No single bank maintains accounts everywhere. When two institutions lack a direct relationship, they call on an intermediary—a correspondent bank—that holds “nostro” and “vostro” accounts for each side. The originating bank debits its nostro at the correspondent, the correspondent credits the beneficiary’s bank via another internal ledger, and the payment reaches its destination without the two endpoint banks ever touching. This model has powered global trade since the telegraph, and still handles trillions in daily value despite newer rails.
The fee stack nobody sees upfront
- Correspondent handling charge – A flat amount or tiered percentage the intermediary deducts from the principal unless the sender chooses the OUR fee option.
- Lifting fee – A second, smaller charge for moving funds from the nostro to the beneficiary bank.
- FX spread – If the correspondent converts currency, it embeds a margin that rarely appears on the advice slip.
- Repair or investigation fee – Applied when data errors force manual intervention; passed to the sender after the fact.
Because each institution sets its own tariffs, total cost can differ wildly for corridors that look identical on paper. Two wires leaving the same bank on the same day may arrive with different landed amounts simply because they travelled through different correspondents.
Hidden operational and compliance risks
- Payment opacity – Traditional SWIFT messages offer no real-time status. If a correspondent queries sanctions or AML flags, funds can sit idle for days while upstream banks scramble for documentation.
- De-risking fallout – Many global banks have closed correspondent relationships in regions deemed high-risk. A wire that once took two hops may now take four, increasing points of failure and cost.
- Regulatory mismatch – Each jurisdiction imposes its own data and screening rules. A payment perfectly compliant in the sender’s country can breach rules in a correspondent’s domicile, leading to freezes or returns.
- Liquidity drag – Banks must pre-fund nostro accounts, tying up capital. During stress periods correspondents may raise collateral requirements, catching small institutions off-guard.
Practical steps to tame the exposure
Map your corridors. List every currency route over the past year and ask your bank which correspondents they use. Concentrated flows justify negotiating better fees or exploring alternative rails.
Opt into SWIFT gpi or SWIFT Go. Both services attach a unique end-to-end reference and mandate fee transparency, letting you see deductions as they occur and chase bottlenecks precisely.
Use currency accounts in-market. Holding euros within the SEPA zone or dollars in the US lets you pay local suppliers via domestic schemes, bypassing correspondent chains altogether.
Clarify fee responsibility. For critical payments—tuition, property closings—select the OUR option so you bear all costs and the beneficiary receives the exact invoice amount.
Validate data before release. Automate IBAN and BIC checks plus sanctions screening. Clean data minimises costly “repairs” once the message leaves your bank.
Maintain dual banking partners. If one correspondent path stalls due to de-risking or sanctions reviews, a second provider with different intermediaries keeps cash moving.
When the extra cost is worth it
Correspondent banking is not always the villain. Large-value corporate payments, bespoke trade-finance deals and exotic-currency settlements may have no faster or safer alternative today. The key is to weigh the premium against business impact. Paying an extra forty dollars to secure a shipment worth half a million is rational; losing the same margin on a 300-dollar sample order is not.
Negotiating a better deal
Banks rarely advertise correspondent fees, but relationship managers can adjust them for high-volume clients. Arm yourself with data: show annual wire counts, average ticket size and evidence of competitor pricing. Request itemised fee disclosure per corridor and push for capped lifting charges. Some institutions refund repair fees if the error originated downstream; knowing this policy can turn a rejection into a credit rather than a loss.
The evolving landscape
Regulators and the industry are nudging toward more transparency. ISO 20022’s rich-data fields allow automated compliance checks, reducing manual stops. Fintech networks are offering direct clearing access in popular currencies, shrinking the role of correspondents for small payments. Central-bank digital-currency pilots promise atomic settlement without nostro pre-funding. Until these futures arrive at scale, understanding how correspondent banks operate and mastering the tactics to control their cost and risk remains an essential skill for any organisation that sends money abroad.