Fast payments are one of the main advantages of financial institutions that attract customers. One could agree that, for example, a company in the Czech Republic making payment for goods to an Italian supplier will choose a bank and/or a payment system and/or a neobank able to ensure that the payment reaches the recipient as quickly as possible. The speed of crediting funds to the account directly affects the speed of shipment and delivery of goods, and therefore the company’s profit. SEPA Instant as a financial instrument was developed to accelerate payments between European counterparties.
Let’s find out what its advantages are and what the difference is between a regular SEPA transfer and a SEPA Instant transfer.
What is SEPA?
SEPA is an abbreviation for Single Euro Payments Area. Legislative activities aimed at the implementation of a payment system common to all EU countries began back in 1999 with the introduction of the euro as an electronic currency. However, the pan-European payment instruments of SEPA were launched in 2008 only, and from August 1, 2014, the euro payments area covered all EU countries.
As of 2020, 36 countries are members of SEPA, including:
- 27 EU member states;
- 4 EFTA states;
- The United Kingdom of Great Britain, San Marino, Vatican, Andorra, Monaco.
The main goal of establishing SEPA was to unite national payment institutions of European countries into a single payment area. SEPA allowed customers from different parts of Europe to make payments in euro to any account using a single payment system. This significantly simplified settlements within the European Economic Area. For example, natural persons do not have to change their personal account when moving to another European country.
Previously, each state in the EU was using its own payment standards and instruments which made transactions between these countries very complicated and increased processing times. The introduction of SEPA has harmonized all differences and as a result, natural persons and businesses in the euro area are able to make payments between countries faster and easier. In addition to that, such financial instruments as personal and business accounts became accessible from everywhere across Europe. Consumers had the opportunity to use them regardless of the country they were currently in, and they no longer had to change them if they moved within the EU.
Special aspects of SEPA
- EUR payments only.
- Use of the IBAN international bank account format.
- A single set of instruments and standards valid within SEPA.
Main types of transactions
In SEPA, payments are made between businesses, natural persons, and government agencies. The system uses 3 main types of transactions:
- Credit transfer;
- Direct debit payments;
- Card payments.
Payments in SEPA
A significant advantage of such settlements is that the full payment amount is credited to the recipient’s account. The recipient gets the full amount without any additional fees. Thanks to this they know exactly how much money will be credited to their account.
Since 2001, financial institutions participating in SEPA are forbidden to charge fees for crediting a payment. Since 2009, the principle of equal fees has been in force. It binds all financial institutions to apply the same fees for both domestic and international payments in EUR, in particular for:
- Credit transfers;
- Direct debit payments;
- Cash withdrawals from ATMs;
- Debit and credit card payments;
- Cash remittance.
Countries outside the euro area can extend the principle of equal fees to their national currency. Sweden has embraced this opportunity.
In April 2018, a rule was introduced allowing natural persons and legal entities of the EU to make cross-border transfers in euro at a rate similar to the cost of a domestic transfer. The new rules require consumers to be informed about the cost of currency conversion when making payments in a currency other than their home currency.
SEPA advantages
- A single system for both domestic and international transactions.
- Cross-border payments by direct debit: money is withdrawn from an account in one country and credited to another account in another country.
- Natural persons working or studying in one SEPA country can use their account in another country to receive a scholarship or a salary.
- Fast payments when the transaction is processed within 1 day.
- Clear fees.
- Direct debit from any European region allows businesses to automate payments.
- Processing of EUR payments from a single account allows businesses working with exporters and importers to avoid opening accounts in different European countries.
- Use of a single terminal for payment cards allows avoiding financial losses related to processing payment cards of different countries. It also reduces expenses on setup and use of other terminals.
What is SEPA Instant?
SEPA Instant was launched on November, 21, 2017. It is a 24/7/365(6) instant euro payment system with no public holidays or weekends. Unlike transactions in Visa and MasterCard systems, where payments are confirmed immediately but take several days to arrive, the SEPA Instant transactions are instant. According to the regulations, money is credited to the recipient’s account within 10 seconds after being sent.
The conditions of use of the fast payments system in euro are almost the same as those of the regular SEPA. No fees are charged for crediting the payments, but the amount of payment is restricted to no more than 100,000 EUR per transaction.
Using SEPA Instant is quite handy when you need to make fast payments of relatively small amounts. It can be a salary or honorarium, a car purchase, payments for services, or the purchase of products.
The financial instrument uses direct routing from the sender’s account to the recipient’s account. Intermediaries and correspondent banks are not involved in the process. This helps achieve a high speed of transfers.
Geography of SEPA Instant
SEPA Instant as payment instrument is available to customers of financial institutions of EU countries, EFTA, as well as the United Kingdom of Great Britain, San Marino, Vatican, Andorra, and Monaco. As of January 2021, leaders among financial institutions in implementing SEPA Instant were German and Austrian payment institutions.
How is a SEPA Instant payment effected?
In order to effect a SEPA Instant payment one needs the following:
- The recipient’s IBAN.
- Both sender and recipient’s accounts must be connected to SEPA Instant.
The customer automatically accesses SEPA Instant with the bank and/or payment system and/or neobank if it is available at the payment institution. When making a transfer via mobile or online banking, the customer only needs to select the regular SEPA or SEPA Instant.
However, it should be noted that not all payment institutions have access to this system. This is the main obstacle when making fast payments. Parties need to have their accounts opened with financial institutions that have access to SEPA Instant. In order to understand if the recipient’s bank is part of the fast payments system, the sender needs to enter the recipient’s account. Then the system immediately shows if the financial institution operates within SEPA Instant, or not.
SEPA Instant is icing on the cake if we speak about services provided by a financial institution. However, not all banks and/or payment systems and/or neobanks enjoy access to such an opportunity. Therefore, when planning to arrange your business in Europe, it is important to find a reliable partner that will have everything for the fast payments in place, and that will also allow you to control your cash flows remotely. Its banking interface should be self-explanatory and user-friendly.
Our experts can help you find the best solutions and open accounts with Euro area payment institutions that have access to SEPA and SEPA Instant. Please feel free to contact us via online chat or leave your contact information on the request form and we will get back to you as soon as possible.
