What Are Intermediary Banks?

What Are Intermediary Banks?

Have you ever ordered a land transfer, but then realized that the amount received by the recipient was much lower than the amount sent? If you have one, then you know about the existence of mediator banks, which are internally involved in international trade. Internal banks are banks that link other banks to each other in the global financial system.

Keep going as we go into details about how it works and how it is used.

The Need for Mediator Banks

When you order a transfer, the money is not sent to the recipient directly from your account.

To better understand the need for mediator banks, consider the following example:

If Bank A and Bank B allow for direct transfer without the need for intermediary banks, it means that banks have bank accounts with each other.

In this case, Bank B will have a bank account within Bank A, in short, a bank account held by Bank B, which is opened within Bank A.

When ordering a transfer:

  • Bank transfers from your account to Bank B account within Bank A
  • Bank B will transfer the recipient’s account to Bank B
  • Bank B will then withdraw the money from the Bank A account they hold

While this may seem like a good system, which allows for fast transfers without transfers between different banks (but instead relies on internal transfers to bank accounts), not all banks have accounts.

That’s why mediator banks are needed.

Suppose you wanted to transfer the whole world from your Bank A account to the account of your family member Bank Bank C.

Bank A, as in the previous example, has a bank account with Bank B.

For Bank B to act as a liaison, Bank B must also have a bank account with Bank C, thus closing the gap between Bank A and Bank C.

This banking structure can be repeated over and over again, creating an international banking network and allowing transfers to be made from accounts in one country to account in a completely different country.

When will the mediator bank participate in the transaction?

Advisory banks are usually only involved when transferring internationally via the SWIFT network.

SWIFT represents the Society for Worldwide Interbank Financial Telecommunications and is a commercial airport.

The airport is a center, a collection of flights that travel to different countries.

Some planes can fly straight, while others have to land in the middle.

Think of SWIFT in the same sense as an airport: it is the way we operate globally – more than 30 million SWIFT transactions are made per day!

Direct relationships mean that sending and receiving banks have accounts with each other.

Indirect relationships require a mediator bank.

It can therefore be argued that in SWIFT (foreign) transactions where banks do not have a direct relationship, it will be necessary to involve a mediator bank.

What are the mediator bank fees?

The worst thing about using a mediator bank is money.

This is because mediator banks usually charge about $ 15- $ 30 – these are the same fees charged by individual banks for transactions.

However, the main difference is that this fee is charged more than the banking and receipt fee.

If you consider that many intermediary banks could be involved in a single transaction, the bank’s finances could be very significant.

Who pays the arbitrary bank fees?

In normal work, there are two sides, Part A: sender and Part B: beneficiary.

Because of the involvement of the two different parties in the sale, who pays the arbitrary bank fee?

Three orders can be given when ordering land transfers, called “case details:”

“OUR” (Sender Pays)

If this option is selected, the sender (sender) pays all the links as well as sending and receiving bank fees.

Because it is not known by banks before payment, which banks are the mediators, and how many mediation banks will be involved, the prescribed fee is given to the senders.

This amount is usually calculated based on the average foreign exchange cost and is approximately $ 60-70 in most banks.

In this case, charges are placed more than the amount to be sent.

For example, if you want to spend $ 1,000 on a friend in a different country, your account will be deducted from $ 1,070.

Your friend will then receive $ 1,000 with no discount.

By selecting this option, the amount sent and the amount received will be the same – the most important thing to consider when paying suppliers!

“SHA” (Shared Costs)

If this option is selected, the sender will have to pay the shipping cost, or in other words, pay his or her bank charges – usually about $ 15-30.

The beneficiary will be required to pay his or her bank charges and any mediator bank charges.

“BEN” (Beneficiary Pays Costs)

In this case, the beneficiary pays all charges, including bank fees.

The sender will not pay any fees.

This means that the amount sent will also be less than the amount received.

By selecting this option, the difference between the amount sent and the amount received will be much larger.

Mediators connect banks around the world, creating a global banking network.

Without intermediary banks, the overall banking profile would be very different – would international payments be possible?

The trusted bank customers they have at intermediary banks have allowed them to charge the most significant amount of money by simply acting as an intermediary in international trade.

While users can choose to pay, split, or allocate costs to the recipient, most still prefer to avoid or reduce bank charges …

The lawsuit was likely to result in fines being transferred to a business.

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