SEPA Payments Schemes


Payments Scheme:

Getting right to the topic, SEPA has 4 payment schemes

  1. SEPA credit transfer (SCT)
  2. SEPA instant credit transfer (SCT Inst)
  3. SEPA direct debit core (SDD core)
  4. SEPA direct debit business-to-business (SDD B2B)

Every year 43 billion transactions are processed by PSPs that fall in either one of these schemes. Yes, it was not a typo, the number is correct. SEPA is HUGE. Before we go into the details of the payment schemes, let us understand what a payment scheme is?

 “A payment scheme is a set of rules which PSPs have agreed upon to execute transactions through a specific payment instrument (such as credit transfer, direct debit, card, etc). It is different from a payment system, which is a technical infrastructure that processes transactions in line with the rules defined in a payment scheme.” – EPC

Basically, it is a set of rules.

Let us now talk about the 4 payment schemes mentioned above.

SEPA credit transfers (SCT)–

SCT is the electronic payment from one bank account to another bank account. The account holders are the customers of the bank. More details on the types of customers in this link. These electronic transfers can be a one-time payment or a recurring payment like a standing order. (An example of a standing order can be monthly rent that the customer schedules to be paid on a particular date). SCT scheme also included single payments (You sending money to your friend) or bulk payment (A payment that contains the salary of a company’s employees which will have a single debit(Company’s account) and multiple credits (Employee accounts)).

All credit transfer payments in the European Economic Area have to follow the rules defined in this scheme. It is mandatory. These rules are published every year by the European Payments Council(EPC) and they get updated each year,

Reminder – We have discussed in detail credit transfer payments in our introductory articles.

SCT went live in Jan 2008. This was the first payment scheme to go live as far as SEPA is concerned. This slowly replaced all the national level credit transfer schemes and by 31st OCT 2016 all banks had to make a switch to SCT.

SEPA Instant Credit Transfer (SCT Inst)

SCT Inst is a payment scheme where the entire payment flow needs to be completed in 10 seconds. SCT Inst is the instant payment system in the Single Euro Payment Area. Unlike SCT, this scheme is not mandatory for PSPs. This scheme went live in Nov 2017.

If you are reading this from India then instant payments are very common over here, but it is not the case with other countries. It is to be noted that 1/3rd of all the instant payments in the world is done in India.

More and more PSPs/banks are adopting this scheme as there is a huge demand in the market for these types of payments.

SEPA direct debit core (SDD core)

This is definitely a new term that has not been discussed on this website so far “Direct Debit”. We will of course discuss this scheme in detail in the upcoming articles, but for now, just think of it as the opposite of a credit transfer.

You may ask “Opposite!! How?”

If I had to explain it in two lines I would say “In a credit transfer the debtor initiates the payment and the creditor receives it. In a direct debit, the creditor will initiate the payment and request funds from the debtor”

Businesses that use this scheme request funds from the bank account of customers each month. An example that I can think of is the payment of electricity bills. The power company will initiate the payment and your account will be debited. This went live in Nov 2009. Participation in this scheme is mandatory if you are a PSP in the European Economic Area from 31st Oct 2016.

SEPA direct debit B2B (SDD B2B)

This is the same as SDD Core but for business ie. one business (the creditor) initiating a payment to another business (the debtor). We will see about this later as conceptually it is the same as SDD core and the major difference lies in the refund rights. Participation in this scheme is also optional. It went live in Nov 2009.

You might have an observation at this point about how I highlight only high-level information in this article. This was intentional. I understand that a lot of the readers are quite new to the payment domain (Not this website but the actual domain 😊) and I want to provide only bite-sized information. The next article will be about the different payment messages that will be used in these schemes.

If you have any questions then please post it in the comments section below and I will answer the same. You can also contact me via. LinkedIn.

PSP – Payment service provider

Blog Comments

Hi Santosh,
I understand that SEPA is for Euro currency and for the EEA region. So all EURO FT happen thru SEPA or is there any other method..?

Within the SEPA region, all Bank account to bank account customer transfers and direct debits can only be done via SEPA.Please refer to my previous article on SEPA for more details.

Leave a Comment