Different payment methods are employed when accepting payment for a business or service. These payment methods depend on the type of business or service you are offering. One important factor that influences payment methods is the location (country) since each country has specific ways of accepting payments. This could be from business to business, or individuals to business
Which payment method to adopt could be confusing and demands adept knowledge about transactional relationships. This article, however, highlights different methods of accepting European payments and crucial pieces of information you need to know about these payment methods. While there are many several ways of accepting European payment, the most common ones include:
SEPA transfer is a mode of making transfers overseas through the Single European Payment Area (SEPA), a system that helps in processing payments across Europe. Their objective is to make money transfer in Euros across borders simple.
Assuming both banks involved in the transfer are SEPA banks (that’s both banks are under the 36 European countries covered by SEPA) when the sender transfers money to the recipient, the sender’s account will be debited by his bank, followed by a credit sent to the recipient’s bank by the sender’s bank. In turn, the receiving bank credits the recipient’s bank account.
In a situation where only one bank is part of SEPA, an intermediary bank is used. When a transaction is initiated by the sending party, their bank debits the account, then credits an intermediary, the intermediary bank credits the recipient’s bank, then the receiving bank credits the recipient’s bank account.
It works just like a normal bank transfer, just that it makes transfers only in Euros and is limited to only 36 European countries.
To make a SEPA transfer, an IBAN (International bank account number) of the person you are sending the money to is needed. This is to ensure that the recipient bank is a member of SEPA. To make a SEPA transfer, log in to your payment provider account, set up the transfer, add the required details and IBAN of the recipient bank account, and pay. The bank will pay the money in Euros.
SEPA transfers are completed within 48 hours or less, and sometimes much quicker especially during business days.
Some great advantages of SEPA transfer are that transactions are fast, it permits cross-border bank transfers which creates better business opportunities, and has a transparent fee structure. SEPA transfers cost little or no fees and this cost is the same in every location, whether you make the transfer from the UK to Italy or Netherland to the UK, the transfer cost remains the same.
SEPA transfers have different payment schemes designed to meet the needs of people who want to use the network. They include The SEPA Direct Debit and SEPA Credit transfer.
This payment method allows a creditor or a merchant to debit a debtor/consumer’s bank account directly, in as much as the debtor has signed an agreement allowing the merchant to withdraw the money. This payment method can be used for recurring payments and one-time transactions. It is suitable for rent payments, subscriptions, loan payments, and other expenses.
SEPA direct debit has two schemes – the core and the B2B direct debit. The core can be used by both individuals and enterprises while the B2B can be used only by debtors who own an enterprise or company.
This payment method allows the payer to initiate the payment to another bank account in the SEPA zone. This type of payment can be made for one time payments sent to a business or other scenarios where a single payment is required. These payments are sent in a non-urgent manner, using the recipient’s International Bank Account Number (IBAN) as the identifier for the recipient’s bank upon arrival.
SWIFT (Society of Worldwide Interbank Financial Telecommunication) Transfer is a financial system that helps process payment globally through a messaging system. The transfer is done using a swift code usually between 8-11 characters long. To make a swift transfer, the sender must have certain information about the receiver, depending on the situation. If the transfer is made in the EU or outside the EU, you may be compelled to provide the recipient’s name, and sometimes destination country. Once you enter the bank account information, the system identifies the bank, and in cases like this, the Swift Code isn’t required.
However, in some situations, you will be asked to include more information, depending on the rules of the banking system.
One major advantage of Swift payment is that it allows transfers anywhere in the world with any form of currency, unlike SEPA, with an infinite transfer limit. Their transfer fee however is expensive.
This fee ranges from €15 – €50, depending on the content and length of the message, the type of bank you are using, and the amount of money you intend to send. This fee can be shared among the sender and receiver or either of them. Bear in mind that this is not the only fee. Other fees may include exchange rate, currency conversion, or routing charges other intermediary banks take for being actively involved in the transfer of funds. This means the money the recipient gets is different from the money the creditor sent ( though, this depends on who bears the cost of the transfer).
The processing time for swift transfer is not uniform like SEPA. Your location determines when the transfer completes. In some countries, it may take between 24 – 48 hours and sometimes up to 5 days. But in some countries, it takes up to 3 months. See swift rules for money transfers here.
This method of accepting European payment is quite fast and easy. It involves the consumers using their credit/debit card details to make payments. To do this, you will have to partner with a payment service provider or payment processors like Stripe and Braintree.
As easy as accepting payment through this method may be, the fees are high. You will typically be charged 2-4% for each payment. This is aside from the fixed fee and additional fees charged for accepting International payments. Again, you must have a merchant account in a major trading country. It is suitable for payment of goods and services online.
E-Wallet is just like physical cash but stored in an electronic machine, more like an electronic bank. An example of an e-wallet is PayPal, suitable for businesses carried out in several countries. The use of an E-wallet is universal, however, this payment method leads to a low customer conversion rate, because to use this payment method, the customer will need to open an e-wallet account.
Using this payment method is quite expensive, as the payment fee is within 1.5% – 3.5 %. This is aside from the fixed fees and with 0.4% – 1.5% cross-border payment and currency conversion charged by the payment provider.
In conclusion, all payment methods listed above are good and have their uniqueness. It depends on the type of business or service you are accepting payment for and the location, knowing the one that suits your needs is paramount.
The credit/debit card payment, however, seems to be the most common method used across Europe compared to other payment options. For example, in Ireland: 87.2% of payments are made with credit/debit cards, In France: 50%, and Italy: about 71%.
Today there are a variety of different ways for businesses to accept payments from European clients. Depending on how the business is organized and where customers are located, businesses can possibly take advantage of the SEPA transfers, instead of paying for costlier wire transfer or credit card processing fees. There are a number of payment options today for businesses and merchants located around the world doing business in Europe.
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