SEPA, IBAN, and BIC explained simply – How European payments work

Summary

Content overview

In the world of digital payments, terms such as “IBAN,” “BIC,” and “SEPA” are part of everyday language. But what do they actually mean? In this blog article, you will learn everything you need to know about European payment transactions.

What is SEPA payment traffic?

SEPA stands for “Single Euro Payments Area,” i.e., a unified euro payment area.
This system has been simplifying and standardizing European payment transactions since 2014.

In the past, each country had its own regulations and formats for transfers. Today, a transfer from Germany to Spain or France, for example, is just as easy as a domestic transfer—fast, secure, and inexpensive.

The SEPA area includes:

all EU member states,
the countries of the European Economic Area (EEA): Iceland, Liechtenstein, and Norway,
as well as several other countries, such as Switzerland, Monaco, San Marino, and the United Kingdom (for euro payments).
Here you will find a complete list of all member states: https://bankenverband.de/zahlungsverkehr/sepa-laenderliste

Advantages of the SEPA area:

Uniform standards for all participating countries
Fast transfers within one banking day
No additional fees for payments in euros within the SEPA area
Common legal framework and traceability for all participating countries

Example:

If you have a German bank account and want to transfer money to someone in Spain, SEPA makes it just as easy as transferring money within Germany.

IBAN and BIC – the basis for every transfer

The IBAN (International Bank Account Number) is the international bank account number.
It uniquely identifies an account within the SEPA area. With the IBAN, transfers can be made without additional information such as national bank code or account number.

Example of a German IBAN:
DE89 3704 0044 0532 0130 00

This IBAN belongs to a fictitious sample bank in Germany and shows the standardized structure.

The BIC (Bank Identifier Code) – also known as the SWIFT code – is an international identifier for the respective bank.
It functions as a kind of address for the bank and ensures that the money arrives at the correct institution.

Since February 1, 2016, the BIC is no longer required for payments within the EU. Only for payments outside the EU or EEA to so-called third countries, such as Switzerland or Monaco, is it necessary to provide the BIC in addition to the IBAN.

Example of a BIC:
PAGMDEM1 – stands for accounts held by the e-money institution PayCenter.

How is an IBAN structured?

At first glance, an IBAN looks long and complicated—but it follows a clear system.

Let’s take the example DE89 3704 0044 0532 0130 00 and break it down:

Component	Meaning	Example
DE	Country code for Germany	DE
89	Check digit – protects against transposed digits	89
37040044	Bank code – identifies the bank	37040044
0532013000	Account number – unique to the account	0532013000

This allows every account in the SEPA payment area to be uniquely identified.
The check digit also ensures that transposed digits or input errors are detected, making it an important security feature.

What do you need IBAN, BIC, and SEPA for in everyday life?

In summary:

IBAN = account number
BIC = bank address
SEPA = Rules for European payment transactions

These terms are encountered in almost all areas of payment transactions:

Transfers: An IBAN is required for every SEPA transfer. For payments to countries outside the EEA, a BIC is also required.
Salary: Employers transfer the salary to the employee’s IBAN.
Rent or bills: Here, too, everything is done via SEPA transfers or direct debits.
Online payments: Many online shops in Europe use SEPA payments.

The IBAN ensures that money goes to exactly the right account. The BIC ensures that it ends up at the right bank, and SEPA ensures that payments in Europe are processed securely and quickly according to uniform rules.

Read here to find out how secure online banking works.

A practical example:
If someone in Germany has an account and sends money to a friend in France, for example, they only need her IBAN (and, if necessary, her BIC, for example if the recipient bank is located outside the EEA). The payment is then processed automatically via the SEPA system—quickly, securely, and at no additional cost compared to a domestic transfer.

Conclusion – Uniform system, simple banking

European payment transactions have become much easier thanks to SEPA, IBAN, and BIC.
Instead of many different formats and regulations, there are now uniform standards that make transfers within Europe fast, transparent, and secure.

SEPA ensures smooth operations through common rules and technical standards.
IBAN uniquely identifies each account.
BIC identifies the respective bank.

Anyone who understands these terms can make transfers safely and confidently—whether domestically or to another European country.