Monday, December 04, 2023

How SEPA Can be A Learning Opportunity For The World

A glass jar holds some coins and a small branch of leaves.
Photo by micheile dot com on Unsplash

Of late, everyone’s been talking a lot about diversity and inclusion. An inclusive culture is of utmost importance because it provides a wide array of perspectives and experiences and provides us an opportunity to learn from each other.

But most importantly, what it does is — it gives us a sense of belonging.

But a newer aspect of inclusion, which is a relatively new topic and hasn’t got that much of a focus is — financial inclusion.

What is financial inclusion?

Financial inclusion, very simply put, means access to affordable financial products and services, like payments, savings, transactions, credit, and so on, that meet everyone’s needs.

According to World Bank, financial inclusion —

“facilitates day-to-day living, and helps families and businesses plan for everything from long-term goals to unexpected emergencies.”

The need for financial inclusion

Let me give you an example.

A small potter in a rural setting might find just a savings account sufficient to meet their specific needs at a certain point in time.

In contrast, another person in a big city might run a hotel and may need a larger variety of financial services, such as the ability to accept non-cash payments from their customers, in different currencies, a savings or investment account, or probably some form of credit.

While the need and use may vary for these two people, the fact that both of them have access to affordable financial services according to their needs would regard both households as “financially included”.

Sounds simple, right? But, you would be surprised to know how many people in the world still don’t have an access to a bank account. A recent study by FDIC (Federal Deposit Insurance Corporation) says:

An estimated 5.4 percent of U.S. households (approximately 7.1 million) were “unbanked” in 2019, meaning that no one in the household had a checking or savings account at a bank or credit union (i.e., bank).

Mind you, this is just a statistical report about one of the world’s most developed countries.

Now imagine that potter in the rural setting trying to sell their products to an international audience through their website. Here comes the benefit of digital transactions, which makes financial inclusion easier to achieve.

The more the world became digitally connected, the more the need to be able to do international transactions became a priority, and so was the ability to do transactions in different currencies. This became a more intricate problem in Europe.

This is why SEPA came into being. You may have heard of it, but what does it actually do?

What is SEPA?

SEPA is an acronym for Single Euro Payments Area.

The SEPA transfers offer you an effortless, quick, and safe way to send and receive payments in euros within Europe.

It offers a uniform technical, legal, and price structure for cross-border payments. This makes cross-border cashless payments in Europe as easy as making your usual domestic bank transfers.

The key goals of SEPA are to:

  • Simplify & speed up cross-border payments handling.
  • Introduce common standards to reduce processing overheads.
  • Reduce charges for cross-border transactions and promote EURO as a common currency.

Why was SEPA introduced?

As you might know, Europe consists of some very large to some very small, including the smallest country in the world — the Vatican.

Before the euro was introduced in 1999, all these countries had their own currencies. Many of them still use currencies of their own. Now, think about living and doing business in Europe.

In 2008, the European Central Bank initiated the SEPA project to create “an integrated retail payments market which is competitive and innovative, for all payments in euro”.

SEPA is seen as the natural progression to the introduction of the Euro, and a major step in making all of Europe a ‘single market.

Which countries are included in SEPA?

There are currently 36 member states in the SEPA zone:

  • 27 European Union (EU) member states
  • Four microstates — Vatican City, San Marino, Monaco, and Andorra
  • Four countries from the European Free Trade Association (EFTA) — Liechtenstein, Norway, Iceland, and Switzerland
  • The UK

You can find here a detailed list of all the countries in the SEPA zone that use the euro as their main currency and that do not.

How does SEPA work?

To make a payment through SEPA, you just need an account that allows you to transact in euros and the IBAN (International Bank Account Number) of the recipient, and occasionally the BIC (Bank Identification Code).

There are four types of SEPA transfer These are:

  • SEPA Credit Transfer
  • SEPA Instant Credit Transfer
  • SEPA Direct Debit for B2B
  • SEPA Direct Debit for consumer

SEPA Credit Transfer

This is transferring money from one bank account to another account within the SEPA region.

If you want to send money to someone within the SEPA zone, all you have to do is know your recipient’s IBAN (sometimes BIC too), and transfer the money using your bank’s application just as you would do for a domestic account.

The process is usually fast — takes one or at the most two business days.

SEPA Instant Credit Transfer

As the name suggests, it indeed takes a fraction of the time for SEPA Credit Transfer — as less as just 10 seconds for the payments to reach the recipient’s account.

This process involves direct routing from the sender’s bank to the recipient’s bank, hence the service is so fast and available 24/7.

There’s only one catch though — if you want to send money through SEPA Instant Credit Transfer, both your and the receiver’s banks must be registered as SEPA Instant members.

SEPA Direct DEBIT for individuals

This is more for recurring payments like monthly rent, energy bills, mortgage installments, internet bills, and so on.

It works slightly differently than credit transfers as the recipient must request you to allow the money to be withdrawn and you must sign a contract or mandate that allows the recipient to receive that money from you on a recurring basis.

Transferring payments through this process takes around two business days.

SEPA Direct Debit for B2B

This option works in a similar fashion as in the SEPA Direct Debit for individuals but this works only between businesses.

This process may take a slightly longer time, around three business days.

Is SEPA the only option?

Honestly speaking, SEPA is a much newer concept compared to SWIFT, which was set up in 1973.

SWIFT is an acronym for the Society for Worldwide Interbank Financial Telecommunications, and similar to SEPA is another method of cross-border money transfers.

There are some advantages of SWIFT over SEPA such as:

  • Geographical scope: SWIFT supports 11,000 banks, financial institutions, and corporations in 200 countries across the world. SEPA is limited to 36 countries in Europe.
  • Currencies: SEPA exclusively supports Euro as the common currency. SWIFT supports the national currencies of all member nations.

But there are indeed some limitations as well, such as:

  • Fees: SEPA mandates that the cross-border transaction fee be the same as the domestic transfer fee. SWIFT fees, on the other hand, are based on the different networks that are involved in the transactions and can be quite high.
  • Information: SEPA simplified transfer by using only the recipients’ account number (IBAN), and occasionally BIC. On the other hand, SWIFT requires additional information about the recipient (name, address, account number) and the bank (name, address, BIC).

These advantages of SEPA over SWIFT, namely affordability and ease of use have made SEPA quite popular and convenient.


SEPA was created to harmonize and standardize the process of digital payment solutions in Europe. Its goal was to create a process where a financial transaction is not a hassle, instead, it’s accessible, simple, convenient, efficient, and most importantly, affordable.

Planning a trip, living, working, or doing business within Europe feels like a domestic affair — a world without borders.

Now a craftsman or trader in Bulgaria or remote Andorra can sell their products to, say, someone in the Netherlands or Sweden with just a click of a mouse or a tap on a mobile phone.

This is how financial inclusion has been made possible.

Back To Top