Single Euro Payments Area (SEPA)

What is SEPA?

The Single Euro Payments Area initiative (or SEPA), covers all of the EU member states, together with Iceland, Liechtenstein, Norway, Switzerland and Monaco.

SEPA, which came into force in 2014, created a single market for euro-denominated retail payments, allowing payment services users to make cashless, euro-denominated payments to payees located anywhere in the area that it covers under the same basic terms and conditions, using just one payment account and a single set of payment instruments. 

In simple terms, anyone who holds a payment account with a bank or other payment service provider (PSP) located in the countries covered by the SEPA initiative will, regardless of where in SEPA they are themselves located, be able to send euro-denominated payments to, and receive such payments from, accounts anywhere else in SEPA.

The European Central Bank (ECB) has published some useful general background information on SEPA, such as this SEPA Brochure and this short video on SEPA.

SEPA - Brexit Related

The EPC Board, at its 7 March 2019 meeting, has taken the decision to approve the application from UK Finance, the industry body representing the UK banking and financial services sector, for the continued participation of UK PSPs in the SEPA schemes after 29 March 2019 in the event if a no-deal Brexit. For further information, view paper published by the EPC

What does SEPA cover?

Retail payments could perhaps best be described as the normal, 'everyday' payments that we are all familiar with. They are generally of relatively low value, are usually not time-critical and can be made by either companies or private citizens. For example, payments made by consumers to retailers or to utility or media provider would be classified as retail payments.

SEPA Requirements

One of the main objectives of the SEPA Regulation is to be able to make payments in euro with a single payment account and a set of harmonised payment instruments, anywhere in the European Union.  The SEPA Regulation prevents any payee within the Single Euro Payments Area (SEPA) wishing to initiate a SEPA direct debit transaction from specifying where the payer must maintain their payment account; e.g., an Irish company initiating a SEPA direct debit payment cannot insist that the payer open or maintain an Irish bank account for this purpose. 

IBAN only requirement

Under the SEPA Regulation, all PSPs are required to enable all users to unambiguously identify a payment account solely by its International Bank Account Number (IBAN).   ‘IBAN’ means an international payment account number identifier, which unambiguously identifies an individual payment account in a European Union Member State. 

IBAN discrimination is where an IBAN from another SEPA country is not accepted by either the payer or the payee for a direct debit or a credit transfer payment.  IBAN discrimination is a barrier to the smooth functioning of SEPA, thus undermining its benefits, i.e. the freedom to pay from anywhere within the SEPA geographical reach and the freedom to use only one payment account.  All such cases are in breach of SEPA Regulations.

Competent authorities responsible for ensuring compliance

In Ireland, with the exception of cases involving consumers and traders, the Central Bank of Ireland is the competent authority in the State for the purposes of the SEPA Regulation.  The Central Bank of Ireland monitors compliance with the SEPA Regulation and takes all necessary measures to ensure compliance.

The Competition and Consumer Protection Commission (CCPC) is the competent authority in the State where the payee is a consumer and the payer is a trader, and where the payer is a consumer and the payee is a trader.

If you wish to report a suspected SEPA non-compliance please contact the relevant competent authority:  you can contact the Bank at enquiries@centralbank.ie.  Please refer to the CCPC in cases involving consumers and traders:  Competition and Consumer Protection Commission (CCPC).

Supplementary Information

TARGET2 Closure on 1 May- FAQ

What are retail payment methods?

The retail payment methods most used in the euro area are credit transfers, direct debits, payment cards (credit or debit), cheques and cash – the latter two payment methods are outside the scope of SEPA as it only covers electronic payment methods.

Credit transfers

A credit transfer is a payment initiated by the payer. The payer issues a payment instruction to his/her PSP (typically a bank). The payer’s PSP then moves the specified amount to the payee’s PSP. 

Direct debits

Direct debits are typically used for recurring payments such as utility bills. A direct debit payment is initiated by the payee via its PSP. A direct debit requires the consent of the payer, given to the payee in the form of a mandate. Direct debits can also be used to make ‘one-off’ payments, but this practice is not widespread in Ireland. 

Payment cards

Payment cards exist in two basic types – debit cards and credit cards. Debit cards allow the cardholder to charge purchases directly to his/her bank account, while credit cards provide the cardholder with a certain credit limit, within which he/she can make purchases. The cardholder can either pay off the balance in full by the end of a specified period or just pay part of the outstanding balance and take the remainder as extended credit (on which interest must be paid).

The legal background to SEPA 

Implementation of the SEPA concept required a common legal framework covering retail payments to be put in place in all participating countries. This legal framework ensures that the terms and conditions applicable to SEPA payments are the same regardless of the countries in which the parties involved in any transaction are located. The legal framework underlying SEPA takes the form of EU Directives and EU Regulations.

The principal EU legislation covering SEPA is Regulation (EU) No. 260/2012 (its full title is Regulation (EU) No. 260/2012 of the European Parliament and of the Council establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009), which set 1 February 2014 as the deadline in the euro area for replacement of national credit transfer and direct debit payments with SEPA equivalents (although this was subsequently postponed to 1 August 2016); the deadline for non-euro area member states was 31 October 2016.

Regulation (EU) No. 260/2012 also requires the use of common standards and technical requirements, such as the use of IBAN and the ISO 20022 XML financial services messaging standard for credit transfer and direct debit payments in euro. In addition, Regulation (EU) No. 260/2012 amends and replaces some of the provisions contained in the earlier Regulation No 924/2009, for instance by extending that Regulation’s equal charging principle for cross-border and national payments in euro to all transactions, irrespective of the payment amount.

The Payment Services Directive (generally referred to as the PSD – the full title is Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and repealing Directive 97/5/EC) is also relevant in the context of SEPA. The purpose of this Directive was to harmonise the laws covering payment services in EU member states, particularly with regard to (a) the rights and obligations of PSPs and consumers and (b) facilitating greater pan-European competition and participation in the payments industry.

The SEPA payment schemes

Currently, at a practical level, SEPA comprises two payment schemes, the SEPA Credit Transfer Scheme (or SCT) for credit transfer payments and the SEPA Direct Debit Scheme (or SDD) for direct debit payments.

Both SEPA payment schemes were developed, and are owned, by the European Payments Council (or EPC). The EPC is an alliance of European banking/payments industry representative bodies, which was established in 2002 to deliver SEPA. The EPC’s constitution gives it decision-making status on behalf of its payments industry members. The EPC draws its representation from the three categories of banks in Europe – commercial banks, savings banks and co-operative banks. 

Each of the SEPA payment schemes has a rulebook that sets out the applicable rules for participation and the technical standards for the execution of SEPA payment transactions. These rulebooks are updated annually (in November) following a public consultation process, and the current versions must be followed by all users and participating PSPs. The SCT and SDD rulebooks are essentially instruction manuals that provide a common understanding among all interested parties on how to move funds from one account within SEPA to another.