What is SEPA?
SEPA stands for Single Euro Payments Area, and is an initiative supported by the European Payments Council (EPC). The main purpose of this initiative is to improve the efficiency of cross-border payments and turn the fragmented national markets for euro payments into a single domestic one . SEPA will enable customers to make cashless euro payments to anyone located anywhere in the area, using a single bank account and a single set of payment instruments. Economically speaking, this is very important in achieving economies of scale, by creating a common framework of payment instruments, standards and procedures.
Who is covered?
The initiative covers a total of 34 member states, which covers a population of 500+ million people. The following countries are covered:
- The 18 states that are in the Eurozone
- The 10 states not in the Eurozone (Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Lithuania, Poland, Romania, Sweden, United Kingdom).
- The 4 European Free Trade Association member states (Iceland, Liechtenstein, Norway, Switzerland)
- Monaco, San Marino
What is SEPA Direct Debit?
SEPA Direct Debit is a pull based system. Once a customer signs a mandate, the merchant can initiate payments. These payments are bank to bank, ie, there are no card companies involved. Some key features of this system are:
- All payments are in Euros
- Customer protection; customers can demand a refund for unauthorized transactions for up to 13 months
- IBAN/BIC is used rather than Account number and Bank codes.
What are the different schemes in SEPA Direct Debit?
There are 2 variants of the SEPA Direct Debit:
- SEPA Core Direct Debit (SDD CORE, SDD COR1)
- SEPA B2B Direct Debit
The SEPA Core Direct Debit scheme is based on the following concept: “I request money from someone, with their prior approval, and credit it to myself”. The payer and the biller must both hold an account with a PSP within the SEPA Zone.
- For the SDD CORE scheme, 1st time direct debits have to be submitted to the paying agent 5 business days before the due date. For subsequent payments, this becomes 2 business days . For one-time payments, the lead time is 5 business days.
- For the SDD COR1 scheme, the lead time is 1 business day for all payments.
The SEPA Direct Debit B2B scheme allows business customers to make payments in the form of direct debit. It offers significant efficiency gains and automation of payment processing. This goes a great way in optimizing the cash management processes.
- For the SDD B2B scheme, one-off, first time or subsequent direct debits must be submitted to the paying agent 1 business day before the due date.
The main differences between the 2 schemes are:
- The B2B scheme is available only to businesses
- In the B2B scheme, the payer is not entitled to a refund of an authorized transaction
- The B2B scheme offers a significantly shorter processing time, tailored to the needs of the business community.