A guide to cross-border payments
What is an intermediary bank?
When you take payments from customers in other countries, or send money to overseas suppliers, it’s tempting to think that there’s only two parties involved. You – and them.
But actually, cross-border transactions tend to be a little more complicated than that. Typically, they involve banks and financial institutions that aren’t all that used to talking to each other – and often, they need a third party to ‘broker’ the deal.
Here’s where intermediary banks come in. But what are they? When do you need one, why do you need one – and where can you go to find intermediary bank information? Let’s find out.
What does intermediary bank mean?
An intermediary bank acts as a kind of ‘middleman’ in an international transaction.
It bridges the gap between two different bank accounts (held by two different banks, in two different countries) to ensure smooth, speedy, and seamless cross-border payments.
Intermediary bank examples
Since intermediary banks must maintain connections with a multitude of accounts – across many different countries around the world – they tend to be some of the largest, most well-known banks.
Some examples of intermediary banks include:
- Deutsche Bank
- Bank of America
- Wells Fargo Bank
- The Bank of New York Mellon
- BNP Paribas
- Standard Chartered
- Chase Bank
How do intermediary banks work?
To demonstrate how intermediary banks work, consider this example.
Jacques, a French national, wants to send money to his cousin Mathilde, who lives in the USA. Jacques uses a small local bank, while Mathilde banks with Capital One.
Jacques gives his bank the details of Mathilde’s account in the US, and specifies the amount he wants to send. He also dictates that it’ll be him, as the sender (rather than his cousin, as the recipient) who’ll be paying the transfer fees. (This is the OUR fee standard, which you can learn more about below.)
Since these banks (for the purposes of this example, at least) don’t share a relationship, Jacques’s bank engages HSBC – which has accounts with both his bank and Capital One – to act as the middleman. HSBC then, operating alongside a correspondent bank to help with currency exchange, facilitates the transfer of Jacques’s money to Mathilde.
Do intermediary banks have fees?
Intermediary banks act, in a way, like agents – and, like all agents, they come with fees.
Intermediary banks’ fees include currency conversion, transfer processing, and the cost of routing the funds through the multiple international banking networks involved. Because these fees are so varied, it makes it hard to pin down exactly how much intermediary banks charge.
What intermediary banks charge depends on:
The banks involved.
- The countries involved.
- The payment method (wire transfer, for example).
- The transaction amount and urgency.
While intermediary bank fees themselves aren’t transparent, there are SWIFT (Society for Worldwide Interbank Financial Telecommunication) standards of identification which dictate which party is picking up the tab.
- OUR: the sender of the funds pays the fees, and the recipient receives the full amount.
- BEN: the sender pays nothing, and the recipient bears the full extent of the fees.
- SHA: the fees are split between the sender and recipient.
For more information about the hidden costs of cross-border payouts, explore our comprehensive guide to the topic.
When is an intermediary bank required?
An intermediary bank is required when an international transfer is taking place between two countries that may not have an established financial relationship.
In these cases, the issuing bank often doesn’t have an account with the receiving bank. So, the banks engage an intermediary – a third-party bank that has accounts with both – to enable the transaction to take place without a hitch.
Generally, intermediary banks are called in when a domestic bank is too small – or lacks the required tools and resources – to cope with international transfers.
How to find intermediary bank information
As a merchant, you don’t necessarily need detailed intermediary bank information. These tend to be established relationships between banks, negotiated to provide the senders and recipients of international money transfers with the quickest, most cost-effective solution.
For more information about the intermediary banks involved in your cross-border transactions, though, you can reach out to your payment service provider – like Checkout.com – or access the these details from your online payments dashboard.
You can also get in touch with your bank – via your relationship manager there, or their customer support channels – or whichever institution processes payments on your business’s behalf. They should be able to provide you with all the intermediary bank details you need: including the intermediary bank’s name, location, and SWIFT/BIC code.
Difference between intermediary banks and correspondent banks
Understanding the exact differences between intermediary and correspondent banks can be tricky – especially because they fulfill so many of the same functions.
Both are involved in facilitating international transactions, and play an important role in the movement of money across borders.
But the other reason the intermediary vs correspondent bank distinction is so blurry is that the differences aren’t all that consistent. In some countries, a correspondent bank is a type of intermediary bank. In others, the names of these banks are used interchangeably – and serve the exact same purpose. In other countries, the two play distinct roles.
The main difference between these two types of banks is the amount of currencies they handle transactions in. We’ll explain this – and the other key variants – below.
Intermediary banks handle transactions for two parties – but in one currency.
Correspondent banks handle transactions in more than one currency. Because of this, they’re more commonly used for assistance with currency exchange, using the SWIFT network to process multi-currency international payments.
Correspondent banks tend also to operate with a wider scope. As well as international wire transfers and currency exchange, they’re involved in check clearing, plus settlements through Nostro Account or Vostro Account.
Implement international transfers with Checkout.com
Knowing what intermediary banks are (and what they do) is vital – especially if you do a lot of business across borders, and need to accept payments from overseas accounts.
What’s even more vital, though? Being able to process international payments with ease, through whichever payment method your customers are most comfortable with. All while accepting – and settling – payments in multiple currencies.
With this, Checkout.com can help. Supported by our generous international coverage, you’ll be able to process in over 150 currencies – and settle in almost 20. You can accept all major credit and debit cards, digital wallets (like Apple Pay and Google Pay) and popular local payment methods, such as Kakao Pay or Mada. Our experts will also work with you to boost your approval ratio – and make cross-border payment failures a thing of the past.
To learn more about how Checkout.com can reduce the uncertainty and unknowables of international payments for your business, get in touch with our team today for a friendly, no-obligation conversation.
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