What are SEPA Transfers? - Everything You Need To Know
What are SEPA Payments?
SEPA is a payment format that allows the transfer of Euro-denominated funds within the SEPA region, with 36 member countries.
36 countries are members of SEPA:
- 27 member countries are from the European Union, such as Italy and Germany.
- 4 member countries are from the European Free Trade Association. These are Switzerland, Iceland, Liechtenstein and Norway.
- Four member microstates with special monetary arrangements with the EU: San Marino, Vatican City, Monaco, and Andorra.
- The UK, although not a part of the EU, is still a part of the SEPA.
SEPA first began operations in January 2008 and is regulated by the European Payment Council (EPC). At first, SEPA only processed credit transfers, but it was updated in November 2009 to include direct debits and debit cards.
As an Indian freelancer or business owner, collaborating with clients in the EU and understanding the intricacies of the SEPA transfers, with its key features and benefits, is important. This blog will help you unravel the significance of SEPA transactions and explore how this initiative is reshaping the landscape of European electronic payments
Types of SEPA Transfers
SEPA global transactions within the member EU countries allow the following four payment processing schemes.
- SEPA Credit Transfer: These are one-time money transfers between two banks with IBAN identification codes within the SEPA region.
- SEPA Instant Credit Transfer: These are SEPA credit transfers with the facility of expediting the transaction procession and completion speed. The facility allows instant transfer of one-time funds up to €100,000.
- SEPA Direct Credit Core: The funds are debited from the debtor's bank account and directly credited to the creditor’s account. The transfer requires a mandate from the debtor and is identified by a unique mandate reference (UMR).
- SEPA Direct Debit Business-to-Business: Companies and tax authorities use this payment type. Common transactions involve paying taxes, repaying loans, or paying for high-volume purchases.
How Much Time Do SEPA Transfers Take
The processing and settlement times for SEPA transactions vary depending on the nature of the transaction. Here are the processing times for SEPA payments based on the four types of payment processing schemes:
- SEPA Credit Transfer: 1 business day from the day of payment initiation.
- SEPA Instant Credit Transfer: Within 10 seconds of the payment initiation.
- SEPA Core Direct Debit Transfer: 1 or 2 business days from the day of payment initiation, given the transaction is sent before the cut-off time of 14:00 (GMT/BST).
- SEPA Direct Debit Business-to-Business: At least 3 business days from the day of payment initiation.
For businesses registered in the US that are processing SEPA Direct Debit payments from customers for bank accounts in the SEPA area, the settlement time for the SEPA international payments is 3-6 days.
Documents Needed For SEPA
Although the requirements for SEPA vary for each bank, here are some common details needed:
- International Bank Account Number (IBAN)
- Bank Identifier Code (BIC)
How do SEPA Transfers Work?
The SEPA network is a domestic payment system for the member EU countries, similar to payment methods ACH in the US, BACs in the UK and NEFT in India, requiring two bank accounts to complete the transaction.
Every account in the SEPA area is assigned an International Bank Account Number (IBAN) at inception. The IBAN is the European equivalent of an Indian bank account number. When making a SEPA transfer, the parties have to quote the IBAN identification codes.
SEPA’s standardized payments system allows the direct debit of a Euro-denominated bank account within the SEPA region.
How to Receive SEPA Payments in India?
Almost all SEPA transactions are free as it is the nationalized payment method for EU member countries. If you are a small business owner or a freelancer registered in India but have clients in the member EU countries, SEPA can be a convenient and cost-effective way for your clients to pay you.
However, as India is not a member country of the SEPA, it becomes challenging for a small business owner or freelancer in India to accept payment made through the SEPA. The only way for an Indian entity to accept SEPA payments is through a licensed third-party payment platform. Platforms like Skydo provide a one-stop solution to efficiently accept Euro payments from international clients through a virtual SEPA account. Using Skydo, you don’t have to open a traditional SEPA bank account in the SEPA Region and can virtually receive Euro SEPA payments. Once received, you can transfer funds from your virtual SEPA account to your Indian bank account after converting the funds into INR.
In its essence, Skydo presents an effective and accessible solution for domestic and international entities to embrace the benefits of SEPA payments and ensure a seamless payment process, as it is easier for clients to use the SEPA network.
The SEPA network and its associated transactions represent a significant leap forward in European electronic payments. Establishing the Single Euro Payments Area has harmonised the diverse payment landscapes across participating countries and laid the foundation for a more efficient, secure, and seamless cross-border payment ecosystem.
Adopting common formats, such as IBANs, streamlines the identification and processing of transactions, reducing errors and enhancing overall transaction efficiency. Furthermore, options such as SEPA Instant Credit Transfer provide the facility for instant fund transfer in case of urgency with the same level of security.
Q1. Do I need a European bank account to receive SEPA payments?
Ans: Yes, if you want to receive the funds directly into your bank account, you would need a European bank account. However, you can use third-party payment platforms such as Skydo to open a SEPA account virtually, receive funds in the virtual account, and transfer the funds to your Indian bank account.
Q2. Is SEPA the same as SWIFT?
Ans: No, SEPA and SWIFT are different. SEPA standardises euro payments within Europe, while SWIFT enables international payments beyond SEPA, using BIC codes instead of IBANs. While they can work together, they serve distinct purposes.
Q3. Is IBAN mandatory for SEPA?
Ans: Yes, IBAN is mandatory for all SEPA payments denominated in euros. It ensures accurate routing within the Single Euro Payments Area.