Global trade moves billions of dollars every day, connecting Indian businesses with customers worldwide. However, behind every international transaction, a network of financial institutions collaborates to route and settle your payment securely.
In many cases, your bank and your client’s bank may not have a direct relationship. To bridge this gap, another bank helps move the funds from one country to another. This bank is known as an intermediary bank, and it plays a key role in global payment processing.
If you’ve ever wondered what is an intermediary bank or how it works in cross-border payments, this guide breaks it down in simple terms.
Did You Know?
Intermediary banks help route international payments when two banks don’t have a direct relationship.
These banks differ from correspondent banks, which maintain long-term partnerships and offer wider services.
Cross-border transfers involving intermediaries often face delays, limited visibility, and added compliance steps.
Choosing efficient payment routes or modern platforms can help reduce costs and improve transaction speed.
What Is an Intermediary Bank and How Does It Function?
An intermediary bank connects the sender’s bank and the receiver’s bank when they don’t have a direct relationship. In such cases, the sending bank routes the payment through this middle bank so the transfer can move smoothly across countries.
In simple terms, it works like a bridge within the global SWIFT network. It passes along the transfer instructions, supports currency conversion when needed, and gives smaller banks access to international routes they might not have on their own. This is why many cross-border transfers depend on intermediary banks to complete the journey without delays or failures.
Why Intermediary Banks Remain Necessary in Global Finance
Global cross-border payments continue to expand rapidly, making intermediary banks indispensable. Reports show that international spending touched $194.6 trillion in 2024 and is projected to reach $320 trillion by 2032. With this scale, most banks still cannot maintain direct relationships with every foreign institution. Intermediary banks fill this gap by providing the link needed to move money smoothly across countries and currencies.
Intermediary banks are important as they handle key steps such as currency conversion, regulatory checks, and routing through global networks. A meaningful share of international transfers still takes more than a day to settle and attracts high processing fees.
Intermediary banks reduce these friction points by giving local and regional banks access to reliable global corridors, ensuring cross-border payments face fewer delays and fewer failures.
Intermediary vs. Correspondent Banks: Key Distinctions
When you deal with cross-border payments, you’ll often hear the terms intermediary bank and correspondent bank. Many people use them interchangeably, but they serve different purposes.
An intermediary bank usually comes into the picture only for a specific transaction. Its job is simple — route the payment from your client’s bank to your bank when the two don’t have a direct connection.
A correspondent bank, on the other hand, has a long-term, formal arrangement with another bank, usually in a different country. It supports a wider range of services such as currency exchange, wire transfers, clearing cheques, and maintaining Nostro/Vostro accounts.
To make the intermediary vs correspondent bank differences easier to understand, here’s a quick comparison:
| Feature | Intermediary Bank | Correspondent Bank |
| Purpose | Routes a specific transaction | Supports ongoing international banking operations |
| Relationship Type | Transaction-specific | Long-term formal partnership |
| Scope of Services | Limited to fund routing | Includes FX, wire transfers, cheque clearing, and account management |
| Currency Focus | Often a single currency per transaction | Handles multiple currencies regularly |
| When It’s Used | When two banks lack a direct link | When banks need continuous overseas support |
Understanding Intermediary Bank Fees and Charges
When you send or receive an international payment, you may notice deductions that aren’t charged by your bank or the client’s bank. These are intermediary bank fees—the costs applied by the middle banks that help route the transfer.
These can include SWIFT messaging fees, routing or handling charges, and additional deductions if more than one intermediary is involved. The amount varies based on the currency, the payment route, and the number of banks in the chain.
You may also incur currency conversion charges if the money is converted during the transfer. Together, these make up your total international transfer costs. Depending on the payment setup, the fees may be paid by the sender (OUR), shared between both parties (SHA), or deducted from the final credit to the receiver (BEN).
Understanding how each option works helps you avoid surprises when the final amount hits your account.
Pro Tip: Before sending or receiving large international payments, ask your bank for the expected “landing amount” after all intermediary deductions. This reduces surprises and helps with accurate pricing, invoicing, and cash flow planning.
Risks and Challenges Associated With Intermediary Banking
- International Payment Delays: Cross-border transfers often slow down because multiple banks handle the same transaction across different time zones. Legacy systems and manual checks add to the wait, affecting cash flow for exporters, agencies, and SaaS businesses.
- Lack of Transparency: With several banks involved, it becomes harder to see where a payment is stuck. Limited visibility increases the chances of errors and miscommunication, leading to avoidable follow-ups and uncertainty.
- Compliance Complexity: Every bank in the chain follows its own Anti Money Laundering (AML) and Know Your Customer (KYC) compliance rules. This creates additional verification steps and increases the risk of payment holds when documents or checks don’t align.
- Higher Fraud Exposure: More intermediaries mean more points where data can be mishandled or exploited. This increases the chances of fraud in cross-border payments, especially for high-value transfers.
The Future of International Payments: Trends and Alternatives
The future of international payments is changing quickly as businesses look for faster and more predictable cross-border transfers. Real-time payments are expanding into more global routes, and banks are using AI and machine learning to improve accuracy, reduce delays, and strengthen fraud checks. These developments aim to cut costs and make international transactions more transparent.
Alongside this, fintech payment solutions are emerging as practical alternatives to intermediary banks. Many of them use direct connections and local payment rails, reducing the number of steps in a transfer. This helps payments move faster, with clearer pricing and fewer deductions.
As these systems mature, more Indian exporters, freelancers, and SaaS companies are adopting them to simplify and improve their global payment operations.
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Conclusion
Intermediary banks still play a key role in completing international transfers, especially when banks don’t have direct links. But their involvement often means extra steps, additional fees, and slower processing, which can impact how smoothly your payments move across borders.
As global payment systems advance, businesses now have access to faster and far more transparent alternatives. Modern fintech platforms reduce the number of intermediaries, bring clearer pricing, and shorten settlement times. For Indian exporters, freelancers, and SaaS companies, these solutions offer a simpler and more cost-effective way to manage global payments.
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FAQs
1. What is an intermediary bank?
An intermediary bank routes an international transfer when the sender’s bank and receiver’s bank do not have a direct relationship.
2. Why are intermediary banks necessary for international transfers?
They bridge the gap between banks that can’t transact directly, ensuring the payment moves safely across different banking networks and countries.
3. Do intermediary banks always charge a fee?
Most banks do charge a fee. The fee amount varies and may be deducted from the sender, the receiver, or shared, depending on the transfer instructions.
4. What is the difference between an intermediary and a correspondent bank?
An intermediary bank is used for a single transaction, while a correspondent bank has an ongoing relationship with another bank and offers broader services.
5. How can businesses minimise intermediary bank fees?
By choosing payment routes with fewer intermediaries or using modern platforms that offer clearer pricing and lower transfer costs.
6. What are the common risks associated with using intermediary banks?
Delays, limited payment visibility, extra compliance checks, and a higher chance of errors because multiple banks handle the transfer.
7. How long do international transfers with intermediary banks typically take?
Typically 1–5 business days, depending on the number of banks involved, time zones, and compliance reviews.
