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If you’re planning to carry out payments and money transfers in the EU, you should know how to do it with minimum effort and expenses. This article will help you to understand how to make financial transactions in Europe.
When you need to transfer funds or make a payment in Europe, you’ll be able to choose from multiple payment methods. To make sure that your financial operations are quick, safe, and cost-efficient, you should know the specifics of payment systems and the regulations that they comply with. European countries strive to create a single digital market where cross-border money transfers will be seamless and transparent. From this article, you’ll get to know the basic information about the sphere.
Cross-Border Payments Regulation
SEPA
This acronym stands for the Single Euro Payment Area. The EU created it to facilitate payments between its member states. The essence of this initiative boils down to the following: when you carry out cross-border payments from non-euro area member states, you’ll be charged the cheaper intra-euro rates.
PSD2
When an EU resident sends funds from their home country to a recipient who lives in another member state, the cardholder needs to go through the two-factor authentication process. They will be required to prove their identity with a password, card, or fingerprint. This is one of the Strong Customer Authentication (SCA) requirements that were introduced in PSD2. Also, you won’t need to pass the 2FA if the sum of the single online transaction is less than 30 EUR or you carry out recurring transactions.
Types of Cross-Border Payments
Credit Card Payments
When you send money from your credit card, the process might seem incredibly easy to you. You just indicate the recipient’s card details and the sum, confirm the transaction and wait for it to be verified. You might wonder, why do you need to pay rather high fees?
The thing is that the involved credit card networks and acquiring banks do a lot of work behind the scenes, especially if they need to convert between two different currencies. So you pay the fees for their additional workload.
Bank Transfers
To send money to a recipient in the EU through a bank, you need to know not only their personal details but also their International Bank Account Number (IBAN) and Bank Identifier Code (BIC). IBAN and BIC are individual account numbers and sort codes written in a standard, internationally recognized format. Thanks to them, banks can process cross-border payments faster, safer, and cheaper. Such an approach helps them to reduce the impact of the human factor and automate many processes.
However, if you make a purchase in an online store that is registered in a foreign country, you don’t need to search for the recipient’s IBAN and BIC and type this data manually in the corresponding fields on the site. The merchant and their payment service provider will take care of these details to save their customers’ time and effort.
Digital Wallets
These are also known as web wallets or e-wallets. Here are just a few examples of the famous ones.
- Apple Pay
- Google Pay
- Alipay
- PayPal
- Neteller
You can use web wallets to pay in both online and offline stores. In the latter case, you can enjoy safe and quick contactless payments.
When you send money from a digital wallet to another country in euro, this operation doesn’t differ from your everyday payments within your country. If you want a wallet that operates in multiple currencies, it shouldn’t be a problem to find one.
Challenges with Cross-Border Payments
Today, three main problems are connected with sending and receiving money in Europe.
- First, an international money transfer might take too long — up to 5 business days. The exact duration of the process depends on the destination and the number of intermediary banks in between.
- Second, smaller banks might struggle to find the necessary sums of foreign currencies. Many banks don’t hold any currencies at all except the euro (or the national currency of the state where they operate). So it might be wise to use the services of larger banks. Nevertheless, if the sum of the transfer is large enough, you might need to wait for them to order and get it.
- Third, the merchants who have just set up their businesses tend to complain that the rules and regulations are too complicated. Since a single EU payment market doesn’t exist yet, merchants need to know the laws of multiple countries inside out to be able to operate on an international scale. They might need to outsource foreign consultants, which means extra expenses. Plus, they wish financial transactions could be quicker and more transparent, without any hidden costs.
To cope with the first problems, senders might try to avoid bank transfers and rely on faster payment systems instead (such as web wallets). The merchants, for their part, should find payment providers that meet all their business needs. Besides, many market players put their faith in such innovative solutions as SWIFT gpi and Visa Direct.
SWIFT gpi
The second acronym in this case stands for Global Payments Innovation. It’s a new set of rules that banks need to comply with if they join the initiative. These rules include the following aspects.
- Transparency of fees
- End-to-end payment tracking
- Confirmation of credit to the recipient’s account
Thanks to SWIFT gpi, it becomes easier for e-commerce businesses to conduct operations on a global scale.
Visa Direct
This service facilitates three types of international payments:
- Person-to-person
- Business-to-consumer
- Business-to-business
Users can transfer funds internationally within the huge Visa network. The money should reach the recipient’s account in as little as 30 minutes. It considerably improves customer experience and increases clients’ loyalty to companies that have integrated Visa Direct into their workflow.
Final Thoughts
Hopefully, this article came in handy, and now you better understand the specifics of payments and money transfers in the EU. This sphere is rapidly evolving thanks to technological innovations and new regulations. In the foreseeable future, financial transactions in the region are expected to become quicker, safer, and more transparent. Both businesses and private users should benefit from it.
You may also like: UK’s payment processing companies review
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