What are Intermediary Fees?

Have you ever made an international payment via the SWIFT network but your recipient said the funds arrived slightly less than expected? That’s a correspondent bank fee or intermediary fee. In this article, we will explain what these fees are, how they impact your transactions, and ways to minimise them.

What is an Intermediary Fee?

An intermediary fee is a charge levied by intermediary or correspondent banks for facilitating a transaction between the sender’s bank and the recipient’s bank during an international payment. These fees can occur in SWIFT transactions where the payment route involves multiple banks. However, it’s important to note that not all international payments will incur intermediary fees; in fact, generally, very few transactions will experience these fees.

How Much are Intermdiary Fees?

The amount of an intermediary fee can vary, but it generally falls between $10 and $50 per transaction. Several factors influence the exact fee amount:

• Number of Intermediary Banks: The more banks involved in the transaction, the higher the total fees may be, as each bank may charge its own fee within this range.
• Currency and Countries Involved: Different currencies and countries have different fee structures. Some currencies and regions might incur higher fees due to higher processing costs or additional regulatory requirements.
• Bank Policies: Each bank sets its own fees for processing international payments, which can differ significantly from one bank to another.

When Are Intermediary Fees Charged?

Intermediary fees are charged in many different scenarios however here are somes:

• Routing Through Correspondent Banks: When a payment is routed through the SWIFT network, there are often correspondent banks between the sender’s bank and the recipient’s bank. These banks tend to charge a processing fee for their correspondent services.
• Incorrect Bank Details: If you enter the wrong bank details and the payment is returned, banks often charge a fee for returning the funds to you.
• Amending Bank Details: If you need to send a SWIFT message such as a recall or to amend bank details, such as an MT199, this can sometimes incur a fee.

Example Scenario

For a $10,000 international transfer: If a $10,000 payment is sent to a bank in the USA and it goes through two correspondent banks, with one bank not charging anything and the other charging a $12 fee, the total intermediary fee would be $12. In this scenario, the recipient would receive $9,988.

How to Handle Intermediary Fees

When sending funds via SWIFT, you are often presented with three options: “OUR,” “SHA,” and “BEN.” Here’s what they mean:

• OUR: The sender covers all the intermediary and recipient bank charges, ensuring the beneficiary receives the full amount sent.
• SHA: The intermediary fees are shared between the sender and the recipient. The sender’s bank covers its own fees, and the recipient’s bank and intermediary banks deduct their fees from the payment amount.
• BEN: The beneficiary bears all the costs, with all fees deducted from the payment amount.

By default, Rutland FX uses the SHA method for all SWIFT payments, ensuring that the burden of intermediary fees is shared and reducing the cost impact on the sender. So, in the example above, only $6 would be deducted from the payment. For some scenarios, depending on the situation, Rutland FX can instruct payments as OUR. You would need to contact your account executive to see if this option is available to you.

Avoiding Intermediary Fees

To minimise or avoid intermediary fees, consider the following strategies:

• Use Local Payment Routes: Whenever possible, opt for local payment networks such as SEPA (Single Euro Payments Area) for transfers within Europe. These networks typically have lower or no intermediary fees compared to the SWIFT network. Payments via SEPA will default to the SHA method, similar to SWIFT payments.
• Choose the Appropriate Payment Method: Depending on the importance of the exact amount arriving at the beneficiary’s account, choose the appropriate payment instruction method (OUR, SHA, or BEN). For critical payments where the full amount must be received, use the OUR method.
• Double Check Bank Details: Using incorrect bank details can cause payment failures. When this happens, correspondent banks often charge a fee for returning the funds.
• Plan for Fees: in some cases intermediary fees are unavoidable, plan for these costs by factoring them into the total payment amount. Ensure that your beneficiaries are aware of potential deductions so they can account for the received amounts accordingly.

By implementing these strategies, you can better manage and potentially reduce the costs associated with international payments through the SWIFT network.

Still Not Sure?