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

What Is a Correspondent Bank?

Correspondent banks are financial institutions that provide services on behalf of other banks, especially in countries where the originating bank does not have a physical presence. Through formal partnerships (often reciprocal), they manage accounts for one another, known as nostro (our account with you) and vostro (your account with us) accounts. These arrangements make it possible to facilitate transactions across different currencies and jurisdictions without the need for a local branch.

The roots of correspondent banking date back to the 18th century, when banks began establishing formal relationships with foreign institutions to support the growing international trade. Over time, correspondent banking has become a foundational pillar of the global financial system, enabling cross-border payments, foreign exchange, and trade finance on a massive scale.

Key functions of correspondent banks include:

• Processing wire transfers across borders
• Facilitating currency exchange
• Clearing and settling checks
• Supporting trade finance transactions, such as letters of credit

For example, if a U.S. bank needs to send payments in euros but lacks a direct presence in Europe, it can work through a correspondent bank in Germany. This partnership allows the U.S. bank to access local payment networks and currencies using the German bank’s infrastructure and expertise.

What Is an Intermediary Bank?

Intermediary banks serve as middlemen when the sending and receiving banks don’t have a direct relationship. These financial institutions step in to route payments between the two parties, so funds reach their destination even when a direct correspondent arrangement isn’t in place.

Intermediary banks commonly process transactions through the SWIFT network and often specialize in handling specific currencies, depending on their network connections. Their key functions include:

• Facilitating cross-border transfers
• Conducting compliance checks, including anti-money laundering (AML) and Know Your Customer (KYC) screening
• Providing access to financial networks that smaller or regional banks might not have direct access to

Here’s a practical example: If a bank in the U.S. needs to send funds to a bank in Japan, and they don’t have a direct relationship, they might rely on an intermediary bank in the U.K. to complete the transfer. This setup is widespread when dealing with smaller regional banks or less frequently traded currency routes.

The involvement of intermediary banks can influence both transaction costs and processing times. According to Mural Pay, intermediary banks often charge handling fees ranging from $15 to $30 per transaction. These fees can add up, especially if multiple intermediary banks are involved along the payment chain.

While intermediary banks and correspondent banks both play roles in facilitating cross-border payments, they operate in different ways. Intermediary banks act as a bridge between institutions without direct ties, while correspondent banks maintain ongoing account relationships to streamline international transactions.

What are the Main Differences Between Correspondent and Intermediary Banks?

Correspondent and intermediary banks both play crucial roles in cross-border payments, but they operate in different ways, with important implications for efficiency, cost, and compliance.

Currency Handling

Correspondent banks manage multiple currencies using nostro and vostro accounts, allowing them to hold and transact in foreign currencies directly. For example, a U.S. bank might maintain a euro-denominated account with a German bank to streamline transactions within the Eurozone. This setup often results in improved currency management and potentially better exchange rates.

Intermediary banks, on the other hand, typically facilitate transactions in a specific currency—commonly USD or EUR—when the sending and receiving banks lack a direct relationship. They act as routing points through larger currency-clearing networks, which can introduce extra conversion steps and additional costs.

Scope of Services

Correspondent banks provide a broad range of financial services beyond simple fund transfers. These include:

• Foreign exchange and currency settlement
• Trade finance and letters of credit
• Check clearing
• Regulatory and compliance support

This breadth of services allows businesses to consolidate multiple international banking needs within a single, trusted partner.

Relationship Type

Correspondent banks maintain direct, ongoing bilateral relationships—often reciprocal—with clearly defined agreements and pre-established processes. These long-term partnerships help streamline operations and reduce uncertainty for frequent transactions.

By contrast, intermediary banks are used on a transaction-by-transaction basis when no direct relationship exists between the originating and receiving banks. Because they serve as temporary bridges, fees and processing times may be less predictable.

Use Cases

Correspondent banks are best suited for routine, high-volume international payments, such as those made by multinational companies paying suppliers or partners in various countries. These arrangements allow for consistent service, clearer visibility into costs, and better control over settlement timing.

Intermediary banks are most often used when sending funds to regions without established correspondent relationships, especially with smaller or regional banks, or in less common currency corridors. They enable broader global access but may add complexity and cost.

Fee Structure

With correspondent banking, fees are typically prearranged as part of a formal agreement. This leads to more predictable costs and often lower fees for businesses that move money internationally at scale.

In contrast, intermediary banks may charge handling fees on a per-transaction basis. These can include processing charges, conversion fees, and unexpected deductions, especially if multiple intermediaries are involved along the route.

Practical Example

Scenario: A U.S. company pays a Vietnamese supplier

• Using a Correspondent Bank: If the U.S. company’s bank has a direct relationship with a major Vietnamese bank, the payment is processed directly, likely in USD or Vietnamese Dong, under agreed-upon terms and exchange rates.
• Using Intermediary Banks: If no such relationship exists, the payment may route through an intermediary bank in Singapore or another financial hub before reaching the Vietnamese bank. Each additional step introduces more complexity, potential delays, and extra fees.

While correspondent banking offers reliability, efficiency, and lower costs for recurring transactions, intermediary banks provide valuable flexibility when accessing harder-to-reach markets or currency networks.

Why These Roles Matter in Global Payments

Understanding the roles of correspondent and intermediary banks is necessary for businesses that operate internationally. These banking relationships directly influence the speed, cost, and regulatory compliance of cross-border transactions.

Efficiency

Correspondent banks typically offer faster processing times due to established, direct relationships and pre-funded accounts. For example, a U.S. bank transferring funds to a UK bank with a correspondent agreement might settle the transaction within a single business day. In contrast, payments routed through multiple intermediary banks can take several days, particularly if each step requires additional screening or currency conversion.

Cost Implications

The structure and predictability of transaction fees vary depending on the type of banking relationship. Intermediary banks often charge separate handling fees, lifting charges, and currency conversion markups. When multiple intermediaries are involved, these costs can quickly add up.

Correspondent banks, on the other hand, generally operate under prearranged fee agreements. While not fee-free, these arrangements tend to be more transparent and cost-effective, especially for businesses with high transaction volumes.

Risk and Compliance Management

The type of bank involved also affects how compliance is managed. Both correspondent and intermediary banks must adhere to anti-money laundering (AML) and counter-terrorist financing (CTF) regulations, but the rigour and consistency of these checks can differ.

Correspondent banks typically maintain ongoing relationships with more thorough due diligence processes, which can provide greater assurance for businesses that engage in regular international payments. This may also involve more thorough documentation requirements.

Intermediary banks, by contrast, are often used on a per-transaction basis. While still subject to regulatory oversight, they may apply more variable compliance practices, which can result in occasional delays or additional scrutiny, particularly when routing through jurisdictions with stricter financial regulations.

5 Practical Takeaways for Finance Professionals

For finance teams managing international payments, small strategic shifts can lead to major gains in speed, cost savings, and operational clarity. Here’s how to apply your understanding of correspondent and intermediary banks to streamline your global payment workflows:

1. Optimise your payment routes
   Review your most frequent international corridors and work with banks that maintain strong correspondent networks in those regions. Fewer intermediaries typically means faster settlements and lower fees.
2. Improve fee transparency
   Request itemised breakdowns of all international transaction costs, including intermediary bank charges, so you can better forecast expenses and negotiate with your banking partners.
3. Strengthen compliance documentation
   Build internal processes that meet or exceed the due diligence standards expected in correspondent banking relationships. This helps avoid delays and simplifies onboarding with global partners.
4. Refine your currency strategy
   For high-volume payments in specific currencies, consider maintaining foreign currency accounts through correspondent banks in relevant markets. This reduces the need for conversions and minimises reliance on intermediary banks.
5. Explore new payment technologies
   Stay informed about emerging tools like real-time payment networks or blockchain-based systems, which offer potential alternatives to traditional cross-border routes. While not yet mainstream, these technologies could help reduce friction in the long term.

By understanding how correspondent and intermediary banks function, finance professionals can take control of global payment processes, cutting costs, improving speed, and managing compliance.

Choose Between a Correspondent and an Intermediary Bank

Choosing the right banking partners is key to optimising your cross-border payment strategy. Correspondent banks offer faster settlement times, more predictable fees, and a broader range of services, making them ideal for high-volume international transactions. Intermediary banks can introduce additional steps, higher costs, and delays.

To build a global payment strategy, finance teams should:

• Analyse common payment corridors.
• Evaluate banking partners based on reach, fees, and service reliability.
• Prioritise correspondent relationships to reduce friction and costs.

Rapyd simplifies global payments by combining traditional banking networks with modern fintech infrastructure. It helps businesses move money faster, more reliably, and across more markets.