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Are SEPA payments really free?

The goal of SEPA was to harmonise banking practices all over the EU and EEA, especially costs for bank transactions. One of SEPA's main benefits is that cross-border transactions are also free of charge if domestic transfers cost nothing. However, it does not mean that SEPA transfers are free. Some banks may charge you, and some may not. Regardless, it is meant to ease the costs on consumers. However, there are more to it than just transfer fees. Consumers are faced with a number of additional costs if it is not in Euros.

In this article, we will discuss the issues with costs for SEPA transfer and the measures taken to ease it.

Regulation 924/2009 mandate banks to apply the same charges to cross-border euro transactions as they do for domestic transfers. Banks are prohibited from levying different charges based on the recipient bank's location. Therefore, if your bank in France charges you nothing for making transactions within France, then you pay nothing for euro transfers to Portugal, for example. Since most banks in the EU/EEA charge their customers nothing for domestic transactions; therefore most cross-border payments also cost nothing. However, that is not to say that SEPA transfers are actually free. Some banks do charge a small fee, and it could be charged per transfer or it could be part of your monthly fee. Either way, the amount charged is very small. The fees can be paid by either the sender or the recipient or both.

The costs are not limited to transfer, however. There are also costs for currency conversion. Several SEPA states have not adopted the euro currency. This includes United Kingdom, Bulgaria, Denmark, Iceland, Croatia, Norway, Poland, Romania, Sweden, Liechtenstein, the Czech Republic and Hungary. Therefore, even as members of the EU/EEA, customers in non-euro currency states may end up paying a lot more for cross-border transactions compared to the customers in euro-currency states. And it can be very expensive for customers from non-euro member states. For example, customers in Bulgaria (an EU country that does not use Euro) will pay charges around €20 just to make a transfer of €10 to Finland, for example. Cross-border payments between Euro and non-euro countries account for 80 % of all cross-border payments from non-euro area Member States. This is a high number, and high costs are detrimental to the goals of the Single Market because it bars businesses and customers from making cross-border payments, hinders the free movement of capital and prevents financial integration.

Regulation 2019/518 was passed as an amendment to Regulation 924/2009 to reduce further costs for cross-border payments for non-euro member states. Not only does it apply to currency conversion during a bank transfer but also to card transactions (payment and ATM withdrawals). Currently, customers only know the conversion rate after they had paid it. They cannot compare the fees they have been charged for currency conversion. Regulation 2019/518 is meant to bring transparency by disclosing the conversion charges to the customers before the transaction.

The disclosure of conversion costs is meant to be harmonised under the process called Dynamic Currency Conversion. The currency conversion charges must be disclosed as a percentage mark-up over ECB's latest available euro foreign exchange reference rates. All the charges are to be expressed in real-time in the same manner, e.g. states in the Terms & Conditions of the cards, through SMS, email or bank app notification. While this process provides transparency to customers, the service is quite expensive because a fee, usually 1% of the amount, is added to the transaction by the processor. One study found that charges can range from 2.6% to 12% for customers.

Although Regulation 2019/518 was implemented in 2020, the European Commission requested the National Competent Authorities to enforce the amendment flexibly due to the pandemic. Their enforcement should consider the payment service provider's ability to implement the amendment without being a detriment to the consumer to preserve the "stability and continuity of online banking" in the current situation. However, the National Competent Authorities has the discretion on accepting the European Commission's appeal.

You may receive a message from your bank stating that they would no longer charge you for making euro payments from non-euro countries or charge you a significantly smaller fee per transaction. Some neobanks like Wise have already implemented the Regulation in their payment infrastructure. Yet, the lack of clarity is worrying since the new Regulation will have a significant impact on the payment industry.

Last update: 15/11/2021

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