Why We Have SEPA & What is it? [2024 Guide] - Live In Germany

SEPA has transformed the way of banking to a whole new level. This legal framework has formed an invincible competition with the local European banks. With SEPA, one can transfer payments with comfort and efficiency. This impactful approach has upended money dealing for the local banks in Europe. In Germany, people enjoy the facility of SEPA, as it has brought a lot of ease to their lives.

SEPA has harmonised and reconciled nationwide and cross-border payments in the European regions. It has diminished all the inconveniences that occurred before the establishment of SEPA. We have gathered enough information and knowledge that shall allow us to fill your question bank with their required answers.  

What is SEPA?

Many people are aware of the name and the services offered by SEPA but can not comprehend what the abbreviation stands for. SEPA denotes the term Single Euro Payments Area. In Germany,  Electronic Direct Debit (ELV) existed before SEPA came into use.

SEPA launched back in 2014, and since then, this way of cashless payment has been used all over Europe. The Eurosystem, the national government, and the European Commission supported the idea of SEPA and thus was endorsed by EPC (European Payment Council). With SEPA, one can facilely send and receive fast transactions with minimal charges. SEPA allows you to avail all types of Euro-payment options.

Why Europe Needed SEPA?

SEPA has formed a bridge of convenience for all European Countries (especially Germany) in the case of payments and transactions. The main reason for SEPA is to break down the barrier of inconvenient and expensive Transaction fees, enhancing ease and control in terms of money lending and receiving. SEPA diminishes the time of transfers and thus promotes the feasibility of work. 

People in Europe can now easily transmit and receive payments without worrying about going to the banks and roaming about with chequebooks in their pockets. This facility has helped people in business in particular as it promotes mobile labour. SEPA has emerged and accomplished in building a single payment market which helped reduce prices. Nowadays, Germans pay bills through this electronic medium without stress and effort. 

What is the Origin of SEPA?

For the implementation of cashless payment; many efforts were made to remove the practical boundaries preventing this notion from existing.  The European Union passed the Payment service directive in 2007.  In 2008  a legal platform for the formation of SEPA was formed and encouraged. In 2014, with increasing efforts, SEPA was given full authority for credit and debt-based payments.

In 2019, the European Commission implemented an extended rule; prohibiting the banks from cutting out extra charges for transferring money to/from non-euro member countries. The new ordinance allows all European countries to pay an amount equal to the domestic payment for sending and receiving cash across borders. It is mandatory to let the patron know the currency conversion rate before it is transmitted abroad to a specified country. 

Businessmen in Germany feel unrestricted to send and receive transactions within a short time period filled with ease and trust.

How Many Countries Use SEPA?

SEPA is available in almost 36 countries.

• About 27 countries belong to the European Union.
• Switzerland, Monaco, Isle of Man, Iceland, Liechtenstein, San Marino, Jersey, Guernsey, and Norway are some countries that are not a part of the European Union but can still avail of the facility of SEPA.
• SEPA excludes 4 European Union countries (Kosovo, Montenegro, Andorra, and Vatican City.)
• Although the UK is vacating the European Union yet, it still has the availability of SEPA, and even after leaving the European Union, it shall remain a part of SEPA.
• About 4 Microstates have special economic arrangements with the European Union.

Germany has availed the services offered by SEPA at its utmost.

How Does SEPA Transfer Work

IBAN and BIC (including the swift code) are the foundation of SEPA. The IBAN (International Bank Account Number) has replaced the account code and the BIC (Bank Identifier Code). You can also use the online forums, you can also order them as paper templates.

Some basic rules and regulations which you may need to follow for payment transactions and transfers are:

• A maximum of one working day is taken for online transfers.
• An average of two days are taken for paper-based transfers.

The duration for SEPA is also considered alike. 

What is the Cost For SEPA Transfers

SEPA Transfers don’t bind themselves to any specific cost. They may vary with the change of countries and territories, as per the tax and toll of that particular area of reference. In most cases, the transfer cost is either a euro or free of price. This free-of-cost service entitles the people residing in Germany to transmit money to their relatives in other European Countries with comfort.

Types Of SEPA Transfers

Recent research evaluated that every year, in these 36 countries, almost Є 43 billion transactions transpire. SEPA is operated by the European Commission  (the European Central Bank (ECB) and other European stakeholder groups) and European Payments Council concurrently. Overall SEPA consists of three payment strategies. These classifications are the basics of introducing different methods of transfer. 

1. The SEPA Credit Transfer Scheme
2. The SEPA Instant Credit Transfer Scheme
3. The SEPA Direct Debit Transfer Scheme

SEPA Credit Transfer Scheme

To transfer cash, the SEPA credit uses both IBAN (International Bank Account Number) and occasionally the BIC (Business Identifier Code) numbers of the accounts of the receiver and the recipient. After the transfer gets permitted, The SEPA credit transfer usually takes up to 1 working day to transfer the cash to the receiver’s bank account. 

For example, you live in Germany, and your friend lives in France. To transfer €100 from your account to your friend’s account within the SEPA range, SEPA shall use your Iban code, and for precision, it shall use your BIC. In almost 24 hours,  it will be transferred to your friend’s account without any drawback. To take advantage of this facility, both bank accounts should be registered in SEPA first.

SEPA Instant Credit Transfer Scheme

SEPA instant credit is also popularly known as SEPA instant payment. This scheme of transferring cash became the latest service in November of 2017. With its spectacular service speed, instant payment is promoted for its fast and convenient services. The money is transferred within 10 seconds of account IBAN and BIC Confirmation. To make a successful transfer, both members must be a part of SEPA. Various banks being a part of Sepa use this policy.

SEPA Direct Debit Transfer Scheme

SEPA Direct Debit is available in 36 countries which is a pan-European direct Debit that allows its customers to collect payments in Euro. SEPA Direct Debit is currently more in use than the national Direct Debit procedures. Thus, the payment in Euro can be collected both ways, easily. 

SEPA Direct Debit also requires the IBAN and sometimes the BIC of the transferer and the recipient.

How To Work With SEPA Direct Debit

The SEPA Direct Debit initiates to work as a Pull-based method.

It is different from the other two modes of transfer. In this service, the roles are inverted; the recipient must request the sender for the riches.

1. The recipient requests the sender to transfer the money.
2. Before the cash is transferred, the sender signs a ‘Mandate’ agreement that allows the recipient to withdraw money from the account of the sender.

This method of transfer is often used. People mostly sign up for this procedure to pay their bills automatically on time and with ease.

Types Of SEPA Direct Debit Transfer

The SEPA Direct Debit Transfer is further divided into 2 types.

1. The SEPA Core Direct Debit TransferAll banks must offer this scheme of transfer. This scheme of transfer is available to every individual
2. The SEPA B2B Direct Debit Transfer: This scheme of transfer is not crucial, banks may or may not offer this to their customers. It is offered to businessmen and entrepreneurs by the banks

You can decide on the procedure by pondering through the strategies each method delivers. 

1. Customers: The SEPA B2B Direct Debit is handy for corporations and firms. It cannot be utilized for small firms and individuals ( SEPA Core is the best choice for individual services. )
2. Timings: The SEPA B2B Direct Debit give a short timespan for giving out payments (1 day before collection) The banks offer quick services if any technological or manual negligence/error occurs. (2 days after collection).
3. Loss affirms: In B2B Direct Debit, there is no refund policy for authorized pacts. The sender can gain back the money if he/she proves the agreement to be unauthorized. (up to 13 months after the date of the direct debit).

Time Durations for SEPA Transfers

Different Payment methods of SEPA vary in terms of their time durations.

• The SEPA Credit Transfer takes one working day to complete the task.
• The SEPA Instant Credit Transfer takes almost 10 seconds and is available 24/7.
• The SEPA Core Direct Debit gets the work done in 2 working days
• The SEPA B2B Direct Debit transfers cash in a minimum of 3 business days.

SEPA Transfers Limitations

Like every other bank has set specific limitations, SEPA Transfers have also set boundaries in terms of transactions for their customers. Germans have the same limitations as every other European country.

• SEPA Credit Transfers has set a limitation of about €999,999,99.
• SEPA Credit Instant Transfer serves you the opportunity to send up to €100,000.
• SEPA Direct Debit Transfer allows you to send and receive without any limit.

Bottom Line

SEPA has helped make a lot of differences in terms of banking. With the ease and comfort provided by SEPA, one cannot imagine walking to the bank ever again. SEPA has destroyed the boundaries of hindrances and has formed a single policy of a single payment system, letting everyone enjoy a chance at freedom, in terms of mobile banking. People in Germany are leading to stress-free banking since the introduction of SEPA into their lives.