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SEPA network

The European SEPA network handles account-to-account transfers and direct debits in euros between European banks. These banks include so-called CSMs (Clearing and Settlement Mechanisms), processors that settle transactions between payment service providers via the central bank.

What are CSMs?

CSMs play a crucial role in SEPA payments. They collect, validate, and process payment orders between European banks. They also ensure the correct mutual settlement between those banks via the central T2 system of the Eurosystem of national central banks.

In the Netherlands, Worldline and EBA Clearing are the most important CSMs. They process account-to-account payments such as:

  • SEPA Credit Transfers (SCT) — European bank transfers;
  • SEPA Direct Debits (SDD) — European direct debits.

The process consists of three steps:

  1. Clearing — collecting, checking, and processing payment orders between banks and settling accounts between banks;
  2. Settlement — mutual settlement between banks via T2, whereby banks pay each other via their accounts with the ECB and national central banks;
  3. Feedback — passing on transaction data to banks so that they can correctly update their customers’ payments accounts.

CSMs operate within T2’s opening hours, from 8:00 a.m. to 5:30 p.m. on business days. Standard transfers are usually processed within a few hours. CSMs also conduct testing with affiliated banks and with each other when new SEPA Rulebooks are introduced.

Because CSMs often operate on a eurozone basis, they exchange data with each other for cross-border transactions. Many European CSMs, including Worldline, collaborate for this purpose within EACHA(opens in new window) (European Automated Clearing House Association). EBA Clearing has a broader European reach, with member banks from multiple countries.

At the Dutch Payments Association, for example in the account-to-account Working Group, we discuss technical topics with our members, such as incidents, capacity management, and compliance with European regulations.

Instant Payments and CSMs

With instant payments, the processing of payments is fundamentally different. The entire process — from clearing to settlement — takes place in less than 10 seconds. This means that the recipient has immediate access to the amount paid, around the clock, every day of the year.

In many countries, including the Netherlands, local CSMs handle the processing of instant payments. Banks maintain a liquidity credit with the CSM for this purpose, in accounts with the national central bank. Under the supervision of that central bank, instant payments are settled immediately between banks.

An important difference with standard account-to-account payments is that different CSMs cannot process instant payments between themselves. The mutual exchange of liquidity between different CSMs is not permitted. That is why settlement between banks at different CSMs takes place via TIPS (TARGET Instant Payment Settlement) of the Eurosystem.

All SEPA instant payment payment service providers are required to be connected to TIPS. This means that every bank within SEPA is directly accessible for instant payments.

Summary

The SEPA network of banks, payment institutions, and CSMSs forms the backbone of European account-to-account payments.

  • CSMs ensure the secure and efficient processing of payments between banks.
  • Standard transfers are processed in batches several times a day via T2.
  • Instant Payments are processed immediately, around the clock, via TIPS.

This enables effective, efficient, and secure European payments.