SEPA Payments: Understanding and Processing Schemes

There’s a unanimous agreement among all Indian businesses today: Europe is a market that is too big and lucrative to be ignored. It’s a geography where growth opportunities span borders, and customer bases can expand rapidly. 

In such a lucrative landscape, one factor can decidedly determine the speed at which you scale: how quickly and efficiently you get paid. 

You could be a SaaS company looking to scale fast, or an exporter moving sending goods to new geographies, receiving payments quickly and easily is a mission-critical goal. 

That’s where SEPA payments come in. SEPA (Single Euro Payments Area) is a scheme that simplifies euro transfers, making them faster, cheaper, and more reliable within Europe. While India isn’t part of SEPA, and Indian businesses cannot receive SEPA payments directly, many European customers prefer this payment method. 

In this guide we will explore what SEPA Payments are, how they work, their different schemes, and the intermediary solutions like Xflow available for Indian businesses to receive SEPA payments and easily convert them to INR. 

• SEPA payments are a popular payment rail in Europe that standardizes euro transfers across 41 countries. They offer predictable timelines, low fees, and consistency. They eliminate the complexity of traditional cross-border transactions across European countries and reduce transaction costs. 

• SEPA has 4 major payment schemes. These include credit transfers, direct debits, B2B direct debits and instant credit transfers. Each of these cater to different payment needs and also operate on different terms and conditions. 

• SEPA transactions are governed by compliance frameworks, such as the EPC Guidelines, PSD2, GDPR, and AML/KYC. This ensures that all transactions are secure, transparent, and compliant with legal requirements.

• Indian businesses cannot accept SEPA payments directly in Indian bank accounts. Such transfers are treated as international wires, incurring SWIFT charges and FX markups unless routed through payment platforms like Xflow that create local receiving accounts to simplify the process.

A SEPA (Single Euro Payments Area) payment is a type of euro-dominated bank transfer. It is available only to the countries that are a part of the SEPA network, which currently comprises 41 nations. This network includes all 27 EU member states, three EEA countries, and 11 non-EEA countries. 

The payment integration initiative was established by the European Payment Council (EPC) and is regulated by the European Central Bank (ECB). The former is a not-for-profit organisation that works on developing, standardising, and managing payments to facilitate seamless transactions across Europe. The latter frames, implements, and manages policies related to the euro, as well as the EU’s economic and monetary policy. 

Under these entities, SEPA allows businesses and individuals to make domestic and international payments under the same conditions, regardless of national borders.

Previously, before SEPA, sending money from, say, Germany to France was a complex international transaction. Now, it’s treated just like a local transfer.

For your business, this standardisation translates directly into three major advantages: 

• Quicker payment settlements for better cash flow
• Predictable costs for every transaction
• Simplified accounting due to uniform data formats.

Every bank account in the SEPA region is assigned a Bank Identifier Code (BIC) and an International Bank Account Number (IBAN).

Just as domestic transfers, which use the CHAPS and BACS networks, require the bank account numbers of both the sending and receiving parties, along with their sort codes, to complete a funds transfer, SEPA transfers require the IBAN identification codes of all European accounts involved in the transaction.

To make a SEPA payment the sender needs to provide the recipient’s IBAN. The bank then verifies the details and routes the payment through the SEPA network. 

Here’s a step-by-step breakdown of the process of making a SEPA payment: 

1. Initiation: The sender provides the recipient’s IBAN and initiates the transfer via their bank or provider.
2. Verification: The sender’s bank verifies the details and routes the payment through the SEPA network.
3. Processing: The SEPA network validates and processes the transaction according to standardized rules.
4. Settlement: Recipient’s bank credits the funds, within one business day or seconds for SEPA Instant.
5. Confirmation: Both sender and recipient receive confirmation, completing the transaction.

SEPA offers four main payment schemes: Credit Transfers, Direct Debit, Direct Debit B2B, and Instant Credit Transfers. Here’s a quick overview of how each of these different payment schemes under SEPA work: 

• SEPA Credit Transfers: These are one-time fund transfers between banks that both have IBAN (International Bank Account Number) codes. Commonly used for consumer purchases in SEPA countries, these transfers are conducted in euros. 

If your business is not based in the SEPA, you won’t be able to transfer money using this mode. That’s because financial institutions on both the sending and receiving sides must be located in SEPA countries. 

• SEPA Direct Debit (SDD): SEPA Direct Debit (SDD) allows businesses to collect euro-denominated payments directly from customer bank accounts. It requires a customer's authorization through a SEPA Direct Debit mandate, which grants the business (creditor) the right to debit the customer's (debtor) account.

• SEPA Direct Debit B2B: As the name suggests, this scheme is specifically designed for business-to-business (B2B) payments, enabling business owners to collect payments from other businesses electronically. 

• SEPA Instant Credit Transfer: Unlike most transfers between accounts, which require submitting a transfer request and waiting anywhere from a few hours to several days for the payment to be settled, SEPA Instant allows real-time transfers of up to €100,000. 

This method permits any two account holders in the SEPA region to complete euro-based transactions at any time and on any day, almost immediately. In fact, 99% of all SEPA Instant Credit Transfers are completed within five seconds and can be made using smartphones.

SEPA payments usually take around one business day to be settled. That said, processing times differ based on the payment scheme used. Here’s a breakdown:

• SEPA Instant Credit Transfers: Completed in under 10 seconds.

• SEPA Credit Transfers: Settled within one business day. If the transfer is made after your bank's cut-off time or on a public holiday, it will be processed on the next business day. 

• SEPA B2B Direct Debit: At least three business days.

• SEPA Core Direct Debit: Typically takes 1-2 business days (depending on whether the transaction is sent before the cut-off time).

Like most payment infrastructures, SEPA payments are a sum of many components that work together to make transactions feel fast and effortless. 

Here’s a rundown of those key moving parts: 

• IBAN: Every bank account within the SEPA has an associated International Bank Account Number (IBAN), used to identify both the sender and receiver’s accounts during a funds transfer

• BIC: In some cases, the sender may also need the Bank Identifier Code (BIC) (also known as a SWIFT code) to complete the payment. It is a standard code that banks use to communicate with each other during international transactions.

SEPA payments support a range of use cases across various industries. For starters, fintech platforms can use them for instant euro transfers and digital wallets. 

E-commerce businesses can benefit from the fast, low-cost cross-border settlements, which make it easier to accept customer payments. 

Freelancers who have their clients spread across Europe don’t have to worry about excessive transaction and bank fees every time an invoice is raised. 

The same goes for enterprises managing large-scale European clients, who can now easily standardize their payments for quick and reliable payouts. 

SEPA Credit Transfer processes one-time euro payments in up to one business day, SEPA Instant settles transfers within seconds, and SEPA Direct Debit supports recurring or authorized debits from customer accounts across SEPA countries.

Here’s a detailed comparison: 

Like SEPA, SWIFT is another payment infrastructure that allows businesses to receive cross-border payments. But that is where the similarity ends. 

Here’s the breakdown of all the differences between the two payment systems.

SEPA payments make euro transfers cheaper, faster, and more predictable. They cut down costs compared to wire transfers, speed up settlements, reduce errors with standardized formats, and simplify reconciliation for businesses handling payments across Europe.

Cost-Effectiveness

A SEPA payment typically costs the same as domestic transfers, which are often free or incur a measly sum of €0-€1.

This is a significant improvement over conventional international wire transfers, which can set you back by €15 to €50 per transaction. That is excluding the intermediary bank fees. If you’re a business or freelancer that deals in multiple monthly payments, these savings can be huge. 

Faster, More Predictable Payments

SEPA payments follow fixed settlement schedules, unlike traditional international wire transfers, which often sit in intermediary banks for days. For example, standard credit transfers under SEPA take one business day to be settled, while instant transfers are completed in just seconds. For businesses, this predictability means better cash flow management, which can be crucial if they’re looking to scale fast. 

Enhanced Transparency & Reduced Errors

SEPA’s standardized format significantly reduces the room for errors. IBAN validation ensures that account details are correct, while structured data minimizes the likelihood of data loss during processing. The result is fewer failed transactions, less admin work, and happier customers. Smooth payments the first time around save time, build stronger business relationships, and eliminate the hassle of follow-ups.

Simplified Reconciliation

The standardized data fields used in SEPA payments facilitate the easy matching of payments with invoices. This consistency ensures smoother reconciliations for businesses with clients across Europe. It enables them to process all SEPA transactions using the same procedure, regardless of the country of origin. 

As an Indian business, opening a Euro bank account directly in Europe is difficult. It usually requires local incorporation, proof of address, directors, tax compliance, etc. If you do open one, you could receive SEPA payments locally without FX or SWIFT costs. You’d then later convert or remit the money to India when you choose.

This has its drawbacks: 

• Euro bank accounts are expensive to maintain (minimum balance, compliance, tax filings in that country).

• Complex regulatory overhead (you’d have obligations in both India and Europe).

• Not practical unless you already have a subsidiary in Europe.

There are alternatives to this like Xflow that give you a virtual Euro IBAN account without you needing to open a European entity or bank account.

Indian businesses encounter several hurdles when trying to access SEPA payments:

• No Direct SEPA Access via Indian Banks

As India is not part of the SEPA countries, most Indian banks don’t support SEPA transfers natively. As a result, businesses must use traditional SWIFT remittance paths, which are slower and more expensive than SEPA.

• Mandatory Use of Third-Party Providers

To bridge this gap, Indian businesses often rely on payment platforms like Xflow, which offer virtual euro accounts that can receive SEPA Payments without a Euro account. Without these, SEPA remains inaccessible.

• High Foreign Exchange Markups and Hidden Fees

Even with intermediaries, conversions into INR are subject to markup and processing fees, which may not always be transparent. This results in unpredictable costs and reduced margins.

• Lengthy Settlement Times via Traditional Channels

If you opt for alternative methods, such as SWIFT, transfers can take several days (typically 3-5 business days, sometimes up to a week).

To ensure SEPA payments remain safe and secure for all parties involved, there are a lot of guidelines and regulations that banks and financial institutions need to comply with, including: 

• European Payments Council (EPC) Rulebooks: These rulebooks define the standards for various payment schemes under SEPA, which are updated every year.

• PSD2 (Payment Services Directive 2): This is an EU law that regulates digital payments and enforces strict rules associated with customer authentication, secure APIs, and transparency. 

• GDPR (General Data Protection Regulation): Since every SEPA payment involves personal and financial data, GDPR makes sure this information is handled responsibly. Banks and financial institutions must clearly explain how they use customer data, protect it in accordance with strict privacy rules, and face penalties if they fail to comply.

• AML (Anti-Money Laundering) & KYC (Know Your Customer): To keep the financial system safe, banks and payment providers must verify who their customers are and continuously monitor transactions. These checks prevent fraud, money laundering, and terrorist financing, while also ensuring alignment with broader EU laws and international FATF standards.

SEPA only works within Europe. If a European client tries to pay you directly via SEPA, you would need a European bank account to receive those funds.

Xflow gives your business a virtual Euro IBAN (like a local European account) through the Receiving Accounts feature without you needing to set up a bank in Europe. This way, clients in Europe can pay you via SEPA and you can receive those payments in INR in India. With Xflow, all charges are made clear upfront, so you can rest assured that there will be no last minute deductions from your payment. 

On top of that, Xflow’s AI-powered FX Analyst monitors how FX rates change and helps you convert your euros to INR at more favorable rates. Every foreign payment needs RBI and FEMA documentation, and managing this manually can be error-prone. Xflow automates it for you, generating FIRCs and keeping everything audit-ready without extra effort on your part.

Moreover, Xflow’s infrastructure complies with ISO 27001 and SOC 2 certifications, which are aligned with RBI (post-clearance) guidelines. 

In addition to providing a convenient way to receive payments, Xflow also integrates well with your existing financial systems.

Through our API-first approach, we enable businesses to integrate SEPA payments with their existing ERP, treasury, invoicing, and accounting tools, facilitating the automated receipt of payments, reconciliation, and reporting. 

Businesses can issue invoices, generate payment links, and auto-match SEPA transfers without manual effort. Real-time tracking, transparent FX, and automated compliance checks ensure accuracy and efficiency. This seamless linking reduces operational workload and helps finance teams manage euro payments with greater control.

In a nutshell, Xflow replaces the friction associated with SEPA payments with efficiency, providing local euro collection capabilities, instant visibility of FX conversions, and rapid settlements, with compliance built into every step. 

For global businesses, that means fewer headaches and a lot more confidence when receiving euros across borders.

Start receiving SEPA payments in India without hidden fees. Open your Xflow account today.