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Blog  /  Business  /  SEPA, SWIFT & TARGET2: What’s the Difference?
How to Recognize and Avoid 5 Types of Phishing Attacks

SEPA, SWIFT & TARGET2: What’s the Difference?

Time to read: 5 minute(s)

You may have heard of these terms and wonder the exact meaning of SWIFT or IBAN, and  the essence put in simple words. In fact, the main difference between these terms are as follows: within the European Union area SEPA is translated as “single euro payment area” allows you to make payments without limits in euro currency and limited to the eurozone. Here, each recipient and sender account has the IBAN format. Such payments can be made in 28 countries of the European Union and some countries of the Schengen area, such as Switzerland or Liechtenstein.

What does SWIFT do? SWIFT, which translates as the “Society for Worldwide Interbank Financial Telecommunications”, is a global system that is present in 210 countries and even more and has approximately 11,000 banks.

TARGET2 is the property of the Eurosystem, which it manages. This is a system that allows gross settlements to be made online. For example, commercial banks send payment orders in euro currency to TARGET2, inside the system their payments are processed and then issued in money from the Central Bank, which was stored there.

Explanation of TARGET2

As already mentioned, TARGET2 is a service owned by the Eurosystem, which is also managed by it. Users can make gross settlements by receiving money from the Central Bank.

In TARGET2, you can make such calculations that are consistent with the European monetary policy. Operations that relate to interbank and commercial transactions can also be carried out.

What makes this service one of the sickest systems for making payments? TARGET2 processes such a number of applications every 5 days that it is equal to almost the entire GDP of the European Union. This system has more than a thousand banks that initiate transactions in the euro currency on their own behalf or on behalf of their customers. But it is important to note that if we include subsidiaries on all continents in this number, we will get a figure of close to 52,000 customers.

Despite the sufficient popularity and the number of users, the Eurosystem still continues to develop and reconsider RTGS as its services. They want to combine TARGET2 and T2S to get the technical and functional aspects of the two services to work more efficiently and reduce operating costs.


Often people get confused in understanding services due to the fuzzy definition of terms. This is also typical for the SEPA service – a legal entity that acts between several states. With regard to payment transactions, this is the clearing of the Eurosystem, where there are different solutions at the national level to resolve domestic payments. For example, in Germany, banks in each state provide their bank customers with “SEPA clearing” – a special service for online mass payments.

Usually, this service is shortly called SEPA so that there is no confusion in different countries. Seeing the main feature, we can say that this is “EBICS” – access to a specially developed communication standard that is used for financial transactions. Mass payment processing sequences are not given priority. This happens in special files that contain up to 100,000 different transactions in each of them. Next comes SWIFT and people often wonder sepa vs. swift – what’s the difference. Let’s have a look.

SWIFT: Everything You Should Know

The term SWIFT is often given two meanings – it is often used as a synonym for the correspondence of the banking system and its message formats. Popular question is how much does Swift cost? Still, we will talk about the meaning of this system, not the price. When sending a payment from SEPA outside the euro currency area, it goes through the SWIFT service office. Many people confuse SWIFT with a clearing service, as the message formats and communication network are indeed used to communicate with the clearing system, but SWIFT does not provide this functionality itself.

Safe and Fast Money Transfer

On the Internet, information about the SWIFT method of money transfers is very often found – from a bank account to another non-cash. In fact, this is called “electronic transfer” and literally means transatlantic transfer over the “bank cable”, which is the property of SWIFT. Over time, the term SWIFT transfer has become one and the same as an online bank transfer. Banks can use a fully secure messaging system with each other. In the process, this happens like this: the bank sends information about the transfer, where it indicates the IBAN, bank code, transfer amount, and so on through the SWIFT system.

The fact that this system is available to users all over the world is a great advantage, which makes it possible even for correspondent banks to use SWIFT, despite the fact that they are not directly connected with it, but only cooperate with it.

By registering a bank in this system, he receives a personal unique code, according to which, in the process of receiving payment, he is credited to a legal or natural person. Of the advantages – there is no binding to the currency. The sender can choose the euro regardless of the recipient’s currency. The transfer is carried out very quickly and with high accuracy since more than 11,000 banks and financial corporations from 210 countries of the world have registered in the SWIFT system.

Financial Transactions Within Europe

For those users who carry out transactions in euros within the European Union, for example, entrepreneurs, there is not much difference between using SEPA or SWIFT. But like all services, there are some problems, so it is necessary to read how to make SEPA payments before using them.. The SWIFT system was created in accordance with Belgian law, but the US State Department has controlled it since 2011 and tracks all payments and transactions that take place there.

And the SEPA system applies and is located only within Europe, and, accordingly, European structures have full control over overpayments. A simple example is the tax authorities.

Within a few years after the introduction of SEPA in 2008, most banks located in the European Union and the countries of the Schengen Zone began to use it. Before that, there were other payment systems in the euro area that had their own standards, and this complicated the process of transactions in euros. After the advent of SEPA, any difficulties were eliminated and this made it possible to send payments not only within the Eurozone internally but also internationally outside of it.

When large organizations transfer payments in this system, they are presented with the same unified set of financial instruments, procedures, and relevant standards. Transferring money to the account by recipients without commission is a huge advantage of the SEPA system. Most often, this process is instantaneous – after issuing a document for sending, it does not even take one day before the recipient sees the money in the account. The bank is able to make international or domestic payments after starting work in the SEPA system.

SEPA vs TARGET2: the Eurosystem

As mentioned above, users of the SEPA system can make their payments within the Eurosystem, which are processed by it. In each country, Central Banks provide market infrastructure to their client banks. At the same time, banks can use another TARGET2 service if they need to make a transaction for a large amount.

Innovative Ways to Conduct Financial Transactions

Since the advent of the SEPA, SWIFT, and TARGET2 systems, it has been said that the SEPA system will be an innovation in the field of payments. It consists of payment service providers, banks, service consumers, and entities that regulate the process. This is a set of special uniform rules and established standards – such a designation was adopted by the European Payments Council from a legal point of view. Three important terms were introduced in the original: credit transfer, direct debit transfer, and personal payment cards.

China, for example, has created its own payment system called China UnionPay and is one of the largest payment systems in the world. At the same time, the Chinese Central Bank created its own analog of the SWIFT payment system, which is called CIPS. Due to the fact that their currency is the yuan, this payment system reduces the speed of payment and its processing at times.

Returning to the European continent, let’s recall the term TARGET2, which is considered part of the Eurosystem’s market infrastructure. If the recipient is waiting for his payment within one day, then this service is just processing such individual payments. The service includes a clearing service, for which prices vary depending on the volume of the payment. For a transaction, the price can start from 80 cents in the TARGET2 service. With intelligent payment routes, the customer and recipient can expect flexible and fast transactions and processing.

Both personal and virtual banking offered by PayDo deals with SEPA, SWIFT and Target2 systems. Using your PayDo account you can make money transfers in more than 170 countries. Read more about your benefits and create your account today!

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