SEPA payments.

What is the EU Instant Payments Regulatory Reform?

The European Union (EU) has brought a new Instant Payments Regulation (Regulation (EU) 2024/886) in 2024 to enable real-time euro payments across the region.

They must authenticate payees’ names prior to execution and notify the payer in case of discrepancy. Next, they screen payees against new sanctions lists prior to clearing payments. Firms must also report charges and disclose the number of denied transactions on the basis of sanctions verification.

What are the benefits of SEPA Payments?

SEPA payments offer faster, simpler, and more harmonized transactions across Europe for the benefit of businesses, consumers, banks, and public administrations. The Euro payments between borders are as domestic as national payments, reducing costs overall. They are also processed more efficiently, with account transfers executed in seconds.

With the utilization of standard forms, SEPA reduces errors and raises accuracy. SEPA offers transparency regarding when funds will arrive and enhances security by utilizing shared anti-fraud and AML safeguards. It is flexible enough to handle both everyday bills and large business transactions across the region.

For companies, SEPA improves payments within the European Union, simplifies payment processing, and improves the management of liquidity. Public administrations can also leverage SEPA to facilitate efficiency in areas such as e-Government and e-procurement, thus benefiting society as a whole.

For the customers, they need only one bank account and one set of instruments to make euro payments throughout Europe, both domestic and cross-border. SEPA integration also helps banks because it stimulates competition. It also introduces new opportunities for financial services expansion.

What is SEPA’s Role in Banking?

SEPA regulates the processing of euro payments by banks in European countries. It has revolutionized the processing of euro payments by banks in Europe. The use of standardized formats like IBAN, BIC, and ISO 20022 XML makes domestic payment and cross-border payment easier to process, thereby diminishing the chances of processing errors in transactions.

Banks use SEPA to send payments for their customers on their behalf, such as wages, bills, and business transactions. Regular credit transfers typically appear on the subsequent business day, while instant payments can settle within 10 seconds at any given moment.

Compliance Risk in SEPA Instant Payments

The real-time processing of SEPA Instant Payments, typically performed within less than 10 seconds, creates significant compliance challenges. With so little time for scrutiny, it is harder to spot unusual or high-risk transactions. The speed of processing can also lead to false positives in sanctions screening. This threat is particularly high when customer names are similar to those of EU or UN-listed individuals.

Whereas EU regulations give precedence to customer due diligence, some institutions still persist in real-time filtering of payments, placing additional burden on compliance teams. Differences in national sanctions law and inconsistencies with global frameworks, such as the U.S. OFAC, further complicate matters. Instant payments further complicate liquidity management and real-time monitoring, so robust automated compliance systems are in order.

Slow and outdated screening techniques only add to the problem, where every second counts. Banks require better, quicker screening technologies so that they can beat the regulatory risk.