In this article, we examine SEPA payments from various angles. We begin by reviewing the four payment schemes and their common characteristics. We then explore SEPA payments in numbers, tracing their history and members across Europe, and finish by introducing the key stakeholders who keep it running.
The different SEPA payment schemes
The first SEPA payment scheme was introduced in 2008, called SEPA Credit Transfer. Since then, SEPA’s functionality has since expanded significantly.
Today, SEPA also offers instant transfers, direct debits for consumers and businesses, and the ability to request a transfer. In this section, we take a look at the SEPA payment schemes as they stand today, and how the SEPA payment schemes differ.
SEPA Credit Transfer
The first SEPA payment scheme, SEPA Credit Transfer (commonly shortened to SCT) simply enables a payment sent by the debtor (or payer) to the creditor (or payee).
It has a maximum execution time of one business day and a maximum credit time of two business days, from the moment it has been instructed by the debtor to its PSP. SEPA credit transfers are only processed during business days and business hours.
There is no minimum or maximum amount. No fees can be deducted from the payment, which means that the full amount is always credited on the creditor’s account.
A SEPA credit transfer can be recalled by the originator PSP within 10 business days for technical reasons, such as duplicate sending or technical problems, and within 13 months in case of fraud.
SEPA credit transfers are used for a variety of everyday use cases, including consumer-to-consumer bank transfers, regular salary payments, and insurance disbursement payouts.
SEPA Instant Credit Transfer
SEPA Instant Credit Transfer (shortened to SCT Inst) is the most recent SEPA payment scheme. It is a much faster version of a SEPA credit transfer, with a maximum time to credit of 10 seconds. SEPA instant credit transfers are processed entirely automatically, and around the clock.
The debtor’s bank is notified by the creditor’s bank that the payment has been credited on the creditor’s account, which enables the bank to notify its customer in return.
Unlike a SEPA credit transfer, a SEPA instant credit transfer cannot be repudiated. It cannot be cancelled and cannot be returned. It thus offers a much higher level of guarantee to the creditor.
SEPA instant credit transfers enable new use cases such as on-demand salary advances, real-time health insurance repayments, emergency payments, and secure online purchases. SCT Inst also enables companies to reduce working capital requirements and improve cash flow by collecting payments faster.
SEPA Direct Debit Core and Direct Debit B2B
Common characteristics of a SEPA payment
SEPA payments are highly standardised, with scheme rules set by the European Payments Council (EPC) and updates released every year. Though every SEPA scheme has unique characteristics, there are five characteristics common to every SEPA payment.
Euro as the sole currency
All SEPA payments are made in euros. The euro was introduced in 2002 as a single currency, and is currently the official currency of 20 out of the 27 EU member states and more than 350 million citizens. It is the second most used currency in the world, after the US dollar and before the Chinese yuan.
IBANs as account identifiers
IBANs (for international bank account numbers) are used to normalise account numbers across more than 80 countries, including the 36 countries that form the SEPA zone. However, several major countries including the US, Canada, Australia, China, and Japan are yet to adopt IBANs.
SEPA payments use IBANs as the sole way to identify debtor and creditor accounts. IBANs are meant to facilitate account identification, payments, and international trade by using a common syntax and format. The IBAN format is defined by the ISO 13616 standard. IBANs always start with a two-letter country code, followed by two check digits, and end with the BBAN (basic bank account number).
Both SEPA direct and indirect participants can issue their own IBANs and open and hold accounts in the name of their customers. PSPs often see issuing their own IBANs as a way to further strengthen their brand as well as customer relationship.
The length of an IBAN depends on the country. Some countries can be chatty (such as France, with 27 characters), while others can be more straight to the point (such as Belgium, with 16 characters). IBAN formats per country can be found in the appendixes of this guide.
Although the syntax of an IBAN can be verified using a basic algorithm, there is no built-in mechanism in SEPA to verify that the account exists and can be used for a given payment. A SEPA payment to a valid IBAN can therefore result in a rejection or return, for instance, if the account has been closed, does not exist, or is not compatible with the payment method used.
BICs as bank identifiers
Bank identifier codes (or BICs) are used to identify PSPs across the SEPA zone. BICs are registered and managed by SWIFT, a global financial messaging network.
The BIC code structure is specified by the ISO 9362 standard. BICs take the form of eight (also called BIC8) or eleven (also called BIC11) characters. A BIC8 identifies a PSP in a given country or city, while a BIC11 identifies a PSP’s exact branch. The BIC usually includes the PSP shortened name in the bank code.
The IBAN already contains the BIC’s information and it is unnecessary to provide the BIC separately to send or receive a SEPA payment.
How Mambu Payments supports SEPA instant payments
Mambu Payments’ platform supports SEPA instant payments, in addition to regular SEPA credit transfers as well as SEPA direct debits. Customers can use the Mambu Payments API to integrate SEPA instant payments into their products and build user experiences that leverage instant, irrevocable payments.
In this section, we explain how Mambu Payments can be used to automate SEPA instant payments, from initiation to reconciliation. We also unveil some of the exciting features we will launch in early 2023.
Sending SEPA instant payments with Mambu Payments
A single API to initiate payments
The Mambu Payments API enables companies to initiate SEPA instant payments with their banks without building a direct bank integration and going through a long and complex project. Sending a SEPA instant payment is as easy as making an API request with the payment amount and reference as well as beneficiary IBAN and country.
It is the same API that can be used to initiate regular SEPA credit transfers as well as SEPA direct debits. Changing payment methods only requires changing one parameter in the API request.
Approval workflows
After they have been created, finance and operations teams can review and approve or cancel payments through the API or web app before they are sent to their banks.
Approvals can be set up at the single payment or payment batch level. They can also be skipped entirely if companies have implemented their internal controls and approval workflows right into their systems and tools.
Every payment approval or denial is logged and is accessible in the audit trail of the payment for traceability and auditability purposes.
Real-time notifications
After a company has initiated a SEPA instant payment, Mambu Payments retrieves its status from the bank and notifies the company of its proper execution or rejection (including rejection cause). Notification events can be sent through webhooks in real time or retrieved by querying the events endpoint in the Mambu Payments API. Automated status updates save companies from manually checking and updating the status of their payments.
Real-time notifications enable engineering teams to build advanced payment workflows into their products, and finance and operations teams to troubleshoot any anomaly.