Correspondent vs. Intermediary banks

Definition of correspondent banking

Correspondent banking is a cooperation between two banks, where one (the correspondent) helps another (the respondent), which does not have branches abroad, to make international payments and currency transactions. This involves opening correspondent accounts with partner banks, which allows customers to make transfers almost as easily as within their own country.

What is an intermediary bank?

This is an intermediary bank that acts as a “bridge” between two financial institutions that do not have direct connections. If bank A does not have an account with bank B in another country, bank A can use intermediary bank C, which has connections with both. Bank C accepts the payment from bank A, performs the necessary checks (KYC/KYB/AML), and forwards the funds to the final recipient.

What Is a Correspondent Bank?

It is your reliable financial partner abroad, opening the door to international markets without unnecessary bureaucracy. It processes payments, converts currencies, and ensures that the funds reach the recipient quickly and securely. With the help of such banks, your business can operate globally, as if the entire financial system of the world is at your fingertips.

Correspondent banking relationship explained

Correspondent banking is based on a correspondent banking relationship—long-term bilateral agreements between banks. For example, a bank in the US maintains an account with a European bank, and a European bank maintains an account with a US bank. This scheme is called nostro/vostro: bank X maintains an account with bank Y in currency Y, and bank Y maintains an account with bank X in currency X. This allows both banks to quickly exchange currencies and make payments as if they were operating in the same country.

Role of correspondent accounts in international payments

Correspondent account definition: A correspondent account is an account that a financial institution holds with another to enable international money transfers. It allows banks to send and receive funds in the currency that the bank serves. For example, institution X transfers money to its correspondent account at bank Y, and bank Y withdraws it and makes the payment to the recipient in the desired currency. Such accounts make international transfers fast and convenient.

What Is an Intermediary Bank?

An intermediary bank is a financial “transit point” through which international payments pass when there is no direct route between banks. It connects different banking systems, helping money overcome language, time, and currency barriers. It is thanks to such banks that the global financial network works as a single mechanism—quickly, smoothly, and continuously.

Define intermediary bank and its purpose

It's a bank that helps connect two other banks during a cross-border transaction, making sure the funds are transferred smoothly. Its purpose is to transfer a payment from one bank to another when they do not have a direct account. The intermediary institution receives the funds from the sender, conducts the necessary AML/KYC/KYB checks, and sends the money onward. It is similar to logistics: the financial intermediary takes care of the safe delivery of funds between countries, ensuring their smooth passage.

Intermediary bank meaning in payment routing

“Intermediary bank meaning” refers to a bank that helps route payments between two other banks, usually in cross-border transactions. Such a bank has a wide network of connections and is able to transfer money between unrelated systems. If the sender and recipient do not have a common channel, the payment goes through an intermediary bank. It exchanges currency as needed and transfers the funds further along the chain. Thus, a SWIFT payment can go through several banks before reaching its destination. 

Correspondent Bank vs Intermediary Bank

Main differences in function and role

The difference between a correspondent bank and an intermediary bank lies in their functions and currency capabilities. Correspondents work with several currencies and have permanent agreements with partners, opening accounts with each other and exchanging currencies. Intermediary banks mostly serve one currency and are involved only in one-time transfers when there is no direct connection between the banks. Thus, a correspondent is a permanent partner, and an intermediary is a temporary intermediary.

How to find intermediary and correspondent bank information? 

In the SWIFT system, an international payment moves through a chain of banks: from the sending bank to the correspondent and then, if necessary, through one or more intermediary banks to the receiving bank. If Bank A does not have a direct correspondent in the required currency, it sends the funds to its correspondent abroad. The funds are then transferred through one or more intermediary banks to the final recipient.

FAQ on Correspondent and Intermediary Banks

When is an intermediary bank required?

An intermediary bank is needed when two banks do not have a direct account with each other or are not part of the same payment network. For example, if bank A cannot transfer money directly to bank B and is not connected to SWIFT, it transfers the payment through an intermediary bank. Intermediary banks are usually used to transfer funds in non-standard currencies or to remote regions where there is no direct connection between the institutions.

Are correspondent and intermediary banks the same?

While both banks assist in international payments, a correspondent bank vs. an intermediary bank have different roles. A correspondent bank is a permanent partner with whom your bank maintains regular relations in multiple currencies. An intermediary bank is a short-term intermediary that is only involved for a one-time transaction. A correspondent bank operates continuously, while an intermediary bank operates only when needed.