When you send money internationally, your bank typically does not connect directly to the recipient's bank. Instead, your payment passes through intermediary banks (middlemen that bridge financial institutions without direct relationships). They move your money through the global banking network via SWIFT, but they add fees and processing time.
What is an intermediary bank?
An intermediary bank connects your bank to the recipient's bank when there is no direct relationship between them. Your money moves from your bank to the intermediary, then to the recipient's bank (like a relay runner passing the baton).
Most banks can't maintain direct connections with every institution worldwide. Direct banking relationships have declined by 20-25% over the past decade, according to the Bank for International Settlements. Intermediary banks fill these gaps.
For example, a Toronto business pays a supplier in Tokyo. The Canadian bank does not have a direct relationship with the Japanese bank, but both institutions use HSBC. HSBC receives funds from Canada, transfers to Japan, which credits the supplier's account.
How does the process work?
Your payment follows a specific path when you send money abroad through traditional banks.
1. You start the transfer
You tell your bank to send funds abroad your bank processes through SWIFT (Society for Worldwide Interbank Financial Telecommunication).
2. Your bank finds the route
Without a direct link, your bank routes payment through correspondent or intermediary banks connected by nostro/vostro accounts (reciprocal accounts that banks maintain with each other).
3. Money moves through intermediaries
Your funds travel from your bank to the intermediary, which forwards them to the recipient's bank. Most payments involve just over one intermediary, though some chains include three or more.
4. Currency gets converted
If you're sending different currencies (say, CAD to JPY), exchange happens at one point: your bank before sending, an intermediary during processing, or the recipient's bank upon receipt. It's not always the intermediary that handles the conversion.
5. Compliance checks happen
Banks perform sanctions and AML screening. However, intermediaries check their bank customers, not you. (The Financial Action Task Force confirms correspondents aren't required to know the end customers.)
6. Money arrives
Once checks clear, the recipient's bank credits their account. Processing takes one to five business days, although timing varies by bank, currency, and country.
When do you need an intermediary bank?
Your transfer likely involves intermediary banks when:
- Banks lack direct relationships
- Sending different currencies (USD to EUR)
- Routes require multiple network connections
- Sending to countries with limited banking connections (thin corridors)
Are intermediary and correspondent banks different?
Many use these terms interchangeably, the distinction blurs in practice.
"Correspondent bank" refers to the formal relationship between two banks. One maintains an account with another to access foreign markets. "Intermediary bank" describes the role in a specific payment chain.
Investopedia notes terminology varies by region, but BIS and FATF focus on "correspondent banking" as the umbrella term. The same bank can be a long-term correspondent for some institutions and a transaction-specific intermediary for others.
Don't worry about labeling. What matters is that these banks sit between the sender and recipient, adding connection and cost.
What are the trade-offs of going through an intermediary bank?
Intermediary banks connect the global banking system but extract a price. You gain access to:
- Remote locations otherwise unreachable
- SWIFT messaging and foreign currency accounts
- Security through compliance (though it slows transfers)
- International banking networks your bank can't reach alone
But in return for all of that, you pay through:
1. Fees
Fees of $15 to $50 USD ($20 to $70 CAD) per intermediary. More banks mean higher costs for your transfer.
2. Delays
Processing delays occur as payments move through financial institutions. More intermediaries means more time, confirmed by Bank of England research.
3. Visibility issues
Limited visibility into which banks handle your money and their charges. Without SWIFT gpi, you can't see the full cost breakdown until after completion.
4. Difficult to trace and compliance delays
Additionally, there is a complicated tracing process when something goes wrong. Each bank points to the next, making disputes frustrating. Also, Potential compliance holds may occur when transfers involve high-risk countries, further delaying the transfer of your money.
A different path with RemitBee
Traditional banks route through intermediary banks because that's how the global network functions. RemitBee uses local banking rails and direct partnerships to reduce hops and fees (availability varies by corridor). Here’s what you get with us:
Competitive exchange rates
Real-time tracking of your funds
Zero fees on transfers over $500 CAD
FINTRAC regulated and 100% money-back guarantee
Try RemitBee for your next international transfer.
