SEPA 101

Common characteristics of a SEPA payment

Victor Mithouard
September 2022
min read

SEPA payments are highly standardised, with scheme rules set by the European Payments Council (EPC) and updates released every year. Though every SEPA scheme has unique characteristics, there are five characteristics common to every SEPA payment.

Euro as the sole currency

All SEPA payments are made in euros. The euro was introduced in 2002 as a single currency and is currently the official currency of 19 countries and more than 350 million citizens. It is the second most used currency in the world, after the US dollar and before the Chinese yuan.

IBANs as account identifiers

IBANs (for international bank account numbers) are used to normalise account numbers across more than 80 countries, including the 36 countries that form the SEPA zone. However, several major countries including the US, Canada, Australia, China, and Japan are yet to adopt IBANs.

SEPA payments use IBANs as the sole way to identify debtor and creditor accounts. IBANs are meant to facilitate account identification, payments, and international trade by using a common syntax and format. The IBAN format is defined by the ISO 13616 standard. IBANs always start with a two-letter country code, followed by two check digits, and end with the BBAN (basic bank account number).

Both SEPA direct and indirect participants can issue their own IBANs and open and hold accounts in the name of their customers. PSPs often see issuing their own IBANs as a way to further strengthen their brand as well as customer relationship.

The length of an IBAN depends on the country. Some countries can be chatty (such as France, with 27 characters), while others can be more straight to the point (such as Belgium, with 16 characters). IBAN formats per country can be found in the appendixes of this guide.

Although the syntax of an IBAN can be verified using a basic algorithm, there is no built-in mechanism in SEPA to verify that the account exists and can be used for a given payment. A SEPA payment to a valid IBAN can therefore result in a rejection or return, for instance, if the account has been closed, does not exist, or is not compatible with the payment method used.

BICs as bank identifiers

Bank identifier codes (or BICs) are used to identify PSPs across the SEPA zone. BICs are registered and managed by SWIFT, a global financial messaging network.

The BIC code structure is specified by the ISO 9362 standard. BICs take the form of eight (also called BIC8) or eleven (also called BIC11) characters. A BIC8 identifies a PSP in a given country or city, while a BIC11 identifies a PSP’s exact branch. The BIC usually includes the PSP shortened name in the bank code.

The IBAN already contains the BIC’s information and it is unnecessary to provide the BIC separately to send or receive a SEPA payment.  

Full amount

No fees can be deducted from SEPA payments. The amount sent is always equal to the amount received. If a fee is to be applied to the payment it results in a separate fee on the creditor’s account, the debtor’s account, or both.

Cut-off times

Just as any other business, banks also close their doors at certain times, whether it is during evenings and nights, weekends, or some holidays (hence the term “bank holiday”). Banks, CSMs, and central banks publicly list their opening and closing hours so that their counterparties can adapt. The moment a bank or financial institution stops processing new payments for the day is referred to as the “cut-off time”. Banks use closing hours to close books and perform technical maintenance operations.

Cut-off times are usually expressed in a given timezone. For instance, the ECB’s TARGET2 cut-off time is 5pm CEST. Every bank connected to a CSM enforces cut-off times with their own customers so that banks can process payments orders with other banks and CSMs, and close books for the day.

Real-time schemes and the corresponding CSMs, such as TIPS for SEPA instant credit transfer payments, usually run 24 / 7 / 365 and are not subject to cut-off times, except for punctual planned maintenance operations.

Integrating SEPA payments in your payment operations

While SEPA payments are highly standardised, integrating SEPA payments into payment operations can be a complex and time-consuming process. 

At Numeral, we developed a single API sitting on top of your banks to integrate SEPA into payment operations and accelerate the development of new payment products. You can talk to one of our Payments Advisors to learn more about Numeral.

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