Correspondent Bank Charges: What They Are & How They Impact Transfers

When you send money internationally, it rarely travels in a straight line. Between your bank and the recipient's bank, there's an entire chain of intermediaries. Each doing a job, and each taking a cut. Those cuts are called correspondent bank charges, and understanding them is the first step to not being blindsided by them.

In this guide, you'll learn what correspondent bank charges are, how they're applied in international transfers, and who pays them. You'll also discover the OUR/SHA/BEN options, factors that affect fees, hidden FX markups, how charges impact exporters and SMEs, and practical ways to reduce correspondent bank costs on your cross-border payments.

Key Takeaways

• Understanding correspondent bank charges helps Indian exporters and businesses protect margins on international transfers, avoid unexpected deductions, reconcile payments accurately, and pick the right charge instruction (OUR, SHA, or BEN) for every transaction.
• Correspondent banks act as intermediaries between banks that don't have direct relationships, each takes a cut of $10-$50 per transfer, plus FX markup on currency conversion.
• OUR means the sender pays everything; SHA splits fees; BEN means the recipient pays and receives less.
• Unlike RBI-regulated transaction types, correspondent bank fees are not capped by the RBI, banks set their own charges.
• Platforms like Xflow use proprietary payment rails and mid-market FX rates to bypass most correspondent banking costs, settling INR payouts in 1 business day.

A correspondent bank is an intermediary, a third-party bank that helps in the transfer of funds between your bank and the recipient's bank. Once you initiate a transaction, your money gets passed from your bank, to the correspondent bank, and then finally reaches its destination.

For doing this, the correspondent bank charges a fee. That fee is what's called a correspondent bank charge. It's also sometimes referred to as an agent charge, a foreign bank fee, or an intermediary bank fee.

To understand how exactly correspondent banks work, let’s assume you’re sending money from your bank in India to a supplier's bank in Germany.

Most of the time, your bank won’t have a direct financial relationship with that German bank. That's where the SWIFT network comes in.  Your bank uses the SWIFT network to find a correspondent bank that has a relationship with both your Indian bank and the German bank.

Your bank transfers the funds into its “nostro account” at the correspondent bank. The correspondent bank refers to that same account as a “vostro account.” This is how funds get tracked and settled across borders.

The correspondent deducts its service fee and processes the payment to the recipient's bank, which then deposits the funds into the supplier's account.

There are multiple reasons why a correspondent bank needs to charge a fee to carry out a transaction. These include:

Operational cost

Every bank that helps route your payment handles the transaction, manages settlement, and coordinates communication across the SWIFT network. And that takes infrastructure, staff, and systems to run. 

Currency conversion

If your transfer involves switching currencies, that's an added service. Currency exchange fees are charged to convert the original currency to the local currency at the rate applicable at the time. Sometimes this isn't even a visible fee. Banks usually apply a less favourable exchange rate instead.

Compliance and regulatory requirements

Correspondent banks are required to comply with anti-money laundering rules, sanctions screening, and other regulatory obligations every time they process a cross-border transaction. That compliance work has a cost, and it gets passed down the chain.

The options of who should pay the transfer fees appear on your bank's form as OUR, SHA, or BEN. 

OUR: Sender pays everything

OUR means you, the sender, pay all transfer fees. The full amount is expected to arrive with the recipient. This is the safest option when you need a precise amount to land, like paying an invoice or sending tuition fees.

The catch here is that under SWIFT, it's not always possible to know in advance who the intermediary banks will be or exactly how much they'll charge. Your bank may collect an estimated amount upfront, and if the actual charge ends up being lower, the difference doesn't always come back to you.

SHA: Fees are split

SHA means the sender pays their bank's outgoing fees, while the recipient pays the incoming and intermediary charges. It sounds fair, but in practice the recipient often ends up with less than expected, and may not know why.

BEN: Recipient pays everything

BEN means the receiver pays all fees. Charges are deducted from the amount sent, so the recipient receives less than expected. The sender pays nothing beyond the transfer amount itself.

A typical international transfer comes with a stack of charges. Some are visible upfront, some quietly deducted along the way. Here are all such charges involved:

• Foreign exchange conversion: Foreign exchange conversion makes up a significant part of the cost. Banks don't use the interbank rate. Instead, they apply their own buying and selling rates to turn a profit, effectively charging a conversion fee on top of the base rate.
• Outgoing wire transfer fee: This is your bank's charge for simply initiating the wire transfer. It’s collected before your money even leaves your account. The amount varies by bank and account type.
• Correspondent bank charges: As we’ve already discussed so far, once your transfer enters the SWIFT network, correspondent banks along the route deduct their own fees from the amount being sent. Depending on the bank your recipient holds an account with, there might be one or multiple correspondent banks involved, each levying their own charge.
• Incoming wire transfer fee: The recipient's bank can charge too. Just for receiving the funds on their end.
• SWIFT tracing fee: If you need to track the progress of a SWIFT transfer, banks may charge a separate tracing fee on top of everything else. 
• Taxes and regulatory charges: Depending on the country you're sending from, additional taxes may apply on top of bank fees. On the conversion, on the commission, and sometimes on the transfer itself.

Because so many factors are at play here, like currency pair, destination country, transfer speed, and the provider, there is no fixed cost for an international transfer. The only way to know the full amount is to check directly with your bank before you send.

Correspondent bank fees shift depending on a number of variables, such as:

1. The destination country

Some regions cost higher fees due to limited banking networks, currency controls, and regulatory restrictions. Sending money to a country with a well-developed banking system is much cheaper than sending to one where the financial infrastructure is not that developed and more intermediary hops are needed.

2. The currencies involved

Rates vary depending on which pair of currencies is being processed. Some currency pairs are widely traded and have well-established banking corridors. Others are less common, requiring more intermediaries and, naturally, more fees.

3. The number of correspondent banks in the chain

The larger your bank and your recipient's bank, the less likely a correspondent bank fee will be charged at all. Because bigger banks tend to have more direct relationships globally. Smaller banks, on the other hand, often need to route through multiple intermediaries, and each one adds a charge.

4. Speed of the transfer

If the recipient needs the money urgently, additional charges apply. Standard overseas payments typically take three to five days. But opting for a same-day or expedited transfer comes at a premium.

5. The payment provider

Every financial institution has different capabilities that influence the price of its services. Technological limitations may force some banks to rely on legacy systems that are more expensive to operate. This means two transfers for the same amount, to the same destination, can cost very different amounts depending on who you're sending through.

6. Local regulations

Local financial laws also affect transfer costs. Some countries have stringent regulations that require additional compliance measures from banks, driving up the cost. In nations with volatile currencies, banks may charge higher conversion fees to offset exchange rate risk.

Correspondent banks and intermediary banks are often used interchangeably, and while they do similar jobs, there's a distinction worth knowing.

The main difference comes down to currencies. Intermediary banks handle transactions in a single currency. They focus on enabling the transfer itself. Correspondent banks handle transactions in more than one currency and play a larger role in currency exchange, using the SWIFT network to process multi-currency international payments. In practice, a single transfer can involve both. An intermediary bank routing the payment, and a correspondent bank handling the currency conversion.

How intermediary banks fit into a SWIFT transfer

SWIFT doesn't actually move money. It sends the messages that tell banks where to deposit funds. When your bank initiates a transfer, it sends a SWIFT message through the network. If two banks have a direct relationship, the transaction is straightforward. If they don't, an intermediary bank steps in. Because the two banks don't have accounts with each other and need a third party to assist.

In some cases, if the recipient's bank doesn't have a correspondent bank in the sending country, it can rely on an intermediary bank that does. That means funds can move from the sending bank, to a correspondent bank, then to an intermediary bank, and finally to the recipient's bank. The chain, as is evident, can get long.

The fees and charges arising from your international transactions are divided into:

1. Visible layer

Intermediary bank fees typically fall into several categories: processing fees for handling the transaction, currency conversion fees if the transfer involves switching currencies, and SWIFT network fees for using the global messaging system that coordinates the transfer. Your bank usually discloses its own outgoing wire fee upfront. That part is clear. 

2. Hidden layer

The fees charged by intermediary banks are not standard, and neither the sending bank nor the receiving bank can tell customers exactly what they'll pay. The intermediary bank involved will differ, depending on the currency of the payment, the recipient's bank, and the destination country.

These fees are deducted silently. They don't appear as a separate line item on your bank statement or the recipient's. Multiple intermediaries mean multiple deductions, each taken without an invoice or alert.

Each intermediary typically deducts somewhere between $10 and $50. Some banks charge a flat fee, others take a percentage of the transfer amount, and many charge both. The exact amount depends on the bank, the corridor, and the currencies involved.

3. The FX markup

Beyond the stated fees, banks often apply unfavourable exchange rates rather than showing a separate conversion fee. That means the markup gets bundled into the rate itself, where it's far less visible. This is frequently the larger of the two costs, yet it's often not very noticeable.

For an individual sending money abroad once in a while, a $20-$30 correspondent bank charge is an inconvenience. For a business making international payments regularly, the impact is a different matter entirely.

1. It erodes margins 

FX markups and intermediary bank charges, when accumulated, are impossible to ignore, especially for high-value or recurring payments. Small businesses often feel these costs most acutely, and elevated fees can discourage international expansion. 

2. It makes cash flow harder to predict

The unpredictability of intermediary charges complicates budgeting and financial planning for businesses making regular international payments. When you can't know in advance exactly how much will be deducted mid-route, forecasting becomes an issue. And that uncertainty has real operational consequences.

3. It creates reconciliation headaches

Costs appear at different stages. At initiation, during conversion, and then at settlement. That means the approved payment amount often differs from the amount actually received. That gap makes visibility, reconciliation accuracy, and cash flow predictability quite hard to maintain. Finance teams are left chasing discrepancies that are not easy to anticipate.

4. It strains supplier and client relationships

It's not uncommon for recipients to receive less than expected because of intermediary deductions. When a supplier expects a specific amount and receives less, with no clear explanation, it obviously creates friction. Over time, recipients receiving less money than expected due to hidden fees can damage business relationships. 

5. It hits exporters particularly hard

In the case of exporters, payments come in from a lot of countries, through multiple banking corridors, at different fee levels. High fees and exchange rates that are not in favor can cut into your profit margins. That means it becomes next to impossible to manage your daily operations and plan for growth. 

SMEs that have to absorb these costs may even struggle to maintain competitive pricing in global markets. And passing those costs on to customers can risk market share.

You can't eliminate correspondent bank charges entirely. They're built into how the international banking system works. But you can take steps to reduce them, or at least make them more predictable. Here's how:

• Pay in the recipient's local currency - Sending money in the recipient's local currency brings down intermediary involvement and can lower fees by a lot. Because the conversion happens at a known point, rather than mid-route with an unknown markup applied.
• Select OUR as your charge instruction - When you choose OUR, you cover all transfer fees upfront, and the recipient gets the full amount. Sure, it costs more on your end, but removes the uncertainty of unknown deductions along the way that ultimately reach your recipient. That has a chance of souring relationships. 
• Consolidate your transfers - Rather than sending multiple smaller payments, combine them into fewer, larger transactions. Each transfer attracts its own fixed fees. Batching reduces how many times you pay those charges.
• Use a bank with a strong international network - Larger banks with more direct global relationships require fewer intermediary stops. And fewer hops means fewer deductions.
• Consider specialist transfer providers - Fintech payment platforms often build their own banking networks to reduce intermediary involvement. This way, they can offer more transparent fee structures and lower overall costs than traditional banks.
• Use local payment rails where possible - For transfers within certain regions, like SEPA in Europe, payments bypass the correspondent banking network entirely, making them faster, cheaper, and fully transparent in fees.

A study by SWIFT found that the top three reasons for abandoning a payment provider are hidden fees, lack of clarity on exchange rates, and failed deliveries. What’s even more noticeable is that transparency was considered more important than the cost of the transfer itself.

• Helps with informed decisions: Without clear upfront costs, it's next to impossible to compare providers.
• Protects business relationships: Recipients who receive less than expected, with no clear explanation, erode trust over time.
• Allows better cash flow planning: Unpredictable deductions make forecasting hard. Even more so for businesses making regular international payments.

Most costly international transfer experiences occur because of avoidable mistakes. Given below are the ones that come up most often.

• Not checking the exchange rate - Every provider offers a slightly different rate. Even a small difference compounds significantly on large or frequent transfers. Always compare against the mid-market rate before you send.
• Skipping the charge instruction - Most people miss the OUR/SHA/BEN field entirely. Not selecting the right charge instruction means you can't predict how much will actually land, and SHA or BEN can result in the recipient getting less than expected.
• Entering incorrect account details - Wrong account numbers or SWIFT codes cause delays, failed transfers, and additional amendment or recall fees, all of which are avoidable with a quick double-check before sending.
• Sending fragmented payments - Making multiple small transfers instead of consolidating them means paying fixed fees multiple times. Each transfer attracts its own charges, regardless of the amount.
• Not comparing providers - Banks are rarely the cheapest option for international transfers. Not measuring the effectiveness of different providers means accepting higher fees and worse exchange rates by default.

Correspondent bank charges are baked into the international banking system. They're not going away anytime soon. But they don't have to catch you off guard either. Once you understand how the chain works, who takes what, and where the hidden costs sit, you're in a much better position to manage them.

The goal here is to make them on your own terms. That's exactly what Xflow is built for.

Purpose-built for Indian businesses receiving payments from abroad, Xflow removes the uncertainty from international transfers. There are no hidden FX markups and no surprise intermediary deductions. You see your exact costs upfront, convert at mid-market rates, and settle into your INR account in one business day.

To learn more about Xflow, visit its website now!