Intermediary Banks and Their Effect on International Transactions

Intermediary Banks and Their Effect on International Transactions

International transactions are inherently more complicated than domestic transfers for a multitude of reasons. While domestic transfers from bank-to-bank can often happen same day with the tap of a mouse, international transactions have more going on behind the scenes which can lead to longer processing times and more room for error. One element of an international wire you may or may not be familiar with is an intermediary bank. In this post, we’ll provide a comprehensive overview of intermediary banks and their effect on international transactions.

First, the transaction must start with the originating bank. If they don’t have a working relationship with the beneficiary bank — the bank receiving the money — they look through Society for Worldwide Interbank Financial Telecommunication (SWIFT) system to find an intermediary bank to help process the transaction. The originating bank then sends the money to the intermediary bank, which transfers the money to the receiving bank, called a beneficiary bank.

What are Intermediary Banks?

An intermediary bank, sometimes called a corresponding bank, is a financial institution that services other financial institutions. Banks require a working relationship with each other to transfer money directly. These relationships can be challenging to develop, especially with countries in the developing world. When your bank doesn’t have access to a specific market, financial institution, or country, they will need to use an intermediary bank to make the international transaction. Basically, they act as the domestic bank’s agent for completing a transaction overseas and can help assist with global payroll processes.

Society for Worldwide Interbank Financial Telecommunication (SWIFT)

SWIFT is an international financial network that allows banks to send secure financial instructions around the world. SWIFT assigns a code to each financial institution that routes money from one bank to another. SWIFT is not an account management system. For international transactions, it is only a messaging system for sending those codes.

Each code is eight or 11 digits and follows the format below:

• First four characters: the institute code (UNCR for UniCredit Banca)
• Next two characters: the country code (IT for the country Italy)
• Next two characters: the location/city code (MM for Milan)
• Last three characters: optional, but organizations use it to assign codes to individual branches. (The UniCredit Banca branch in Venice may use the code UNCRITMMZZZ.)

How Intermediary Banks Affect International Transactions

Intermediary banks can add expense and cause delay to international financial transactions. Intermediary banks don’t transfer money out of generosity. Each bank charges a fee, typically between $25 and $75. When your bank doesn’t clearly explain how the process works, you may not send enough money to pay the beneficiary in full.

If your bank does not explain that your international transfer could take one or more stops before reaching its final destination, and each stop could take one or more days, your payment may not reach its recipient by your deadline.

Intermediary banks can also cause delays if someone in the process makes a mistake. The most common mistakes that cause delays, according to BP Federal Credit Union, include:

• City and country mismatch, such as “Tokyo, China”
• Incorrect or missing beneficiary information
• Originating currency does not match receiving country’s currency
• SWIFT codes are not correct
• Missing or incorrect intermediary bank information

If the intermediary bank causes delays or takes unexpected fees, you do not get the right amount of money to its destination on time, you could potentially damage your reputation and complicate your business. You’ll have to spend time working through the delay and communicating with the beneficiary to clear up the misunderstanding. When working with international payroll, delayed paychecks can severely affect morale.

Solutions for International Payroll

If you want to ensure that your payments reach your employees on time without worry about intermediary banks, with their delays and their extra fees, you will want to rely on an international payroll provider that has an established presence in the country in which your employees work. A global payroll provider with solid treasury management can greatly mitigate these risks. The easiest solution is to find a payroll company that offers single currency fund distribution.

Single currency fund distribution or treasury management is when you pay your payroll company in your home currency, and a third-party company distributes payroll to your various international employees in whatever currency they use. The servicing company manages every aspect of transfer, payment, and currency exchange so you don’t have to worry about delays. With this service, you protect your reputation by letting the experts handle the whole process.


If you’re curious about how treasury management can help your organization and streamline global employment, contact our team of experts. We have knowledge on all aspects of global payroll from our 12+ years of experience and deep expertise in 150+ countries. Contact us today to learn how we can help you!



**This article is for informational purposes only. It is not intended to constitute legal advice.


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