In order to simplify bank transfers in Euro, the European Union created the Single Euro Payments Area (SEPA).

Update: Oct 2015

SEPA enables consumers and traders within the EU to make cross-border payments as easily as domestic payments.

Therefore, it is possible to have one bank account for all payments across the EU. However, it is not only the 28 member states of the EU participate in this cross-border project, but also Iceland, Liechtenstein, Norway, Switzerland, Monaco, San Marino and – as of 2016 – Andorra.

The initiative’s goals lie mainly in the integration of the euro payments market, which, of course, includes a harmonisation of monetary transaction structures for electronic euro payments. Therefore, European authorities aim to integrate  the many existing national credit transfer and direct debit schemes into a single set of European payment schemes.

In January 2008, European authorities introduced the SEPA Credit Transfer (SCT) Scheme. The SEPA Direct Debit (SDD) Scheme followed in November 2009.

What’s the difference between SEPA Credit Transfer and SEPA Direct Debit?

You should use the SEPA Credit Transfer if you plan to transfer money from your account to the account of a beneficiary (push payment). If you want to authorise a beneficiary to take money from your account, you should use SEPA Direct Debit. 

Nevertheless, in both cases you need to indicate an international bank account number (IBAN) – either your own (in case of a direct debit) or the beneficiary’s (in case of a credit transfer). If the IBAN belongs to a German bank account, it consists of 22 digits. Nevertheless, this number differs depending on the home country of your bank account.

In addition to the IBAN, you also have to note a Business Identifier Code (BIC) if you want to conduct a cross-border transaction. The BIC indicates which bank the respective IBAN belongs to and is necessary until at least February 2016. You can find your own IBAN and BIC on your account statement, and – on rare occasions – even on your bank card.

The Credit Transfer Scheme

Do you plan to execute a SEPA Credit Transfer? First of all, you should ask your bank if there is any particular transfer form you have to use. Also be sure to properly indicate the IBAN, BIC, and name of the beneficiary. If you make an error that leads to an incorrect credit transfer, it is unlikely that you will get your money back.

A trans-border credit transfer in euro, Swedish Krona or Romanian Leu within the countries mentioned above may not be charged more than credit transfers within one single country. Also, the respective amount is supposed to be transferred within one working day. If you plan to execute a credit transfer which undergoes a currency conversion, or towards a country that isn’t part of the Single Euro Payments Area, be careful! This kind of transfer probably goes hand in hand with increased charges.

The Direct Debit Scheme

The SEPA Direct Debit Scheme is meant to be a payment instrument which can be used for both domestic and cross-border collections. Typically providers of insurances, electricity, gas, telephone or internet only accept direct debits. If you want to execute such a transaction, you not only have to inform the provider about your IBAN and BIC, but also sign a letter of agreement.

The Single Euro Payments Area allows two different types of direct debit – either core schemes (for example from a consumer to a company), or business to business schemes (B2B). In contrast to business to business schemes, core schemes are susceptible to return remittances, within eight weeks.

Up until 2009, in the event of cross-border issues, most consumers had to create a bank account in the second country, for example to pay running costs for a holiday home in another European country. With SEPA, this has changed! Generally, direct debits can also be executed across European borders.

A trans-border direct debit in euro, Swedish Krona or Romanian Leu within the countries mentioned above may not be charged more than direct debits within one single country. Nevertheless, even though EU-law enables direct debits and all German banks offer cross-border transactions, some companies might still go against these new practices.

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