Why are Intermediary and Correspondent Banks sometimes necessary for SWIFT transactions

Navigating the world of international transactions, you or your payer might encounter terms such as 'intermediary bank' and 'correspondent bank.' What exactly do these terms mean, and when are they relevant to your transactions? In this article, we’ll explain these two banking terms, highlight their differences, and provide a practical example to help your understanding.

What is a Correspondent Bank?

A correspondent bank is a financial institution that provides local services on behalf of a foreign bank. Typically in the country where the transfer currency is issued, a correspondent bank operates as an agent for the foreign receiving bank (the bank that receives the funds) in the local country to process transactions.

What is an Intermediary Bank?

Some receiving banks may not have a correspondent bank in certain countries, or may not have the ability to accept funds from foreign countries. These banks can rely on a ‘middleman’ to indirectly connect to foreign banks. This ‘middleman’ is referred to as an intermediary bank.

When are Intermediary and Correspondent Banks Needed? 

Most sending banks (the banks that send the funds) have their own systems to look up intermediary and correspondent banks for a given receiving bank, therefore, the sending banks do not need to collect this information from the recipient.

However, in some scenarios one or both might be needed to complete a transfer to your Global Account. Should the sending bank request this information, kindly provide them with the relevant details that are available on your Airwallex WebApp.

Let's illustrate this with an example when both Intermediary and Correspondent banks are needed:

Imagine your customer (payer) has a bank account in Switzerland and needs to send Swiss Franc (CHF) to your Airwallex Global Account located in Denmark. The payer's Swiss bank lacks a direct relationship with your Global Account bank in Denmark.

In this scenario, a correspondent bank in Switzerland would be used to facilitate the transaction. The funds would first be sent from the sending bank to the correspondent bank, and then sent from the correspondent bank to your Global Account bank in Denmark.
In case the Global Account bank does not have a correspondent bank in Switzerland, it can leverage an intermediary bank which has such a correspondent bank. So the funds move from the sending bank, to the correspondent bank, then to the intermediary bank, and finally to the Global Account Bank.
Through the intermediary and the correspondent banks, your customer(payer) can seamlessly transfer funds from their Swiss bank account to your Global Account in Denmark.