What Is Correspondent Banking [and Why It Still Matters]

Correspondent banking is an integral part of the global financial system.

It provides the fundamental infrastructure that enables businesses to move money quickly and efficiently across currencies, borders, and banking networks.

This article explains how correspondent banking works, why it still matters in 2025, and how Thunes helps businesses navigate its challenges while tapping into its global advantages.

Want to learn more about the modern alternative to traditional correspondent banking for global cross-border payments? Discover Thunes’ payment solutions.

Table of contents

What is a correspondent bank?

A correspondent bank is an intermediary party that typically facilitates money transfers between domestic and foreign banks.

Correspondent banks operate as agents. They help financial institutions send payments in a foreign currency without the domestic bank needing to establish relationships with existing banks or set up foreign branches.

In their intermediary role, correspondent banks provide financial services, including:

• Treasury services
• Handling global investments
• Trade financing
• Processing international wire transfers

For these services, the correspondent bank charges a fee, deducted from the transferred funds.

How does correspondent banking work?

When a domestic bank needs to process a payment to a foreign bank with which it doesn’t have an established banking relationship, a correspondent bank steps in to facilitate the transaction.

The correspondent bank receives payment instructions along with the necessary funds. It then carries out the transaction on behalf of the domestic bank (or other financial institutions), whether that is transferring funds, settling payments, or converting currencies.

These transactions typically rely on the Swift Network (Society for Worldwide Interbank Financial Telecommunication). Swift is a global messaging network that connects over 11,000 financial institutions across 200 countries and territories, enabling secure and standardised communication about financial transactions.

If the domestic bank doesn’t have a direct link to the overseas institution, it uses the Swift network to identify a correspondent bank that does. Once a suitable partner is found, the domestic bank transfers the funds to its account at the correspondent bank. From there, the payment is routed to the recipient’s bank for final settlement.

Vostro vs. nostro accounts

The secret to correspondent banking is a system of nostro and vostro accounts. A domestic bank sets up a nostro account with a foreign correspondent bank, essentially, “our money held by you.” The correspondent refers to that same account as a vostro account, “your money held by us.”

When the domestic bank needs to send funds abroad, it transfers the payment to its nostro account at the correspondent bank. The correspondent deducts its service fee and then processes the payment to the intended recipient through local clearing.

Correspondent banking in action

Say a UK-based company needs to pay a supplier in France. The invoice is in euros, but the business holds its accounts in GBP. The bank, referred to here as the originating bank, does not have a direct relationship with the supplier’s French bank, known as the beneficiary bank.

To process the payment, the UK bank uses the SWIFT network to identify a correspondent bank that holds euro accounts and is connected to both institutions.

The UK bank sends the payment to its nostro account, a euro account held at the correspondent bank. The correspondent deducts a service fee and credits the recipient bank’s vostro account. The recipient bank then deposits the funds into the supplier’s local euro account.

This correspondent banking relationship enables transactions to be completed efficiently, even when the two banks do not have a direct relationship.

Correspondent bank vs. Intermediary bank

Both correspondent and intermediary banks serve as third parties in financial transactions, but they play slightly different roles.

Correspondent banks typically support transactions across multiple currencies and provide broader services, including foreign exchange, clearing, and settlement. 

Intermediary banks typically handle single-currency transactions and are often used when a smaller or regional bank lacks the infrastructure to complete international payments independently.

Understanding the distinction is important when choosing the right partners to support your cross-border payment flows.

Some significant differences include:

• Correspondent banks handle a wider range of services and currencies.
• Intermediary banks primarily route payments without ongoing relationships.
• Correspondent banks may operate across borders or within the same country.
• Intermediary banks act on behalf of both the sending and receiving banks.
• If intermediary banks are involved, it means there are 3 or more participants in the chain.

Ultimately, both help facilitate the movement of money globally; correspondent banks provide infrastructure, while intermediary banks offer tactical routing support.

What are the benefits of correspondent banking? 

Correspondent banking offers several advantages for businesses, platforms and marketplaces operating across borders.

Global reach without local infrastructure

Businesses can access foreign markets and process payments in multiple currencies without setting up branches or subsidiaries in those countries. Correspondent banks provide the local clearing access needed to move funds across borders.

Multi-currency support

From managing FX exposure to handling liquidity across regions, correspondent banks enable more efficient treasury operations, especially for large multinationals or firms with complex cross-border payment needs.

Meet regulatory requirements 

With established compliance protocols – many of which are baked into the Swift network – correspondent banks offer a secure, regulated channel for high-value B2B transactions. This is especially important for sectors where transparency, auditability, and risk mitigation are non-negotiable. 

Key challenges of correspondent banking

Using correspondent banking isn’t without its challenges. There are three main hurdles businesses face when making payments using this method. 

Correspondent bank charges fees

Correspondent banks charge fees for facilitating international transactions. These fees vary based on the payment route, currency, and region. For international wire transfers, they typically range from $25 to $75 per cross-border transaction.

Banks generally inform customers of these charges. In some cases, the fee passed on matches the amount charged by the correspondent bank. In others, the institution may apply a markup on top of the actual cost.

Slower settlement times

One drawback is the longer processing time associated with correspondent banking. While wire transfers typically take a few days to complete, the delay can feel excessive when real-time payments are becoming the norm.

Expectations around payment speed have changed, and correspondent banking has not kept pace.

Limited payment visibility

Once a payment enters the correspondent banking network, tracking its progress can be challenging. 

As each transaction involves multiple intermediaries, businesses lose access to real-time updates and clarity on any delays. This creates friction and impacts the overall payment experience, especially if the payments are time-sensitive. 

Thunes: The alternative to correspondent banking

Thunes offers a faster, more reliable alternative to traditional rails for businesses that want to make global payments.

By leveraging our API infrastructure, Members of Thunes’ Direct Global Network can deliver a best-in-class business payment experience, with no intermediaries and seamless, cost-efficient transactions that settle faster.

1. Speed: Faster settlement in local currencies and USD, with end-to-end traceability for every transaction.
2. Transparency: We provide real-time status updates, transparent pricing, and detailed transaction data, ensuring you always know where your money is.
3. Faster Go-To-Market: Rapid access to local ACH and USD wire transfers helps you launch in new markets without delay.

Thunes is the Smart Superhighway to move money around the world, designed to help businesses move money on a global scale with speed, scale, and clarity, wherever you operate.