Correspondent Banking Explained: Why Sending Money Abroad Costs 6.36%

A nurse in Dubai sends $200 to her mother in Manila. The app shows a fee, an exchange rate and an estimated arrival time. What it does not show is the chain of banks behind the transfer, each holding money in advance, each running its own checks and each taking a cut. That chain is correspondent banking, and it is the main reason the global average cost of sending $200 was still 6.36% in the World Bank's latest data, for the third quarter of 2025.

Banks cannot pay each other directly across borders

Inside a country, banks settle through the central bank. Across borders there is no shared central bank. So banks hold accounts with each other. From the Dubai bank's point of view, the dollars it keeps at a New York bank are its nostro account (our money, held by you). From the New York bank's view, the same balance is a vostro account (your money, held by us).

When the nurse's bank sends a payment, it instructs its correspondent, usually by SWIFT message, to debit its nostro account and pay onward. If the Dubai bank has no direct relationship with the Philippine bank, the payment hops through one or more intermediaries. SWIFT says 86% of payments on its network involve either a direct relationship or a single intermediary. The rest take longer routes.

Pre-funding: the hidden cost

Every nostro account has to be stocked with money before payments go through. A bank that serves twenty currency corridors needs balances sitting in twenty places, in currencies it may not otherwise hold, earning little. Estimates of how much money sits idle in these accounts worldwide range widely, from $5 trillion up to $27 trillion, and even industry commentators dispute the numbers. The exact figure matters less than the principle: capital locked in pre-funded accounts has a cost, and customers pay it through fees and exchange-rate margins.

Pre-funding also explains why the cost of a transfer depends so much on the corridor. Routes with heavy two-way traffic, such as US dollars to euros, let banks net payments against each other and keep balances lean. Thin routes, such as a small African currency to a small Asian one, need balances that sit idle for long stretches, so the price per payment is higher.

Each hop adds friction

• Fees. Intermediaries can deduct charges in transit, which is why a tuition payment sometimes arrives short.
• Compliance checks. Each bank screens the payment against sanctions lists and its own risk rules. A name that partly matches a listed person can freeze a transfer for days.
• Cut-off times. Banks run on business hours in their own time zones. A payment that misses the window in New York waits for the next day.
• FX spreads. The currency conversion usually happens at a rate marked up from the mid-market rate, which is often the biggest hidden fee.

The numbers on cost

The World Bank's Remittance Prices Worldwide data for the first quarter of 2025 showed banks were the most expensive channel, averaging 14.55% to send $200, against a global average of 6.49% that quarter. Sub-Saharan Africa was the costliest region to receive money at 8.78%, while South Asia was the cheapest at 4.80%. Digital services averaged 4.85%, well below non-digital at 7.16%. Our full breakdown is in the cost of sending money home.

De-risking: fewer banks, longer routes

Since the global financial crisis, large banks have been cutting correspondent relationships, especially with smaller banks in countries seen as high risk for money laundering or sanctions. The practice is called de-risking. The BIS's payments committee found that active correspondent relationships fell about 20% between 2012 and 2018, with a 30% drop across the Americas outside North America, according to BIS data.

The reason is simple economics. A correspondent relationship with a small bank in a small country brings modest revenue and potentially large fines. Big banks decided many such relationships were not worth it. The effect is concentration: fewer banks serve more corridors, routes get longer and smaller economies pay more.

The damage is not abstract. Research published by CEPR's VoxEU in 2024 found that firms in emerging Europe whose banks lost correspondent links saw export revenues 57% lower than comparable firms four years later. Smaller and younger firms were hit hardest.

De-risking moved risk off bank balance sheets and onto small businesses and families.

The G20 promised to fix this

In 2020 the G20 endorsed a roadmap to make cross-border payments faster, cheaper, more transparent and more accessible. The headline 2027 targets: an average cost of 1% or less for cross-border payments, no corridor above 3%, 75% of payments credited within an hour and the rest within a business day, plus remittances at 3% or less.

Progress has been slow. The Financial Stability Board's 2025 progress report said policy work was largely complete but had not yet produced tangible improvements for end users, and that meeting the 2027 timetable globally was unlikely. Remittance costs had barely moved. According to a summary by The Paypers, only about 35% of payments met the one-hour speed goal, and 18.3% of corridors still cost more than 3%.

What is actually changing

Three forces are chipping away at the old model.

1. Better data. SWIFT's move to ISO 20022 messages carries fuller names and addresses, which should cut false compliance alerts. See our piece on SWIFT in 2026.
2. Linked instant systems. Connecting domestic fast-payment systems, as Singapore and India did, skips the correspondent chain for some corridors.
3. Stablecoin settlement. Moving a dollar token on a blockchain removes the need to pre-fund nostro accounts for that leg, and settlement runs at weekends. The trade-off is that local currency still has to be bought and sold at each end, under local rules.

For senders, the practical lesson is to look past the advertised fee. Compare the amount the recipient will actually receive with what the same sum would be at the mid-market rate. The gap between those two numbers is the real price of the correspondent chain, whoever ends up collecting it.

None of these replaces correspondent banking outright. The system still reaches places nothing else does, and its compliance role is real. But the cost of the old model is now visible, measured and politically awkward, which is usually the first step toward it changing.

About this researchMuffinPay InsightsIndependent analysis of stablecoins, CBDCs, cross-border payments and digital public infrastructure. Every figure is linked to its source. Read our editorial standards →