Last reviewed 12 April 2012

SEPA and IBAN may not mean a great deal to businesses at the moment but MEPs passing a proposal to make cross-border bank transfers faster, cheaper and safer are sure that they will, writes Paul Clarke.

The single Euro Payments Area (SEPA) Regulation lays down common rules and standards for euro credit and direct debit transactions between banks. It does not apply to personal credit or debit card payments. Requiring banks to comply with SEPA rules will enable their clients to use one bank account to make euro payments to and from all participating countries. To this end, the rules will ensure that euro credit transfers or direct debits that are possible within SEPA countries are also possible across frontiers between them. The legally-binding deadline for banks to migrate to the new standards is 1 February 2014. "All account users stand to gain, because international competition among service providers should drive down prices," the European Parliament was told. "Increased competition among banks to supply services should also help to cut today's inflated costs, and where costs are already low, they should remain so."

SEPA covers payments made in or between the 27 EU Member States plus Iceland, Liechtenstein, Norway, Switzerland and Monaco.

Benefits to businesses

Firms will be able to set up cross-border direct debits in euro between two bank accounts anywhere in the Union, enabling them to bill customers regularly across borders. By eliminating multilateral interchange fees on cross-border direct debits as of this year, the regulation will enable businesses to establish their payment centres in any Member State. They could also organise all cross-border euro payments from a single euro account in a country of their choice in order to improve money management and speed up cash flows at lower cost. SEPA payments can be made to or from any euro account that is held with a bank located in the area. It is not necessary that the payer and/or the recipient of the payment have an account in a SEPA country that has already adopted the euro as its national currency. The key point is that the account is denominated in euro.

Businesses will enjoy common standards, faster settlement and simplified processing that will improve cash flow, reduce costs and facilitate access to new markets. There will be a wider choice of payment services providers and faster and more efficient processes, as well as greater transparency. Over the medium term, lower fees can also be expected.


SEPA is an initiative of the European banking industry, supported by the European Commission and the European Central Bank (ECB). The European Payments Council, the banking industry’s decision-making body in relation to SEPA payments, has established rules for SEPA Credit Transfers and SEPA Direct Debits as well as a framework for card payments. Individual banks remain responsible for migrating their customers from existing national payment instruments to the new payment products.

From a consumer viewpoint, the only real requirement for migrating to SEPA is to use IBAN (International Bank Account Number) instead of the domestic bank account number (BBAN) and the domestic bank sort or branch code, when identifying accounts for payment purposes. In addition, for a temporary period, consumers may be asked to provide the BIC (Business Identifier Code). SEPA is an integrated payment system and therefore requires a common method for identifying bank accounts across countries. IBAN is straightforward, being built up in the same way for every Member State. It corresponds to the existing national bank account number and (sometimes) a national bank sort code preceded by two check digits and the international two character ISO (International Standards Organisation) country code (eg GB or DE).