Have you ever sent money across borders, only to find the recipient received less than expected? Or wondered why an international transfer sometimes takes longer than a local one? The answer often lies with intermediary banks—the unseen middlemen working behind the scenes of global financial transactions.

These banks play a crucial role in moving money around the world, especially when your bank and the recipient’s bank don’t have a direct connection. While essential, their services come at a cost that can quietly eat into your international payments.

Global cross-border payments are huge, exceeding $190 trillion USD in 2023 and set to hit $290 trillion USD by 2030. This growth shows just how much we rely on these intermediary services. In this guide, we’ll break down what intermediary banks do, who uses them, the fees they charge, and how you can manage these costs.

What Do Intermediary Banks Actually Do?

An intermediary bank acts as a bridge. It connects the bank that sends money (the originating bank) and the bank that receives it (the beneficiary bank) when they can’t send funds directly. This is common in international transfers where banks are in different countries with different rules.

Here’s how they help move your money:

• Connect Banks: They build a bridge between banks that don’t have a direct relationship. This is key for global money transfers.
• Handle Currency Exchange: If your transfer needs to change from one currency to another, intermediary banks can do this. They convert the money before it reaches its final stop.
• Provide Network Access: Smaller banks might not have direct access to big international financial networks. Intermediary banks give them this access, allowing them to send money globally.
• Collect Fees: For their services, intermediary banks charge fees. These fees are often taken directly from the money being sent. They can change based on the bank, how complex the transfer is, and the countries involved.
• Ensure Compliance: They make sure all international banking rules are followed. This includes laws like Anti-Money Laundering (AML) to prevent illegal money transfers.

Who Uses Intermediary Banks, and For What?

Any business dealing with international money will likely use an intermediary bank at some point. This includes buying or selling goods, offering services, or getting donations from abroad.

• All Sizes of Businesses: Big global companies, large importers, and exporters use them a lot. But even smaller businesses and individuals sending money across borders rely on them.
• Specific Transaction Needs: An intermediary bank is needed if:
  • The sending and receiving banks don’t have a direct account or link.
  • The transfer involves different countries or currencies.
  • Smaller banks don’t have the tools to handle global transfers directly.
  • The transaction involves countries under sanctions (to ensure legal compliance).
  • Large amounts of money are being moved (for security and risk management).
  • It’s a special payment type, like documentary collections or letters of credit.

Intermediary vs. Correspondent Banks: What’s the Difference?

You might hear “intermediary banks” and “correspondent banks” used to mean the same thing. They both help with international banking. However, their roles can be a bit different.

Correspondent Banks: These banks offer services to another bank, usually in a different country, over a longer period. They have formal agreements for many services, not just sending money. They act for the other bank in various ways:

• Settling trades.
• Exchanging currency.
• Giving smaller banks access to global markets.

Intermediary Banks: These banks are specifically involved in one particular international wire transfer. They step in when the sender’s and receiver’s banks don’t have a direct way to connect. Their main job is to help move funds for that specific transaction.

• They help move funds from sender to receiver.
• They manage and take out fees for international transfers.
• They ensure the transfer follows international banking rules.

In real life, a bank might act as both a correspondent and an intermediary, depending on what the main banks need for a specific transfer.

The Cost Factor: Why Intermediary Banks Eat Into Your Payments

One big problem with intermediary banks is the fees. Because your money often passes through extra banks, charges can pop up at several points along the way. These fees are not set by a standard rule and can change a lot.

Here are the types of fees you can expect:

• Handling Fees: This is a flat fee charged by the intermediary bank just for processing the transfer.
• Currency Conversion Fees: If the money needs to be changed from one currency to another, the intermediary bank often charges a fee or a percentage. This can include hidden markups on the exchange rate, meaning you get a less favorable rate.
• Lifting Charges: Other intermediary banks down the payment chain can add small charges as the funds move through their systems. These can then be passed on to you or the person receiving the money.
• Incoming Wire Transfer Fees: The bank that receives the money for your recipient might also charge a fee for getting an international wire transfer.

What Affects the Fees You Pay?

• Number of Banks: More banks involved usually means higher total fees.
• Currency and Amount: Fees can change based on the currencies being exchanged and how much money is being sent.
• Location and Relationships: Where the banks are located and their existing agreements can influence the fees charged.
• Payment Method: Different ways of sending money (like wire transfers versus online platforms) have different fee structures.

Understanding OUR, SHA, or BEN Options:

When you send an international wire, you often get to choose how fees are handled:

• OUR: The sender covers all the fees. This means the recipient should get the full amount.
• SHA (Shared): Both the sender and the recipient split the charges.
• BEN (Beneficiary): The person receiving the money pays all the fees. The money arrives in their account after all charges are taken out.

High intermediary costs are a major reason why businesses look for solutions that cut down the number of banks involved in the transfer chain.

Technology Is Changing the Game:

• Blockchain and other distributed ledgers are starting to challenge the old way of doing things. They allow real-time data sharing, which can make transfers faster and more direct.
• ISO 20022 is a new standard that will improve payment processing speed and make fees more clear. This means fewer errors in messages and more transparency.

Solutions to Reduce Friction: Modern Payment Platforms

Traditional wire transfers often need many intermediary banks, which means more fees. However, newer financial technology (fintech) solutions allow businesses to skip many of these middlemen.

BRISKPE is a great example of a company that offers global payments designed for businesses. They aim to cut out many of the usual problems.

Final Insights

Intermediary banks play a key role in cross-border payments. But they often add extra fees and make the process more complex. With global banking costs likely to stay high through 2025, and rules becoming stricter, businesses must plan their international payment strategies wisely. 

Ultimately, if you’re tired of hidden fees and slow wire transfers, modern providers like BRISKPE can help you lower costs, speed up payments, and reduce headaches with compliance.