Numerous financial institutions are involved in completing cross-border payments. This is part of the reason why international payments remain expensive and complicated, with hidden intermediary bank fees & charges that can't be reliably accounted for.

So, how can you save on wire transfers and avoid these unexpected fees? In this blog, we provide strategies to help your business keep more of its hard-earned money by avoiding intermediary bank fees and charges.

Firstly, What Is an Intermediary Bank and What Does It Do?

When you send money overseas, you might think it goes straight from your bank to the recipient's. But it’s often more complicated than that.

Many times, intermediary banks need to step in, especially if the sending and receiving banks don't share a direct relationship. A local bank may not have a direct correspondent relationship with a foreign one, and an intermediary bank needs to step in to facilitate the transaction. These banks process payments, convert currencies, and ensure your money gets to the right place. However, this service isn’t free—each bank in the chain may charge a fee, often without any warning.

The more intermediary banks involved, the greater the chance of unexpected fees piling up.

Common Fees and Charges by Intermediary Banks

Those unfamiliar with international transactions maybe quite surprised to see that the money they received was considerably less than what was sent. This is due to intermediary banks fee, which is added to the fee your bank and your sender's bank charges. These charges can only be understood after the transaction is complete. It includes various types of charges like:

Flat or Percentage-Based Handling Fees: A flat or percentage-based fee charged by intermediary banks for processing the wire transfer.

Currency Conversion Fees: Charges for currency conversion, which can include hidden exchange rate markups.

Multiple Intermediary Fees or Lifting Charges: Additive charges depending on the number of banks involved in the transfer.

Transfer Charges/Service Fees: General fees imposed by intermediary banks for the transfer service itself. This can be a flat fee or a percentage of the transfer amount, depending on the bank's policies.

Who Pays Intermediary Bank Fees?

When you send money internationally, you might wonder who actually pays all the relevant fees. The answer is that it depends on how the payment was set-up. You will get an option to provide payment instructions when sending money, and you can select if the sender or receiver will pay the fees. The options typically include:

OUR (Sender Pays)
If you choose this option, you’re taking on all the fees, including charges from intermediary banks. This way, your business partner gets the majority of the amount you sent without any deductions.

SHA (Shared Costs)
With this option, you cover your own bank’s fees, while the recipient is responsible for any intermediary charges.

BEN (Beneficiary Pays)
In this scenario, you don’t pay any fees at all. Instead, all the charges, including those from intermediary banks, come out of the amount your recipient gets.

Understanding these options is super important, especially for businesses that frequently deal with international transactions. By knowing who pays what, you can better manage costs and avoid any unwelcome surprises.

How to Identify and Avoid Intermediary Bank Fees

Intermediary banks work behind the scenes, and while the services they provide are valuable, their fee structure can be unpredictable. This gets more complicated in transactions where multiple intermediary banks are involved. Here we provide some tips so you can best identify and avoid intermediary bank fees:

1. Request an MT103 Document

An MT103 document provides detailed transaction details, which can help you identify the entire money trail and charges involved in the transaction. This includes fees from intermediary banks, although requesting an MT103  document may incur an additional charge.

2. Provide Payment Instructions

One good thing about international bank transfers is that you can provide instructions regarding the fees payment. Depending on your agreement with the sender or receiver, you can choose whether the sender (OUR) or receiver (BEN)  pays the fees or if it is shared (SHA). This can provide some predictability to your international payment.

3. Use Online Transfer Platforms

Use online platforms or services that offer transparent fee structures and compare costs. Platforms like Wise (formerly TransferWise) or Karbon often provide clearer pricing and lower fees than traditional banks.

4. Opt for Direct Bank Relationships

Do some research before your payment and try to transact between banks that have a direct relationship with one another. This can help you transfer funds with no intermediary bank fees. A direct relationship between the sender and reciever's bank completely negates the need for an intermediary bank and all associated fees and charges.

5. Negotiate Fees

For regular or high-volume transactions, negotiate with your bank for better terms or reduced fees. Some banks may offer fee waivers or discounts for frequent transactions. You can always contact Karbon and request for a custom plan.

Are There Cheaper Alternatives to Traditional Wire Transfers?

There are a couple of alternate payment methods that can bypass intermediary bank fees and potentially reduce costs.

1. Blockchain-based payments system

Cryptocurrecies have a lot of potential when it comes to international payment transfers, but the technology associated with it is complicated. It is fraught with risks and practically no regulatory oversight. But it can work, popular cryptocurrencies like bitcoin or ethereum can be used for international payments, as long as both the sender and receiver are ok with it.

2. Online neobanks and payment processors

Online platforms like Wise or Paypal can facilitate your international transactions. But they are ideally suited to small recurring payments. Karbon specializes in international B2B payments and provides various additional services to it's clients. Using real exchange rates and only charging a small fee, overseas payments with Karbon is significantly cheaper than traditional wire transfers.

Final Thoughts

Now that you have a better understanding of the factors that contribute to intermediary bank fees, you can better implement effective strategies to minimize their impact.

The expert's at Karbon are always here to help if you have any questions.

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