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Money can be digital. The Internet can move digital value across continents in milliseconds at less than a penny. Yet, a single cross border transaction can take days or cost over $30.
What went wrong and where?
Every cross-border transaction passes through a web of financial institutions called “correspondents,” which are a part of a decades-old network called “the correspondent banking system” built long before the internet.
So, in reality, your money doesn’t actually move directly from one country to another. It hops through multiple banks and financial institutions, each taking time and fees to pass the baton. [[widget crypto=(USDC)]]
The result of this inefficient system is a lock up of over 4 trillion dollars globally (which otherwise could circulate in the economy).
In this article, we’ll decode how the correspondent banking system really works, why it struggles to keep up, and how Web3 rails can help.
The correspondent banking system is the global money network that lets one bank (the correspondent) talk to another (respondent), especially when they don’t have a direct relationship.
A relay race is a wonderful visualization of this system.
When you send funds from your bank in India to someone in Germany, your local bank might not have a branch there. So, it routes the transaction through one or more correspondent banks that do. These intermediate financial institutions “pass the baton” across borders until the money reaches its destination.
Here’s a simplified version of what happens:
For example, a company in Singapore paying a supplier in Brazil might go through two or three correspondent banks (one in New York for USD liquidity and another in London for FX conversion) before the funds reach the Brazilian bank.
Each hop adds time, cost, and complexity. Every bank in the chain must verify the transaction, perform compliance checks, and update its internal ledger before passing it on.
This system has worked for decades because it’s based on trust and access. Not every bank can operate everywhere, so they rely on trusted partners who can. But it’s also a closed, institution-heavy network designed for a slower era of finance.
To understand why correspondent banking exists, we have to go back to a time when the world’s financial system was stitched together through trust, not technology.
After World War II, global trade exploded. But most banks could only operate within their own borders. A small regional bank in Thailand couldn’t just “send” dollars to a partner in the U.S. because it didn’t have a branch or license there.
So, it turned to a correspondent bank (typically a large international institution with access to multiple currencies and markets) to handle that transaction on its behalf.
These correspondent banks held nostro accounts (an account a domestic bank keeps in a foreign currency with another bank) and vostro accounts (an account a foreign bank holds in local currency). These accounts acted as the connecting tissue of cross-border payments, allowing money to “move” across ledgers even if it never physically left a balance sheet.
For decades, this system worked beautifully. and became the foundation of global finance supported by networks like SWIFT, which standardized how payment instructions were communicated between banks. Everyone had confidence their money would arrive (albeit the delays).
Therein lies the problem. This structure was built for a world where banks closed at 5pm, communication happened by telex (a device almost like a hybrid of a fax machine and a typewriter), and international transfers were the exception, not the norm.
Today, the world operates 24/7, but correspondent banking still runs on the old schedule. The trust-based model that once made global payments possible has now become a bottleneck.
When you send money within your country, it usually moves directly between two banks over a central payment network like UPI, ACH, or SEPA. But when you send money abroad, there’s no single global network connecting every bank.
Here’s what a typical cross-border payment looks like behind the scenes:
This process might sound simple, but in practice it’s slow and costly because:
To ensure smooth operations, banks keep large sums locked in foreign accounts as pre-funded liquidity, ready to settle future transactions. This is like keeping cash parked at every toll booth just in case you need to pass through. It’s safe, but highly inefficient.
Stablecoins are digital tokens backed by real-world assets, usually fiat currencies like the U.S. dollar or euro. Each token represents one unit of currency held in reserve by a regulated issuer such as Circle (USDC), Paxos (USDG), or Ripple (RLUSD).
As stablecoins maintain a stable value, they can act as digital cash for global payments by combining the stability of fiat with the speed of crypto rails.
Also Read: Why VCs Are Betting on Stablecoin Infrastructure in 2025
What does that mean for cross-border payments?
Also Read: 7 Reasons Stablecoins Are Becoming the Currency of Regulated Businesses
A growing number of traditional financial players are already experimenting with this model:
Also Read: Why Smart Companies Are Building Their Own Stablecoin Rails
Today, infrastructure providers, like Transak, are stepping into the role of correspondents. But with a twist. Web3 payments providers move money itself, not just the message (like SWIFT).
Instead of sending manual instructions over SWIFT, companies today use API-based payment networks to initiate, verify, and settle transactions in real time.
Platforms like Transak, and Circle Payments Network serve as digital correspondents, connecting fiat banking systems to on-chain stablecoin liquidity.
And in this new architecture, regulated stablecoins such as USDC, RLUSD, USDG, and EURC act as the bridge currency between institutions.
The correspondent banking system is a network of financial institutions that collaborate to process cross-border payments. When two banks don’t have a direct relationship, they use one or more correspondent banks to route and settle funds internationally.
Correspondent banks are domestic and foreign banks that provide services on behalf of other banks, especially across borders. They hold accounts (nostro/vostro) and facilitate transactions, currency conversions, and settlements between other domestic and foreign banks that don’t have a direct relationship.
Cross-border payments pass through multiple domestic and foreign banks, each performing compliance checks, currency conversions, and reconciliations. These steps can take two to five days, especially when financial transactions move across different time zones and currencies.
SWIFT doesn’t move money, it moves messages about money. Banks use SWIFT messages to instruct and confirm payments, but actual fund settlement happens later through correspondent banks.
Stablecoins transfer real value instantly on blockchain networks, removing the need for multiple intermediaries. They allow 24/7 settlement, lower fees, and transparent tracking, effectively modernizing how cross-border value moves.
Web3 correspondents are digital infrastructure providers like Transak, Circle, or Fireblocks that connect traditional banking systems to blockchain networks. They act as modern equivalents of correspondent banks, but settle value in real time using stablecoins.
Not entirely. Instead, they’ll coexist in a hybrid model where stablecoins handle settlement and speed, while banks maintain regulatory oversight, compliance, and customer trust.