How do PayPal, Visa, banks and open banking interact with each other?

[Khan Ehsanul Hoque]

How do PayPal, Visa, banks and open banking interact with each other?

The diagram below shows how the payment ecosystem works from a bird's eye.

From bottom to top:

🔹 A bank or a PSP (Payment Service Provider) provides payment services to merchants and card holders.

🔹 The card schemes such as Visa and Mastercard connect to PSPs on both card acquiring and issuing sides. They do clearing for credit/debit card transactions.

🔹 The commercial banks have reserve accounts in the central bank, where the actual money movement happens.

🔹 Open banking provides universal APIs for 3rd-party service providers to access bank accounts and create transactions. By creating a 𝐬𝐡𝐨𝐫𝐭𝐜𝐮𝐭 in the current systems, open banking APIs are already fostering innovations.

In payment systems, the information flow and settlement flow are separated. So although there are layers of systems in the diagram, they don't need to happen at the same time.

Source: https://www.linkedin.com/posts/hua-li-8b31851b_systemdesign-payments-fintech-activity-7031280757562085376-ZOw9/?utm_source=share&utm_medium=member_android