Intermediary Bank
An intermediary bank sits between the sending bank and beneficiary bank when they lack a direct settlement relationship. It may process, screen, convert or deduct charges from the payment as it passes through the correspondent chain.
Also called: correspondent bank in a payment chain
Most cross-border payments do not travel directly from the sender's bank to the beneficiary's bank. When the two have no account relationship with each other, the payment passes through one or more intermediary banks that do, using correspondent accounts such as nostro accounts. US dollar payments to China, for example, commonly route through a US correspondent before reaching the Chinese or Hong Kong beneficiary bank.
Each intermediary can screen the payment against sanctions lists, request information about the parties or purpose, and deduct a fee. That is why a payment instructed for one amount can arrive for less, and why a transfer can stall in the middle of the chain without either end knowing why. Charge instructions such as OUR, SHA and BEN are meant to control who pays these fees, but routes and bank practices vary.
Payers rarely choose the intermediaries; the sending bank's correspondent network does. What a payer can do is ask the provider which route a payment will take, whether intermediary deductions are possible, and whether the transfer can be tracked end to end. Where intermediary friction is persistent, a provider with a more direct route or local-currency delivery may be worth evaluating.
In practice
An intermediary bank's compliance review is independent of the sending and receiving banks. A payment that both ends are happy with can still be delayed or rejected by an institution in the middle.
Example
A company sends $50,000 under SHA to a supplier in Guangzhou. The payment passes through a New York correspondent, which deducts $25, and the beneficiary bank deducts a further fee on receipt. The supplier sees a credit below $50,000 and asks the buyer to make up the shortfall.
Commonly confused with
| Term | How it differs |
|---|---|
| Beneficiary Bank | The beneficiary bank holds the destination account. An intermediary bank only relays the payment between other banks. |
See also
- Correspondent BankingCorrespondent banking is an arrangement in which one bank holds deposits for another bank and makes and receives payments on its behalf, normally so the second bank can reach a currency or a market where it has no branch or license of its own.
- Beneficiary BankThe beneficiary bank is the financial institution that holds the account intended to receive a payment. It may review the beneficiary, currency, payment purpose and supporting documents before making funds available.
- OUR, SHA and BEN Charge CodesOUR, SHA and BEN are instructions describing how bank charges should be allocated between sender and beneficiary. OUR generally places charges on the sender, SHA shares them and BEN places them on the beneficiary, although actual deductions can still depend on the route and institutions.
- Short-Paid PaymentA short-paid payment occurs when the beneficiary receives less than the amount expected under the invoice or instruction. The difference may result from bank charges, intermediary deductions, unexpected conversion or an incorrect charge code.
- Nostro AccountA nostro account is an account a bank holds in a foreign currency at a bank in that currency’s home market, literally “our account with you.” It is how a bank keeps a working balance in a currency it cannot hold at its own central bank.