When does direct SEPA participation make sense for non-bank PSPs?
24 June 2026
Participating in SEPA has many advantages for regulated financial institutions, from issuing their own BIC and IBANs to reducing payment costs. More broadly, it allows them to access core euro payment schemes and manage payment flows, while maintaining a closer relationship with their customers and improving unit economics. For many years, this level of access was achieved through two distinct models: direct participation, typically reserved for credit institutions, and indirect participation, where regulated payment and e-money institutions rely on sponsor banks to access SEPA schemes.
As outlined in our previous article, recent regulatory and policy developments have expanded access to direct participation. PIs and EMIs can now, under certain conditions, connect directly to SEPA schemes and clearing and settlement mechanisms, rather than operating through a sponsoring institution.
This evolution introduces a new strategic option. However, direct participation is not a default progression. It comes with additional operational, technical, and regulatory responsibilities that fundamentally change how payment operations are managed.
The relevant question is therefore no longer whether direct participation is possible, but under which conditions it makes sense. This article compares indirect and direct participation models, outlining the key factors PIs and EMIs should consider when evaluating a transition.
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Direct vs indirect SEPA participation: key differences
As of now, SEPA participants can access payment schemes either indirectly through a sponsor bank or directly by connecting to clearing and settlement mechanisms. In practice, this includes STEP2 for SEPA Credit Transfer and Direct Debit, and TIPS for SEPA Instant Credit Transfer, with settlement typically taking place in central bank money via Eurosystem infrastructures.
While both models provide access to SEPA schemes, they differ in where operational responsibility sits — particularly in areas such as settlement, liquidity management, compliance, and execution control.
Indirect participation
This model allows institutions to rely on a sponsor bank for scheme access, infrastructure, and part of the operational and compliance responsibilities. While not without complexity, typically involves less demanding setup and ongoing operations, and is a common choice for institutions entering SEPA or operating at moderate scale. In fact, many successful fintechs in Europe transition away from BaaS providers to become indirect participants.
Indirect participation for fintechs becomes a valid choice when (i) accounts and payments are at the core of their product and (ii) they are processing more than 500,000-1,000,000 payments per year.
Direct participation
By contrast, this model requires institutions to establish their own connectivity to clearing and settlement mechanisms and to meet the full set of technical, operational, and regulatory requirements. It includes managing liquidity, ensuring compliance with scheme rulebooks, and maintaining the infrastructure needed to process payments independently. Direct participants can become sponsoring institutions for those seeking indirect participation.
For PIs and EMIs, the Eurosystem has outlined additional requirements spanning:
- Safeguarding (must be done via licensed third-party credit institution, not a central bank),
- Settlement (specific liquidity and balance requirements),
- Supervisory requirements beyond what those required of directly participating CIs, and
- Ineligibility for certain central bank services
To learn more about these, read this article.
Comparison of two models
When indirect participation remains appropriate
Indirect participation continues to be a relevant model for many payment and e-money institutions, particularly where simplicity and speed of integration are priorities. It remains appropriate when payment volumes are not yet at a level where the cost advantages of direct participation become material. In these cases, a variable cost structure and reliance on a sponsor bank can be more efficient than building and maintaining direct access.
The quality of the sponsor bank relationship is also a key factor. Where performance, support, and onboarding policies align with the institution’s needs, indirect participation can provide stable and predictable access to SEPA schemes without introducing additional operational complexity.
Indirect participation is also well suited to institutions with constrained operational or technical resources. By relying on a sponsor bank for connectivity, settlement, and part of the compliance framework, institutions can reduce the complexity of their payment operations.
When direct SEPA participation becomes relevant
While indirect participation remains a viable model for most regulated FIs, certain conditions can make its limitations visible over time. In these cases, direct participation may become a more appropriate choice.
In the following paragraphs, we outline the four key criteria in order of priority based on our market observations.
1. Sponsor bank dependency and relationship becomes a constraint
For institutions relying on sponsor banks, payment execution is inherently dependent on third-party processes and priorities. This includes cut-off times, processing timelines, issue resolution, and overall service levels.
In practice, this can translate into inconsistent support, limited responsiveness, or constraints that are difficult to control or anticipate. These dynamics are often reflected in broader dissatisfaction with sponsor bank performance, particularly where service levels or operational priorities are not fully aligned with the institution’s own requirements or long-term objectives.
As operational demands increase, this dependency can become a source of friction, especially for institutions that require predictable execution and tighter control over their payment operations. In some cases, this may be addressed by changing sponsor bank; in others, it can prompt a reassessment of the model itself and the need for greater ownership.
2. Control over risk and customer profiles becomes critical
Indirect participation typically implies shared control over customer onboarding and transaction-level decisions. Sponsor banks may restrict certain customer segments, transaction types, or risk profiles based on their own policies and regulatory posture. This can become particularly visible in sectors that are often subject to stricter risk assessments, such as crypto-related activities or gambling services, where the institution’s own risk appetite may differ from that of its sponsor bank.
For PIs and EMIs looking to expand into new segments or refine their risk models, this can create misalignment. In some cases, customers may be declined not based on the institution’s own criteria, but on those of the sponsor bank.
Direct participation allows PIs and EMIs to define and operate their own onboarding, screening, and compliance processes, providing full control over their customer profiles and risk perimeter.
3. Scale changes the cost structure
Closing remarks: decisioning framework
The choice between indirect and direct SEPA participation ultimately depends on how a regulated institution designs and operates its payment activities.
As outlined in this article, indirect participation remains a suitable model in many cases, particularly where simplicity, lower operational burden, and speed of integration are priorities. Direct participation introduces greater control, flexibility, and strategic optionality, but also requires institutions to take on the associated technical, operational, and regulatory responsibilities. In the case of PIs and EMIs, there are even greater.
The decision is therefore not a default progression, but a function of scale, operating model, and strategic intent.
In practice, financial institutions evaluating this transition may consider a set of guiding questions:
- Are you satisfied with your current sponsor bank relationship, or are there limitations affecting your operations or growth? If limitations exist, are they specific to your sponsor bank, or inherent to operating through a sponsor model?
- Do your payment volumes and business model justify the fixed costs and regulatory requirements associated with direct participation? Do you require significant upfront investment to make your infrastructure capable of handling the settlement and safeguarding requirements?
- Would greater control over payment operations, risk management, or infrastructure enable new strategic opportunities?
These considerations help determine whether the benefits of direct participation outweigh the additional complexity it introduces. Once this decision is made, the next step is to understand how to design and operate a direct participation model in practice.
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