The power of SEPA transfers and Fintechs

It wasn’t long ago that creating and processing transactions across European country borders was a complex and expensive undertaking. To combat this, transfer schemes were created and implemented to unify cashless euro payments to anywhere in the European Union. This is where Single Euro Payments Area (SEPA) transfers play a large role for Fintechs.
In this article, we will explore the brief history and types of SEPA transfers, whilst looking at the challenges and solutions that it can provide to Fintechs taking their first steps towards competing.

What is the Single Euro Payment Area?

At the beginning of this millennium, the European Union (EU) governments set out a vision for a SEPA, where a single euro account could be utilised in all participating countries. They wished to make the EU more dynamic and competitive with other global markets by reducing unnecessary complications and fees when transactions cross borders.

To fulfil this goal, in 2008, the SEPA Credit Transfer (SCT) scheme was launched by the EU authorities in conjunction with the European Payments Council (EPC) – which represents payment service providers within the region.

Now, SEPA spans 36 countries, including non-EU members like Norway, with four different euro payment schemes and further ambitions to harmonise mobile and online payments. The ease and efficiency of these schemes have given consumers peace of mind when making purchases and payments across the SEPA. Businesses now have quick access to a broad European market, empowering them like never before.

What is a SEPA payment?

SCT, more commonly known as SEPA payments, uses the International Bank Account Number (IBAN) and sometimes the Business Identifier Code (BIC) of the sender and beneficiary accounts to move funds from one to another. These identify your account and bank, respectively, in a standardised global format. Once the transaction is approved, the beneficiary generally receives their money within one business day.

What is a SEPA Instant payment?

In 2017, the SEPA Instant Credit Transfer (SCT Inst) scheme, also known as SEPA Instant payment, was introduced. This focused entirely on the speed of transactions by using a direct routing method between the sender’s and beneficiary’s banks. This allowed funds to be available in the destination account within 10 seconds of the transfer being confirmed.

The difference between SEPA and SEPA Instant

Excluding the difference in pace, these two payment methods differ in a couple of ways. SEPA Instant payments are available all year round, whereas SEPA payments may be delayed over the weekend and on public holidays. However, SEPA Instant payments require both the sender’s and beneficiary’s banks to be registered as SEPA Instant members. In addition, SEPA Instant payments have a transaction limit of 100,000 EUR compared to SEPA payments’ 999,999,999.99 EUR – it is also only available in 23 of the 36 SEPA countries in the.

SEPA Direct Debit (SEPA DD)

Released in 2009, the SEPA Direct Debit (SDD) scheme is commonly used for recurring payments, such as rent, bills, and subscriptions. The previous two schemes are mostly used for once-off for most one-off transactions. SDD also uses the IBAN and occasionally the BIC of the sender’s and beneficiary’s accounts, however, the process is reversed.

Instead of the sender pushing their funds to the beneficiary, funds are pulled from them at the behest of the beneficiary. Hence, the beneficiary initiates the request for recurring payments and the sender can sign a mandate to authorise them. This can take a minimum of 2-3 business days to be received.

This transfer scheme further branches into two schemes: the Core and B2B SDD. Core SDD must be offered by all banks who have agreed to the SEPA scheme and is available to individual users. On the other hand, B2B SDD is only for businesses unless a bank decides to offer it to their customers as well.

How does SEPA Instant Transfer work?

It is commonplace for banks to process transactions in bulk one to two days after receiving them. This is to reduce the large amount of manual work required to clear transactions. This may result in the funds only arriving at the beneficiary account later than expected.
Thanks to Open Banking, SEPA Instant payments can be recognised and processed in real-time so the bank can treat each transaction individually rather than in batches. Hence, it can achieve a transfer rate that traditional banking procedures can not.

Sending vs Receiving

However, SEPA Instant transfers can be more complicated. Some banks limit accounts to only receive SEPA Instant payments and make them unable to initiate their own. Cross-border transactions can also be obstructed by adding unnecessary steps when it recognises the IBAN, which locates the account. This can dissuade users from creating or completing the payment, decreasing their use.

SEPA Instant coverage and adoption

Unfortunately, SEPA Instant payments are not widely accessible across the SEPA. As mentioned, only 23 out of the 36 countries participate in this scheme and only Slovenia has it offered in all of its banks. Less than half of the banks in these countries offer it as a service. It must also be noted that the SEPA Instant scheme can operate on two different systems that cannot communicate with each other. As a result, some banks are unable to create SEPA Instant payments for each other as they don’t use the same system.

The inhibition to adopting this scheme is large because it is not mandatory for banks. It is even common for this payment method to be charged a fee, which makes the scheme less desirable compared to its slower, cheaper alternatives.

Benefits of SEPA Instant for Fintechs

In this digital market, there is a growing expectation for everything to be expeditious, including transactions. Fintechs that make SEPA Instant available to customers can guarantee that a pan-European transfer will complete or fail within 10 seconds so they can meet this expectation and deal with any interruptions in real time. They would also be able to complete transfers at any time of the day or week.

Therefore, SEPA Instant payments provide flexibility to a Fintech’s customers so they can make payments where they want and when they want to. With a transaction limit of 100,000 EUR, this scheme also allows payments to be processed quickly whilst preventing large, suspicious transactions to occur with the same ease. Thus, it can compromise a Fintech’s regulatory responsibilities and customer’s demands.

Access Sepa Instant Payments with Integrated Finance

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We support local payment systems across 100+ countries. If you want to offer real-time local methods such as Sepa Instant, request a demo, and we’ll show you how you can go global in weeks rather than months.