Settlement Glossary
Intermediary bank
An intermediary bank is a bank that sits between the sender's and the beneficiary's banks in a cross-border payment, passing the payment along because the two end banks hold no account relationship with each other.
An intermediary bank is the bank in the middle. Cross-border payments work on relationships: money can only move between two banks that hold accounts with each other, the nostro and vostro accounts of the correspondent system. Most pairs of banks in the world hold no such accounts, so a payment between them travels through banks that do. Every institution in that chain, between the sender’s bank and the beneficiary’s, is an intermediary.
Each hop repeats the same work. The intermediary receives the payment instruction, screens it against sanctions lists and its own risk policies, checks that the account it is asked to debit holds funds, books the movement across correspondent accounts, and forwards the instruction to the next bank on the route. The work is duplicated by design: no intermediary can rely on another’s checks, because each carries its own regulatory liability. Duplication costs time, and each hop’s cut-off time can add a business day.
It also costs money in a way senders find uniquely frustrating. Intermediaries deduct their charges from the payment as it passes, under charging conventions that often leave the beneficiary receiving less than the sender sent, by an amount nobody could quote in advance. The route itself is discovered rather than chosen: it depends on which relationships exist at each hop on the day. This is the mechanical origin of the pain language treasurers use about correspondent banking: stacked fees you cannot see, opaque routing, capital trapped in transit.
The number of intermediaries available is also shrinking. As correspondent banks have withdrawn from relationships they judge unprofitable or risky, remaining routes have grown longer and more concentrated, a decline the BIS has documented for over a decade. Fewer intermediaries means fewer, busier chains, which is one reason alternatives that remove the middle of the journey entirely, settling directly on a shared rail, draw institutional attention.
Common questions
- What does an intermediary bank do?
- It bridges a gap in relationships. If the sending bank and the beneficiary bank hold no accounts with each other, the payment routes through one or more banks that hold accounts with both sides, directly or through further intermediaries. Each intermediary receives the instruction, runs its own compliance checks, debits and credits the relevant correspondent accounts, and passes the payment onward.
- Why do intermediary banks charge fees that the sender cannot see in advance?
- Because the route is not fixed when the payment is sent. The chain a payment takes depends on the relationships available at each hop, and each intermediary applies its own charge, often deducted from the amount in flight. Under the SHA charging convention, common for cross-border payments, those deductions come out of the principal, which is why beneficiaries regularly receive less than was sent and why the shortfall differs payment to payment.
- Is an intermediary bank the same as a correspondent bank?
- The terms describe the same institution from different angles. A correspondent bank is defined by the relationship: it holds accounts for foreign banks. An intermediary bank is defined by the role in one payment: it stands between the two end banks in the chain. A given bank is a correspondent by relationship and acts as an intermediary whenever a specific payment routes through it.
Related terms
Sources
Last reviewed 2026-07-16