What is SEPA and how do SEPA Credit Transfers work?

Oliver February 2022 Fintech Content Editor 3 min

Table of contents

SEPA stands for “Single Euro Payments Area” and has been used since 2014 by almost all EU member states for cashless payment transactions within the European Union. In Germany, SEPA has replaced the previous Electronic Direct Debit (ELV) system.

What does SEPA mean?

SEPA is the abbreviation for ‘Single Euro Payments Area’. SEPA has created a single area for cashless payments in Europe. There is no longer any noticeable difference between national and international payments. SEPA is the EU-wide standard for cashless payments since 2014 and has replaced the previous Electronic Direct Debit (ELV) system.

Which Countries belong to the SEPA area?

Currently, 34 countries in the European Union are participating in the SEPA scheme. Among them are countries whose official currency is not the euro: Switzerland, Monaco, San Marino, Jersey, Guernsey, Isle of Man, Iceland, Liechtenstein and Norway are also among the SEPA countries.

In contrast, four countries of the European Union are not SEPA countries: Kosovo, Montenegro, Andorra and Vatican City.

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How do SEPA Credit Transfers work?

The IBAN and BIC (also known as Swift Code) form the basis for SEPA credit transfers and payments. In Germany, the IBAN (International Bank Account Number) has replaced the classic account number and BIC (Business Identifier Code) has replaced the bank code. Functionally, there is no difference to the old familiar domestic bank transfers.

We distinguish between two SEPA direct debit schemes

SEPA Core Direct Debit:

The SEPA Direct Debit is comparable to the former direct debit authorisation and is mainly used in payment transactions with consumers. A distinction is made between first direct debit, recurring direct debit and one-off direct debit. First-time or one-off direct debits must be received five days before the due date. Subsequent direct debits two days before the due date. An agreement between the payee and the payer determines which type of payment is decided upon. Payments are posted on a specific due date and must be notified in advance to the payer’s bank.

A direct debit can only be debited if a valid direct debit mandate exists. This is valid for an unlimited period of time as long as the business relationship exists between the payer and the payee. This relationship ends when a contract is terminated. Exception: If more than thirty-six months have passed between two payments, it expires automatically. If incorrect entries are made, an objection to a SEPA direct debit can be lodged within eight weeks.

SEPA corporate direct debit:

The SEPA corporate direct debit is only intended for payment transactions between companies. It is not designed for money transfers between individuals or between private and business customers. First, one-off and subsequent direct debits must be received one day before the due date.

Another difference to the basic direct debit is that payers cannot have chargebacks executed. If the mandate is correctly authorised and still valid, no objection can be lodged against SEPA corporate direct debits. In addition, the debtor’s bank checks the direct debit and thus the data of the mandate before it is executed. Therefore, the debtor should provide his bank with a copy of the mandate.

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