When comparing SEPA and TARGET2, it is essential to begin by explaining that both are integral components of the European payment system. They can both be described as foundational systems that allow the European Central Bank to ensure cross-border payments are smoothly controlled and carried out efficiently.
The main difference is that SEPA and TARGET2 (T2) have different use cases. One is widely used for retail payment processing, while the other is best classed as a wholesale payment system. By looking in more detail, we can see how commercial banks can use these methods to meet client demands more effectively.
What is TARGET2 (T2)?
TARGET2 is the Real-Time Gross Settlement (RTGS) system for large-value payments in the Eurozone. It was upgraded in 2023, when the original TARGET2 was replaced by the T2 version.
It’s used in the European financial system as a real-time gross settlement (RTGS) system. This means that it’s used for interbank payments and as part of the large-value payment system that covers high-value corporate transactions across the continent.
This way of carrying out secure transactions uses the ISO 20022 messaging standard. This is a globally accepted standard that is used for settling financial transactions. So, it’s a completely safe and trusted transfer method that has been proven over time.
What is SEPA?
To understand the importance of the European Union payments market, we need to look at what SEPA is. It is the Single Euro Payments Area, which is a European Union approach that allows the process for euro-denominated payments to be simplified.
SEPA makes cross-border transactions, from one bank account to another in a participating country, simpler than in the past. In fact, they’re now as easy to carry out as domestic payments.
This is because it provides a standardized process for all electronic payments, making transactions more efficient and allowing urgent payments to process smoothly. The rules in place are used for credit transfers and direct debits, allowing European banks and all their customers to send and receive Euro payments from one country to another without any fuss.
Real-time finality means that payments are settled on a real-time gross settlement basis, and there is immediate finality to each payment in central bank money.
What countries can use SEPA (Single Euro Payments Area) payments?
The process for sending interbank transactions through the SEPA process can be carried out across the euro money market region. It means that SEPA payments can be sent to and from any of the EU countries as well as some other places.
At present, 26 out of 27 EU countries fully participate in SEPA. There are multiple countries where SEPA payments can be made, which include some that aren’t in the EU. You can find the full list here.
The situation with microstates
Microstates and other territories, including Liechtenstein, Andorra, Monaco, San Marino, and the Vatican City, are all included in this international payments system. This approach fits with the Eurosystem’s monetary policy operations in giving access to fast transfer processes as widely as possible.
Open an account
in Genome online
What is a SEPA Credit Transfer (SCT)?
The SEPA credit transfer (SCT) payment service allows electronic credit transfers between participating banks across the Single Euro Payments Area.
These can be single, one-off payments or recurring payments. It’s a straightforward payment that is processed without any deductions made for sending it or for paying for the payment processing.
What is SEPA Instant (SCT Inst)?
It is the process that covers payment orders for an instant credit transfer. It’s used to settle transactions almost immediately between banks in the SEPA payments area, providing one of the fastest ways of sending money between commercial banks in Europe.
It works equally well across international and domestic transactions, with payment processing typically carried out in a matter of seconds.
What is SEPA Direct Debit?
The next point covers payment instructions that allow businesses to collect money through the SEPA Direct Debit program. This payment system can be used across borders in the SEPA region, letting companies automate the recurring collection of payments like bills and subscriptions.
All of these methods mean that domestic and cross-border payments can be made easily between banks and other financial institutions. The regulated cost basis and simple processing make SEPA transfer an easy and reliable option for everyday transactions.
TARGET2 vs. SEPA comparison
To look further into these different methods of making cross-border payments in Europe, we can take into account the following points.
Feature | SEPA | TARGET2 (T2) |
Most common use case | Low-value, low-cost transfers for retail bank customers | Interbank transfers for large value payments |
Payment settlement type | Batch payment, with instant settlement for SCT Inst transfers | Real-time gross settlement |
Transaction limits | €100k for SCT Inst | No upper limit |
Geographical coverage | SEPA zone | European Central Bank offices in the Eurozone |
Cost of transfers | Regulated cost means low cost for transactions | Monthly costs, based on transaction fees |
Speed of payment processing | SCT Inst – under ten seconds. SCT – 1-2 days | Instant, usually faster than 30 seconds |
Finality | End of day, or instant | Immediate and irrevocable |
When to use SEPA or TARGET2 (T2)?
The key differences between these types of cross-border payments in Europe ensure that they are useful in varying situations, such as the following examples.
It’s worth remembering that some financial institutions will use both of these payment orders in different cases. Therefore, they can adapt each transfer to the exact needs of the client by choosing the process that is right for them at the time.
When to use SEPA
This payment service, available across Europe, is ideal for everyday transactions. It means that it can be used for paying salaries and bills, among other things.
A SEPA credit transfer provides a very easy way to send money with no deductions. If you are a Genome client, you get access to Instant SEPA Transfers, allowing you to send and receive euro payments within seconds. SEPA Credit Transfers are available as well.
When to use TARGET2
It is a method of processing large-value payments that is common in the B2B world. It’s used to settle central transfers between centrals and treasury transfers, too, allowing efficient liquidity management and instant transfers.
Open an account
in Genome online
The future of euro payments
The success of the instant payment methods we’ve looked at should ensure that the SEPA and TARGET2 payment service options continue to grow.
SEPA Instant to become mandatory
The first step on this path will see the SEPA Instant Transfer process become mandatory. This change is being rolled out across Europe in 2025, with the European Payments Council confirming the roadmap for the SCT Inst scheme on its site. Genome already complies with this requirement, offering Instant SEPA Transfers for one-time and batch payments.
The TARGET2 upgrade (T2) has already been completed
The upgrade to TARGET2 (T2) was already completed in March 2023. It means that a move towards a payments system that combines real-time gross settlement with a Central Liquidity Management system is in place and ready for you to use.
TIPS (TARGET Instant Payment Settlement) is expanding
The TIPS service is designed to let payment service providers settle transactions 24/7 and 365 days a year. Funds are transferred in real time and allow instant payments across Europe.
Multi-currency options to be added to T2
An example of the growth seen in this area can be seen in the way that the T2 and TIPS payment schemes can both be carried out using the Danish krone. This allows Danish users to carry out retail and commercial payments safely using this secure system. As the system grows, we can expect to see more currencies added.
EPI (European Payments Initiative) and greater integration goals
This ongoing initiative looks at the eurosystem’s monetary policy operations and how to create a unified, pan-European payment solution.
It should lead to more seamless peer-to-peer and point-of-sale payments, with a digital wallet named Wero possibly being rolled out across the continent to help make this transition.
SEPA and TARGET2 continue to make life easier
By looking at these payment options, we can see that they are both trusted ways of sending money between banks and financial institutions in Europe.
SEPA is a low-cost option that can be used by both consumers and retail customers. On the other hand, TARGET2 stands out as an extremely fast transfer option that’s ideal for central banks and commercial transactions with high-value transfers.
Inside Genome, you get access to both! Let us explain:
SEPA Instant Transfers are available for all users, making your day-to-day financial operations in euros a blast! Companies can use SEPA Instant and Credit Transfers for batch transfers, elevating their financial management game.
TARGET2 payments come as a packaged deal if a Genome business account user unlocks international money transfers.
To optimize outgoing international payments, Genome uses an Intelligent Routing System that ensures each transfer is processed through the most cost-effective and efficient route available.
SWIFT is the primary system used for international transactions (12 currencies available: USD, GBP, EUR, PLN, CHF, JPY, CAD, CZK, HUF, SEK, AUD, and DKK). Still, we use the Intelligent Routing System to automatically evaluate whether an alternative transfer method is better suited for a client’s specific payment.
It ensures faster delivery and lower fees whenever possible. TARGET2 is one of the options we can use for international transfers.
Explore other eurozone payment innovations like TIPS and EPI when you want to find the perfect way to send national and international payments in Europe.
Open an account
in Genome online
FAQ
Is TARGET2 faster than SEPA Instant?
Financial institutions that have high payment priorities can choose either approach. However, SEPA instant payments are the fastest, as funds are settled almost instantly. TARGET2 transfers are carried out in real time and are settled the same day.
Why did TARGET2 become T2?
The upgrade of TARGET2 to the T2 payment scheme happened in March 2023.
What is TIPS, and how is it related to SEPA?
TIPS is a new TARGET payment option that allows funds to be sent 24/7/365. This makes it a year-round option that may be more suitable than SEPA at certain times.
