Businesses in today’s world must transact across borders and countries. How’s that possible?
Many financial institutions link to one another, forming an international banking network to aid in daily facilitating international financial transactions across various nations.
An entity inside this network is the intermediate bank, a crucial establishment that directly facilitates the swift and secure transfer of funds between banks in other nations.
What is an Intermediary Bank?
A bank that facilitates foreign financial transactions by acting on behalf of the bank and sending money is known as an intermediate bank. To ensure that the money is properly transferred to the beneficiary, you must provide the beneficiary’s (or receiving) bank details for your final payment, not the intermediate bank’s.
When an international wire transfer takes place, a bank serving as an intermediary sends money from the sending bank, also known as the originating bank, to the beneficiary bank, also known as the receiving bank. The sender’s bank is used by the individual or corporate parties to make payments through their local bank account. Because it is the place where the individual or company will transfer funds to the receiving bank, this is also known as the originator bank.
The receiving bank is the ultimate destination of payments from the sender’s bank and is used by an individual or corporate entity to receive payments in their bank account. Given that the beneficiary receives money from the sender, receiving banks are also known as beneficiary banks.
Lastly, an intermediary bank is employed to develop a more solid link between the two banks because they are frequently located in different nations and do not have a direct relationship. Through this entire process, funds are sent more swiftly from the originator’s bank to the beneficiary bank and are received more securely, resulting in the creation of a reliable and secure network for international transfers.
How do Intermediary Banks Work?
An intermediate bank is probably going to be involved if you are transferring money between banks, particularly if it is to an account in a different nation than your own bank. An intermediary bank acts as a bridge between the sender’s and the receiving bank’s accounts during a financial transfer between accounts at different banks.
This is how the deal could proceed:
- A customer of Bank A wishes to transfer funds to a different individual, a client of Bank B.
- On the other hand, Bank B and Bank A do not share an account or other banking connections.
- Nonetheless, Bank C is the recipient of an account from both Bank A and Bank B.
- It is possible to channel funds through Bank C, the middle bank, in order to complete the transaction successfully.
Example of an Intermediary Bank
Let’s use the example of Sam, a trader from New York who wishes to buy from Danny, a souvenir vendor in France. This example involves an international payment in a cross-border transaction between different countries.
He orders his bank (A) to transfer funds to Danny’s bank (C). His bank must transfer the money through an intermediary (B) to complete the transaction because it does not have an account with Bank C.
When is an Intermediary Bank Required?
An intermediary bank is typically involved when money is exchanged between two banks that do not currently have a connection. Regardless of whether you have a single or shared bank account, you will typically need an intermediary bank when transferring money to a user at a different bank, especially when doing so abroad.
It’s conceivable that a commercial financial transaction will take place here. To put it another way, the customer does not have to initiate the use of an intermediary bank.
When is an Intermediary Bank Involved in a Transaction?
Anytime money needs to be transferred between accounts at two different banks, an intermediary bank is frequently involved. The sending bank will typically employ an intermediary bank if it does not have its own account with the receiving bank.
A business’s main bank would almost certainly utilize an intermediary bank at some point to transfer cash on its behalf, even if it believed it could avoid the requirement for intermediary banks (and save money; see more on fees below) by opening several bank accounts.
Difference Between Intermediary and Correspondent Banks
Intermediary banks and correspondent banks are two terms you may hear while thinking about how bank transfers operate. The terms “intermediary bank” and “correspondent bank” may or may not have different meanings depending on where you live.
- The words intermediary banks and correspondent banks are sometimes used interchangeably in different countries.
- In the United States and a few other nations, correspondent banks are frequently ones that deal with a variety of currencies.
- Smaller banks that normally only process transactions in a single currency may be intermediary banks.
What are Intermediary Bank Fees?
Transparency is compromised by intermediary banks’ absence of regular fees. Yet, depending on the currency and additional set fees assessed, intermediary bank fees differ.
The typical range of intermediary costs for a transaction is $15–$30. Customer frustration stems from the fact that this can be expensive, particularly when multiple intermediate banks are involved, and charges are not disclosed prior to transaction completion.
Who pays the Fees of Intermediary Bank?
The method used to pay intermediary bank fees varies based on the particular transaction. Assume that Person A is giving Person B money. Depending on what the parties involved agree upon, the costs may be handled in one of three ways:
• The code “OUR” is utilized when the sender agrees to cover all costs. An overseas transfer might cost up to $70 on average.
• The code for shared costs is “SHA”. On a normal transaction, Person A will probably pay their bank’s fees ($15 to $30), and Person B will pay the remaining fees from both their bank and the intermediary bank.
• The designation “BEN” denotes that Person B, the beneficiary of the cash, will cover all costs.
Conduct International Wire Transfers with Cheqly!
An intermediary bank usually comes into play when a bank customer wishes to send money to someone at a separate bank and the two banks are not affiliated. In order to help with financial transactions like wire transfers, both domestically and particularly internationally, intermediary banks collaborate with other banks.
When you choose to perform international wire transfers with Cheqly, you are choosing security, advanced customer service, and a transparent pricing system. Cheqly can give your small business the authority to send money to international clients across borders. Therefore, open your Cheqly account today and take control of your international transactions.