How Do European Bank Payments Work?
Europe Has Gone Through Multiple Transformations in the Bank Payment Space
While the EBA (European Banking Authority) is providing unified guidance to local regulators in the SEPA (Single Euro Payment Area) region, the market is still fragmented in terms of bank usage.
Those regulations were mostly provided with PSD 1 and PSD 2. PSD 1, issued in 2007, was mostly determining the creation of the SEPA region, the SEPA harmonized formatting system and regulating cross border pricing. PSD 2, issued 2018, which will be enforced by the end of 2020, is mostly regulating customer protection with SCA, Open Banking, forcing banks to expose APIs to get access to bank account balance and past transactions to licensed payment initiation or account information service providers.
This Page Provides an Overview of the Payment Options Available in the Region
- SEPA: Single Euro Payment Area
- PSD 1 & 2: Payment Service Directive – European payment regulation around pricing, customer protection and technology harmonization –
- EBA: European Bank Authority – European regulatory body which drafted PSD 1 & 2
- SCA: Strong Customer Authentication – Customer protection regulation enforcing two factor authentication
- ACH: Automated Clearing House – Clearing system local, regional or International
- IBAN: International Bank Account Number – Bank account unique identifier
- SCT & SDD: SEPA Credit Transfer & SEPA Direct Debit
The Different European Bank Payment Mechanisms
Direct Debit: Ability to pull funds from a Bank Account. This payment method requires to prove consent from the consumer by collecting a mandate. The mandate responsibility is on the merchant but some providers are providing service to ease this for the merchant. Available ACH in Europe are mostly BACS in the UK and SEPA mostly for Euro markets.
Credit Transfer: Transfer funds to another bank account. This is a simple wire going through local ACH. In the SEPA, almost each country has kept its local ACH system but they are all using the same xml 20022 protocol. UK has Faster Payment, a Vocalink (MasterCard company) product, an instant payment scheme and their legacy system BACS.
Bank Redirect: Payment option redirecting the user to its mobile / online banking to authenticate and validate a credit transfer to the merchant. Multiple solutions exists.
Open Banking Payment Initiation: Sub Bank Redirect payment option enforced by PSD 2. By the end of 2020, all SEPA region banks will need to make available to license providers (PISP) APIs enabling payment initiation. The experience will be similar to Bank Redirect with a mobile / online banking authentication.
APM based on Bank Accounts: There are multiple local payment methods usually based on bank redirect or a national unique identifier like Swish. A few of those are P24, Sofort, and Giropay.
Static IBAN collection: Ability to collect funds for a Merchants / Corporate providing a static IBAN to all customers. A unique reference number needs to be added in the description field by the consumer when making the payment for reconciliation.
Virtual IBAN collection: Ability to issue a different IBAN to each customer or underlying customer all linked to the same master account. This enables automatic reconciliation avoiding any reference code, and eventual typos, for the sender.
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