Anyone who has a personal or business bank account in the European Union (EU) is probably already familiar with the term SEPA. If you live and work outside of Europe, however, it’s possible you’ve never heard of it. But if you run a business that operates in Europe or if you have EU-based customers, it’s worth familiarizing yourself with this payment network that’s widely used to transfer funds in 36 countries.

Here’s an overview of what SEPA is, how it works, and how businesses can use it to move money.

What’s in this article?

• What does SEPA stand for?
  
• What is the Single Euro Payments Area?
  
• Which countries are included in SEPA?
  
• How does SEPA work?
  
• How to make a SEPA payment
  
  • SEPA Credit Transfer
    
  • SEPA Direct Debit
    
• How long do SEPA payments take?
  
• Do I need a SEPA account for my business?
  

What does SEPA stand for?

SEPA stands for Single Euro Payments Area.

What is the Single Euro Payments Area?

The Single Euro Payments Area (SEPA) is an initiative to simplify cashless payments and create consistency for transactions within and among EU member countries. SEPA, which is regulated by the European Payment Council (EPC), currently processes around 46 billion transactions every year. SEPA first began operations in January 2008 with the launch of SEPA Credit Transfers, followed by Direct Debits and debit cards in November 2009.

In principle, SEPA’s goal is similar to that of the ACH and Fedwire networks in the US: to facilitate standardized transactions between financial institutions in a way that provides a consistent framework for all users. Before SEPA’s formation, its member countries were fragmented into discrete national markets, which created friction when processing transactions across borders.

The establishment of SEPA involved the development of shared standards, procedures, and infrastructure for transferring funds that was adopted by every member state. Beyond minimizing barriers to funds transfers between accounts, SEPA brought with it the added bonus of reducing the costs associated with moving capital throughout the EU and surrounding countries. SEPA has boosted the economies where it operates and provides convenience for consumers and businesses all over the world.

Which countries are included in SEPA?

As of January 2022, SEPA counts 36 countries as members: Austria, Belgium, Bulgaria, Cyprus, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Republic of Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovenia, Slovakia, Spain, and Sweden, along with non-EU members Iceland, Norway, Liechtenstein, Switzerland, Andorra, Vatican City, Monaco, San Marino, and the UK.

How does SEPA work?

SEPA’s standardized system allows for the direct debiting of any EUR-denominated bank account within the SEPA region. It also means that making payments within any given member country is easy and inexpensive. SEPA enables account holders to receive direct deposit payments and to issue payments electronically from their bank account, even while traveling in another country.

For consumer transactions, SEPA allows businesses to directly debit accounts within a member country.

SEPA is made up of four payment processing schemes:

• SEPA Credit Transfer
  
• SEPA Instant Credit Transfer
  
• SEPA Direct Credit Core
  
• SEPA Direct Debit Business-to-Business
  

How to make a SEPA payment

Every bank account in the SEPA area is assigned an International Bank Account Number (IBAN), the European equivalent of a US bank account number. Similar to how domestic transfers using the ACH and Fedwire networks require both parties’ bank account and routing numbers in order to complete a funds transfer, SEPA transfers require the IBAN identification codes of all European accounts involved in the transaction.

Here’s an overview of how different types of SEPA transfers work:

• SEPA Credit Transfer
  SEPA Credit Transfers are one-time funds transfers between banks that both have IBAN codes. These transfers are conducted in euros and are commonly used for consumer purchases in SEPA countries. If you’re a business that is not based within the SEPA area, you wouldn’t use this type of transfer, since both the issuing and receiving financial institutions must be located in SEPA countries.

• SEPA Instant Credit Transfer
  Whereas most transfers between accounts require submitting a transfer request and waiting anywhere from hours to days for it to be settled, SEPA Instant facilitates real-time transfers in amounts up to €100,000. Using this method, euro-based transactions can be completed by any two account holders in the SEPA area at any time, on any day, and will be processed immediately. Ninety-nine percent of SEPA Instant Credit Transfers are completed within five seconds and can be made using smartphones.

• SEPA Direct Debit
  Direct Debit is the most common way for foreign (non-EU) businesses to interact with accounts within SEPA. For Stripe customers, SEPA Direct Debit is a reusable notification payment method. This means it’s a payment method that can be internally associated with the customer and reused by the business, in authorized capacities. It’s also a delayed notification payment method, meaning the success or failure of the transaction is only known after the transaction has finished processing, which can take several days.

How long do SEPA payments take?

Most SEPA payments are settled within one business day of being initiated. As of November 2017, many banks within SEPA member countries have implemented SEPA Instant Credit Transfers, which allows payments of up to €15,000 to be settled within 10 seconds.

For businesses in the US who are processing SEPA Direct Debit payments from customers in the SEPA area, payout timing is generally three to six days.

Do I need a SEPA account for my business?

Businesses do not need a specific bank account in order to process payments using the SEPA network. SEPA itself is not a financial institution (i.e., it doesn’t issue or maintain its own accounts), but rather a system that is used by banks located within member countries. If you have an IBAN number and your business bank account is based in a SEPA member country, then you already have access to the SEPA network and the products that operate within it.

Businesses that are not based in SEPA member countries, including those in the US, may still be able to use some aspects of SEPA as they relate to consumer transactions for payments from customers who do reside in SEPA member countries.

Should businesses that aren’t based in the SEPA area open a European business bank account? It depends. If your business has European subsidiaries or you base any part of your operations in SEPA member countries, then obtaining an IBAN and opening a local bank account might make sense. With a bank account within the SEPA system, you’ll gain access to SEPA Credit Transfers and Instant Credit Transfers, as well as inexpensive cash withdrawals across Europe.

As a Stripe user, you can add SEPA Direct Debit and other payment methods from the Stripe Dashboard without changing your code.