Correspondent banking is an arrangement in which one financial institution provides payment or account services to another institution. It enables banks and payment providers to reach currencies or markets where they do not maintain direct access.
How does a correspondent payment work?
The sending institution routes a payment through one or more correspondent or intermediary institutions before it reaches the beneficiary bank. Each institution may perform screening, update payment messages or deduct an authorized charge.
Why can the recipient amount differ?
Assume an illustrative USD 20,000 wire incurs a USD 25 sending fee, a USD 20 intermediary deduction and a USD 10 receiving fee. The total charges are $25 + $20 + $10 = $55, and the recipient may receive $19,945 if all charges reduce the transfer amount. Actual charge allocation depends on the instruction and route.
Correspondent vs. intermediary bank
A correspondent relationship is the broader service arrangement between institutions. An intermediary bank is an institution in the path of a specific payment. The same bank can act as both in context.
What should payment operations track?
Record the sending and beneficiary banks, message and transaction references, value dates, fee instruction, deductions and final credited amount. Routing can change by currency, amount and provider, so a prior path is not a guarantee of the next one.
