Tag: ISO20022

What is SEPA?

What is SEPA?
What is SEPA?

SEPA stands for Single Euro Payments Area. It was created to simplify international euro transfers between EU member states. It allows you to send and receive payments in euros between two cross-border bank accounts in the eurozone. You can read more about Single Euro Payments Area from the ECB here.

The Single Euro Payments Area ensures that payments made across the eurozone are as simple as domestic transactions. This promotes economic integration and the mobility of people within the eurozone. A single market for payments services increases competition thereby reducing costs of moving money throughout the eurozone.

The primary instrument for making payments in the Single Euro Payments Area is the SEPA Credit Transfer or SCT.

In order to make an SCT Payment, you need:

  • IBAN of the person you want to pay
  • The bank receiving the payment must be a SEPA member
  • The payment must be in euro

The Single Euro Payments Area is regulated by the European Payments Council (EPC).

Advantages of SEPA

Advantages of SEPA
Advantages of SEPA

Four types of SEPA payment

There are four different types of SEPA payment. All of these payment types have their message definitions defined in the ISO 20022 framework.

SEPA Credit Transfer

Usually used for one-off transfers, while PSPs move payments from one bank account to another within the eurozone. For more information, please see here

SEPA Instant Credit Transfer

Unlike an SCT, an instant credit transfer can move money from one account to another in less than ten seconds.

SEPA Direct Debit Transfer Core

Used for subscription services as well as monthly items like utility bills. These are fundamentally different to credit transfers, as it is the recipient that requests the money transfer from the sender rather than the other way around. For more information, please see here

SEPA Direct Debit Business-to-Business

Available if you are collecting Direct Debit payments from other businesses

Life-cycle of a SEPA Direct Debit (SDD) Message

SEPA Direct Debit (SDD) is a Europe-wide Direct Debit system that allows merchants to collect euro payments from accounts. Regular payments, such as subscriptions and bills, use SDD (SEPA Direct Debits).

SDD works as follows: the merchant issues a mandate with all the details about the direct debit. Once the debtor agrees, the merchant pulls the payments on a regular basis, notifying them 14 days before the payment is due.

The merchant controls the entire payment process. They issue the SEPA Direct Debit mandates, they notify the customer and they are the ones to pull the payments whenever they are due.

SEPA Direct Debit Payment Scheme

The European Payments Council has created two SDD schemes, one designed primarily for consumers (SDD Core), one exclusively for businesses (SDD B2B).

  • SDD Core. Designed primarily for consumers. Mandatory for all banks offering Euro-denominated Direct Debits
  • SDD B2B. Optional scheme offered exclusively for business. Not all banks are able to offer it.

The following describes the flow of messages between debtor and creditor

SEPA Direct Debit Message Flow

  • Pain.002 – is a payment status report indicating acceptance or rejection of SEPA Direct Debit
  • Pacs.003 – a direct debit request posted by a client to a direct participant.
  • Pain.008 –  direct debit initiation request.
  • Pacs.002 – Status Report message – is sent by an instructed agent to the previous party in the payment chain. It is used to inform this party about the positive or negative outcome of a payment instruction.