SWIFT & International
Correspondent Banking Relationship
A correspondent bank is a financial institution that provides services on behalf of another bank, typically in a different country or currency zone. It acts as an intermediary, enabling banks that do not have a direct relationship to settle cross-border payments. Correspondent banking is the foundation of the international payment system facilitated by the SWIFT network.
Banks establish correspondent relationships by opening accounts with each other — a nostro account (ours at their bank) and a vostro account (theirs at our bank). When a customer sends money abroad, their bank may not have a direct connection to the beneficiary's bank. Instead, it routes the payment through one or more correspondent banks that do. An intermediary bank in the chain debits one account and credits another, moving the funds closer to their destination at each hop.
Correspondent banking explains why international transfers can be slower and more expensive than domestic ones — each intermediary in the chain may deduct a fee and add processing time. Understanding this chain helps businesses choose banks with direct relationships in their key corridors, minimizing hops, fees, and settlement delays. It also explains the multiple deduction charges that can appear on international wire transfers.
Back to all terms.