Every time an international wire transfer arrives with less money than was originally sent, the most common culprit is an intermediary bank. Most people sending or receiving money across borders have no idea that their funds may pass through one, two, or even three banks between the sender’s bank and the recipient’s bank, with each one taking a cut before passing the money along.
An intermediary bank is a third-party institution that routes international wire transfers between the sender’s and recipient’s bank when there is no direct relationship. Fees range from USD 15 to 50 per intermediary, and about 75% of SWIFT transfers involve at least one.
Understanding what intermediary banks are, why they exist, and how their fees work is essential for anyone who regularly sends or receives international payments and wants to know exactly where their money is going.
What Is an Intermediary Bank?
An intermediary bank is a financial institution that acts as a bridge between the sender’s bank (the originator bank) and the recipient’s bank (the beneficiary bank) during an international wire transfer. It steps in when the two banks do not have a direct account relationship with each other, which is the case in the majority of cross-border transactions.
Most international wire transfers are processed through the SWIFT network. SWIFT itself does not move money. It is a secure messaging system that sends payment instructions between banks. The actual movement of funds happens through correspondent and intermediary banking relationships.
How Does an Intermediary Bank Work?
The sender instructs their bank to transfer a specific amount to a recipient at a foreign bank. The sender provides the recipient’s bank account details, SWIFT/BIC code, and the beneficiary’s name and address.
The sender’s bank checks whether it has a direct relationship with the recipient’s bank. If it does, the transfer is routed directly and typically settles faster with fewer fees. If it does not, the bank identifies an intermediary bank that has relationships with both sides of the transaction, or with another intermediary that can connect to the recipient’s bank.
The Significance of MT103
The sender’s bank sends a SWIFT message (specifically an MT103, which is the standard format for single customer credit transfers) to the intermediary bank with the full payment details. The intermediary bank verifies the transaction, conducts compliance checks including anti-money laundering and know-your-customer screening, deducts its fee, and forwards the payment to the next bank in the chain.
If the transfer involves a currency conversion, the intermediary bank may also handle this step, converting the funds at its own exchange rate before forwarding them. The recipient’s bank finally receives the funds and credits them to the beneficiary’s account. The entire process can take 1 to 5 business days depending on the number of intermediaries involved, the currencies being converted, and the compliance checks required at each stage.
Why Are Intermediary Banks Needed?
The global banking system has over 11,000 financial institutions connected through SWIFT. No single bank can maintain direct relationships with all of them. Maintaining a correspondent banking relationship requires regulatory compliance across multiple jurisdictions, capital allocation, and ongoing operational costs. It only makes economic sense for banks that have significant and consistent transaction volumes with each other.
For smaller banks, regional institutions, or transfers involving less common currency corridors, intermediary banks provide the connectivity that would otherwise not exist. Without them, international wire transfers would be limited to only those bank pairs that have direct relationships, which would exclude a massive portion of global cross-border payments and leave billions of people without access to the international banking system.
Intermediary Bank Fees: What They Cost
Intermediary bank fees typically range from USD 15 to USD 30 per intermediary per transaction. Some intermediary banks charge higher fees for less common currencies or corridors, and the total can reach USD 50 or more in complex routing scenarios that involve multiple intermediaries.
The fee is usually deducted from the transfer amount before it reaches the next bank in the chain. This means the recipient receives less than what the sender originally transferred. On a USD 500 transfer with two intermediary banks charging USD 25 each, the recipient receives only USD 450, a 10% reduction that often comes as an unpleasant surprise to both sender and receiver.
Types of Transfer Fees Applicable
Who pays the intermediary fee depends on the SWIFT fee instruction selected by the sender at the time of initiating the transfer. The three standard options are OUR (sender pays all fees, including intermediary fees, so the recipient receives the full amount), SHA (shared, where the sender pays their bank’s outgoing fee and the recipient absorbs intermediary and receiving bank fees), and BEN (beneficiary pays all fees, meaning the maximum amount is deducted from the transfer before it arrives). SHA is the most commonly used option globally and the default at most banks.
How to Reduce or Avoid Intermediary Bank Fees
Choosing a sending bank that has a direct correspondent relationship with the recipient’s bank eliminates the need for intermediary banks entirely. Large international banks have the most extensive global networks and are least likely to require intermediaries for major corridors.
Sending in the recipient’s local currency can sometimes reduce intermediary involvement, because the routing may be simpler when the currency matches the destination country’s banking system rather than requiring a conversion step at an intermediate point.
Using online remittance platforms that maintain their own banking networks in multiple countries bypasses the SWIFT intermediary chain altogether. These platforms process transfers through their internal accounts and local payment rails, which eliminates intermediary deductions and often delivers funds faster than traditional wire transfers.
Other Tips to Save on Wire Transfer Fees
Consolidating multiple smaller transfers into a single larger payment reduces the number of times intermediary fees are charged, since the fee is per transaction, not per amount transferred. For businesses making regular international payments, this consolidation strategy alone can save thousands over a financial year.
Requesting the MT103 document from your bank after a transfer reveals the full routing path, including every intermediary bank involved and every fee deducted along the way. This transparency allows you to identify whether the routing was efficient, compare it against alternatives, and choose better options for future transfers. Most banks provide the MT103 on request, though some charge a small fee for the document.
The Future of Intermediary Banking
The intermediary banking model is under pressure from multiple directions. Real-time payment systems like India’s UPI, which is being integrated with payment networks in Singapore, the UAE, and several other countries, enable direct bank-to-bank transfers that bypass SWIFT and its intermediary chain entirely for participating corridors.
Fintech platforms continue to expand their internal banking networks, reducing reliance on intermediary banks for retail transfers. For businesses, payment automation platforms are increasingly offering direct connections to local payment rails in destination countries, eliminating the need for SWIFT routing altogether.
Despite these developments, intermediary banks will remain essential for less common corridors, large institutional transfers, and countries where local payment infrastructure is not yet connected to global real-time networks. Understanding how they work and what they cost remains a practical necessity for anyone involved in cross-border payments.
A Smarter Way to Avoid Hidden Transfer Costs
While intermediary banks remain a necessary part of the global banking system, their fees and lack of transparency can significantly impact the final amount received. This is where modern forex platforms offer a clear advantage. By leveraging optimized routing, transparent pricing, and competitive exchange rates, platforms like BookMyForex help minimize hidden deductions and provide greater clarity on the final payout.
For individuals and businesses looking to reduce uncertainty and get better value on international transfers, choosing a platform that prioritizes transparency and cost efficiency can make a meaningful difference.
About the Author
Kshitij Pandey is the Content Manager at BookMyForex with over 7 years of experience in content marketing, blogging, and social media strategy. He has worked extensively on building engaging campaigns and informative resources that help users understand forex, international money transfers, and travel-related financial services.
