Finance Fintech.

What are the 4 models of ๐œ๐ซ๐จ๐ฌ๐ฌ-๐›๐จ๐ซ๐๐ž๐ซ ๐ฉ๐š๐ฒ๐ฆ๐ž๐ง๐ญ๐ฌ?

The diagram below shows the 4 models.

โ–ถ๏ธ 1. ๐‚๐จ๐ซ๐ซ๐ž๐ฌ๐ฉ๐จ๐ง๐๐ž๐ง๐ญ ๐›๐š๐ง๐ค๐ข๐ง๐  ๐ฆ๐จ๐๐ž๐ฅ
The correspondent bank holds deposits owned by other banks from other countries. This allows banks to access financial services in different jurisdictions.

Under some international card schemes (Visa, Mastercard), participating banks typically rely on correspondent banking for settlement. [1]

โ–ถ๏ธ 2. ๐ˆ๐ง๐ญ๐ž๐ซ๐ฅ๐ข๐ง๐ค๐ข๐ง๐  ๐ฆ๐จ๐๐ž๐ฅ
This enables PSPs (Payment Service Providers) participating in the payment infrastructure of one country to send and receive payments to/from PSPs participating in another countryโ€™s infrastructure.

Interlinking can be costly and complex from a legal, operational and technical point of view, and therefore has generally only been set up between countries with considerable economic activity between them and/or migration flows. [1]

โ–ถ๏ธ 3. ๐’๐ข๐ง๐ ๐ฅ๐ž ๐ฉ๐ฅ๐š๐ญ๐Ÿ๐จ๐ซ๐ฆ ๐ฆ๐จ๐๐ž๐ฅ
PSP of the payer is the same entity (or part of the same group) as the PSP of the payee. This can be the case for proprietary arrangements (e.g. traditional money transfer operators), some international card schemes (i.e. โ€œ3-party modelโ€) and e-money schemes, or multinational banks that are present in the payerโ€™s and the payeeโ€™s country. [1]

โ–ถ๏ธ 4. ๐๐ž๐ž๐ซ-๐ญ๐จ-๐ฉ๐ž๐ž๐ซ ๐ฆ๐จ๐๐ž๐ฅ
The peer-to-peer model cuts out the financial intermediary PSP and enables the payer to send the payment directly to the payee. For example, sending crypto assets over blockchains falls into this category.

โ–ถ๏ธ ๐‚๐ก๐š๐ฅ๐ฅ๐ž๐ง๐ ๐ž๐ฌ ๐จ๐Ÿ ๐œ๐ซ๐จ๐ฌ๐ฌ-๐›๐จ๐ซ๐๐ž๐ซ ๐ฉ๐š๐ฒ๐ฆ๐ž๐ง๐ญ๐ฌ
Cross-border payments are ๐š๐œ๐ซ๐จ๐ฌ๐ฌ ๐ฃ๐ฎ๐ซ๐ข๐ฌ๐๐ข๐œ๐ญ๐ข๐จ๐ง๐ฌ. Different countries have different payment regulations, and different payment processing and clearing systems.

We need a way to ๐ข๐ง๐ญ๐ž๐ซ๐จ๐ฉ among the information flow and fund flow. So thatโ€™s why we have different models to address this issue.


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