The intermediary bank is the one that fulfills the function of facilitator in a cross-border bank transfer . This role usually falls to financial institutions with a large worldwide presence.
Thanks to intermediary banks, any person (natural or legal) can send money , from their account, to another subject abroad. This, without the need for the payer’s financial institution to have a branch in the country of destination.
Intermediary banks maintain accounts in the name of other financial companies. In this way, they make discounts and payments based on the requirements of their customers.
For example, if a transfer is requested, a deduction will have to be made to the bank account from where the operation is sent. Also, a deposit will be made to the account of the entity to which the money is being sent.
Example of intermediary bank
Let’s look at an example of how an intermediary bank operates to understand it better. Suppose that Juan López wishes to make a transfer from Mexico to his friend Luis Carbajal, who lives in Spain.
Juan saves his savings at KAY Bank and Luis, at BOP Bank. There are two scenarios:
- The financial companies involved maintain deposits in the same intermediary, for example, the Transatlantic Bank. To proceed with the operation, a discount is authorized first to the KAY Bank account, which includes the amount you wish to transfer plus a commission. Then, the payment corresponding to the BOP Bank account is made.
- In a second scenario, the banks of the payer and the receiver register accounts, without coincidence, in different intermediaries. These, however, could keep deposits in a common financial company that would facilitate the operation, as we can see below:
As the graph explains, at the Transatlantic Bank, a discount is authorized to the KAY Bank account and an income to that of the ABC Bank. This company, in turn, pays the amount corresponding to the account that the BOP Bank maintains in its institution. Each of the entities involved in the operation charges a commission to the payer.
It should be noted that international transfers charge commissions that can be high. If you want to transfer US $ 2,000, this could mean a disbursement, for example, of US $ 2,500.