What is correspondent banking?

A practical guide to international money movement for payment teams.

Most payment systems are domestic in scope and operate in a single currency. Yet people and businesses want to make and receive payments across national borders. Correspondent banking enables this.

Yet despite existing in some form for centuries, the process of sending money abroad doesn’t always go smoothly. We examine the reasons why and what the future may hold for cross-border money movement.

In this article, we cover:

What is correspondent banking?

What are the use cases for correspondent banking?

How does correspondent banking work?

What is the size and scale of correspondent banking today?

What is the history of correspondent banking?

What are the advantages of correspondent banking?

What are the disadvantages of correspondent banking?

To what extent is correspondent banking being disrupted?

How is innovation coming to correspondent banking?

How can Inpay provide a viable alternative to correspondent banking?

What is correspondent banking?

Correspondent banking is when one bank provides services to another bank, usually for cross-border transactions, but also for funds or wire transfers, currency exchange and settlement.

Imagine a business in Germany and a supplier in the UK. Both bank locally and want to send payments to one another. But because their respective banks don’t use the same domestic payment network, they can’t pay each other directly. Instead, they rely on correspondent banks to facilitate payments between countries and currencies behind the scenes.

What are the use cases for correspondent banking?

Correspondent banking is a critical pillar of the finance industry, supporting international trade and financial inclusion.

Businesses need to make cross-border payments to suppliers as well as accept them from customers. Individuals also have various reasons to make international payments. Whether it’s migrant workers sending remittances home. Or international students paying tuition fees. Or holiday homeowners needing to pay utility bills locally.

How does correspondent banking work?

When a domestic bank needs to process a payment to an international bank with which it has no relationship, it turns to a correspondent bank to execute the transaction.

Apart from the technical network connecting the various banks, correspondent banking is powered by a system of nostro and vostro accounts. Nostro and vostro are Italian banking terms used to describe the same account from two perspectives. They mean ‘ours’ and ‘yours’ in this context.

A domestic bank sets up a nostro account with an international correspondent bank, essentially ‘our money with you’. The international correspondent bank refers to that same account as a vostro account, ‘your money with us’.

To make an international payment, the domestic bank transfers funds to its nostro account at the correspondent bank. The correspondent bank sends these funds to the intended recipient.

Nostro and vostro accounts facilitate the smooth flow of funds and currency exchange between banks. They also serve an important accounting function, allowing banks to accurately record and reconcile transactions from each party’s perspective.

What is the size and scale of correspondent banking today?

As international trade has increased over the past few decades, so has the number and importance of cross-border payments. The value of cross-border payments is estimated to increase from almost $150 trillion in 2017 to over $250 trillion by 2027, equating to a rise of over $100 trillion in just 10 years, according to the Bank of England.

Cross-border correspondent banking payments are often processed by SWIFT, the Society of Worldwide Interbank Telecommunications. The equivalent of world GDP moves across the SWIFT correspondent banking network every three days.

What is the history of correspondent banking?

The precursors to today’s correspondent banking stretch from 9th century China to the Crusades, via medieval banking families in Italy through to the founding of Swift in 1973.

The use of bills of exchange to facilitate long-distance trade began around 800 in China during the Tang dynasty. Feiqian, or ‘flying money’, was a two-part document allowing merchants to deposit profits in a regional office and reclaim their cash back in the capital.

The Knights Templar were warrior monks, who dedicated themselves to the defence of Christian pilgrims to Jerusalem during the Crusades. The Templars developed letters of credit to avoid pilgrims from having to carry large sums of cash, making them targets for thieves. Pilgrims could leave cash at the Temple Church in London and withdraw it in Jerusalem.

Fast-forward to the mid-16th century, the Great Fairs of Lyon, the largest markets for international trade in Europe, began to attract Italian merchants from prominent banking families. They used lettres de change, credit notes, to borrow, settle accounts and manage currency exchanges.

As international trade globalized during the 1970s, the telex system was struggling to keep up. Swift was founded in 1973 in Brussels as a global cooperative, linking 239 banks across 15 countries. Today more than 11,500 institutions in more than 200 countries use this messaging service.

What are the advantages of correspondent banking?

One of the main advantages of correspondent banking is that it enables banks to offer their customers services internationally, without having local branches.

Another pro of correspondent banking is its established reputation as a trusted, secure way to move money.

Coverage is also a benefit in that over the last 50+ years, Swift has built a global network, which spans more than 200 countries and territories worldwide.

What are the disadvantages of correspondent banking?

The disadvantages of correspondent banking are that cross-border payments are often complex, time-consuming, manual and expensive. There’s also a general lack of transparency around pricing, timing and tracking.

Much of the payment process seems to be a ‘black box’, with so many factors either hidden or out of the sender’s or receiver’s control. For example, which banks are involved, which systems they use, and whether transfers cross a business day, weekend or time zone. That’s quite apart from any language or currencies differences.

Daily cut-off times, unexpected delays, nasty fee surprises, failed payments, wasted time sorting out admin and exceptions are other drawbacks. And while the coverage of correspondent banking is global in theory, in practice some payment corridors are beyond the reach and risk appetite of participating banks.

To what extent is correspondent banking being disrupted?

There are various ways to move money abroad besides correspondent banking. Card schemes, money service businesses (MSBs), hawala and fintechs are viable alternatives. Each has pros and cons and may ‘disrupt’ traditional correspondent banking.

Card networks are a secure way to move money that’s faster than bank transfers. They offer the flexibility of pay-outs to card, bank and digital accounts. However, transfers may be expensive, with variable execution times, and coverage may not extend to all countries and currencies.

The MSB sector includes networks operated by large multi-national brands, such as Western Union and MoneyGram, as well as unregulated or unregistered businesses. Generally, the established brands are known, trusted and secure. Their platforms and apps are convenient and user-friendly, their transaction times fast. But commissions and fees may be expensive, coverage patchy and transfer limits apply.

Hawala is an informal funds transfer systems that predates correspondent banking. It enables people without a bank account to transmit funds outside the formal system. It’s faster and cheaper than bank transfers, with good reach into countries with strict capital controls or under sanction. But that’s also a drawback. The anonymity of hawala transactions makes it attractive to those wanting to conduct illegal transactions.

Fintechs, including Inpay, are building their own networks of participating institutions to link domestic instant systems for cross-border payments. This offers secure, global coverage that’s cheaper and faster than correspondent banking. Such providers are less established and well-known, which may mean clients are less aware of them.

How is innovation coming to correspondent banking?

The world today is mobile-first, near-instant and on-demand. Consumers can tap their cards or phones to pay for things locally. But when it comes to cross-border payments, execution times, transfer routes and fees are not always known upfront.

Swift is attempting to address some of these drawbacks. Recent initiatives, such as Swift Go, pertain to improving the experience of retail cross-border payments up to $10,000 or equivalents.

In early March 2026, Swift announced that more than 50 banks worldwide were participating in a new framework. This gives end-customers “certainty of cost, full-value delivery, the fastest possible speeds and end-to-end traceability when making international transfers,” according to a news release.

There are also plans to introduce a Blockchain-based ledger to enable 24/7, real-time cross-border value exchange, as announced at the annual Sibos conference in 2025.

How can Inpay provide a viable alternative to correspondent banking?

A network of correspondent banking relationships connecting different domestic systems is great in theory. But in practice, payments can be time-consuming to process, expensive and slow. Inpay has developed a different way of moving money cross-border outside of traditional correspondent banking systems.

Inpay provides low-cost, fast and secure multi-currency cross-border payments as an alternative to SWIFT wire transfers, via its global network of sending and receiving institutions.

• Coverage – Our network covers 200+ countries. This includes the 41 SEPA countries via the standard SEPA and instant SEPA solutions, the UK with GBP and further afield with local payment offerings.
• Speed – Payments are quicker than the 2-5 days an international wire typically takes. That’s because much of the traffic rides on real-time payment rails. Inpay also receives funds in any currency and pays out locally in real-time.
• Cost – Inpay’s direct access to domestic clearing channels helps minimize fees normally charged by intermediaries in an international correspondent banking chain. This means payments arrive in full without deductions, plus makes them cheaper.
• Complexity – Inpay’s services are available via a single integration with a choice of connection methods: API, SWIFT, file upload or customized API. This removes barrier to entry to alternative ways to move money cross-border.