If you’re running an active business in Europe, it’s helpful to understand the SEPA network and why it exists. There are a variety of payment schemes within SEPA and some may be more beneficial to you than others. Here, we will look at SEPA wire transfers and compare them to the two different types of direct debits: core and B2B. We will also discuss the pros and cons of SEPA to help you gain a better understanding of how it can impact you and your business.
What Is SEPA?
SEPA is an acronym for Single European Payments Area. It is a system of transactions that were created by the European Union (EU) to make digital transactions easier between European countries. All cashless transactions that occur between governments, merchants, customers, etc., are conducted through the SEPA architecture. It is regulated and controlled by the European Commission.
Prior to the inception of SEPA, it was somewhat difficult to do business with other countries within Europe. The banks were regulated differently and had a host of different policies that made business difficult, to say the least. The purpose of SEPA was to make these transactions easier and to encourage commerce between European countries. The SEPA network currently includes all of the countries in the EU, plus a few more.
What Is a SEPA Credit Transfer?
A credit transfer within the SEPA architecture is a type of money transfer between two different countries. It is defined by a single set of standards and policies within a network of banks across the European countries that are included in SEPA. These transfers can be recurring, such as payroll services or subscriptions. They can also be a single transfer like a one-time purchase.
A SEPA transfer is essentially a domestic transfer because the banks involved in the SEPA system follow the same protocols. Although the money is moving from one country to another, the process has been simplified to increase efficiency and decrease international transaction fees.
SEPA Instant Credit Transfer
If you’re lucky enough to live in one of the 8 countries that support instant transfers, you can utilize this service, as well. SEPA instant transfer allows the transfer of money between people or businesses in different countries in about 10 seconds. It allows instant transactions of up to 15,000 GBP, but only in Austria, Estonia, Germany, Italy, Latvia, Lithuania, Spain, and the Netherlands.
What Is a SEPA Direct Debit?
SEPA direct debit is available in two different forms: core and B2B. It is a payment scheme through which a creditor can directly pull funds from a debtor’s bank account after sufficient authorization has been provided. It is available exclusively in Euros, and only amongst the countries that are part of the SEPA network.
SEPA direct debits require the use of an International Bank Account Number (IBAN) and can be used for one-time purchases or recurring payments. It’s a simple way to pay your rent or mortgage and pay your regular bills, as well. It is also often used by and between businesses who are located in different countries.
SEPA Direct Debit Core
The core scheme is available to both businesses and individuals. All banks that offer direct debits in Euros and required to use the SEPA core scheme. The B2B scheme, on the other hand, is an optional service that banks may or may not choose to offer.
It’s important to note that the SEPA direct debit core payment scheme is not an instant payment method like the instant credit transfer. It can take a few business days for the funds to be transferred from one account to the other in the direct debit scheme.
SEPA Direct Debit B2B
This is the business-to-business direct debit scheme offered by SEPA. In many ways, it is similar to the core scheme but is exclusive to B2B transactions. Debtors in this scheme are required to notify the bank of their desire to use the program and must sign documents authorizing the direct debit. If they fail to do so, the direct debit will be rejected, which could cause issues in the business relationship between the debtor and the creditor.
In the B2B scheme, debtors can seek refunds if they feel their account was debited for a payment that was unauthorized. The core scheme does not offer this option. Additionally, not all banks will accept the B2B scheme, so be sure to investigate which banks will and will not accept it prior to moving forward.
Pros and Cons of SEPA Transfers
As with any payment scheme or network, there are some pros and cons to SEPA transfers. SEPA streamlined the process of transferring money between European countries. It also simplified the transactions to only one currency, Euros, which made it easy for banks to do business with one another.
Here is a brief look at the pros and cons associated with the SEPA payment schemes we have discussed:
PROS:
- Ability to transfer funds easily between countries in the SEPA network
- Fast transaction times with SEPA instant credit transfers
- Direct debits in Euro between accounts that are part of the SEPA network (anywhere in the EU)
- Fee structure that is transparent and easy to understand
- Increase in business opportunities and consumer opportunities across European borders
CONS:
- Limited to only the 36 SEPA countries, so it’s useless for American companies
- Transaction fees are high as compared with other payment schemes and methods
Conclusion
If you’re in a European country that is included in the SEPA network, it’s worth doing some deeper research into the available payment schemes. Opening your business to more opportunities can be a great way to increase customer awareness of your brand and make a positive impact on your bottom line. Although the fees may be higher than other payment schemes, you may find that the benefits outweigh the drawbacks. Be sure to consult your financial advisor to find out if these options are good for your business.
