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Regulating Iranian Card payments System as a Two-Sided Market

Author

Listed:
  • Aghaei, Hossein

    (Allameh Tabataba'i University)

  • Talebloo, Reza

    (Allameh Tabataba'i University)

  • Khodada Kashi, Farhad

    (Department of Economics, Payame Noor University)

Abstract

This paper examines the necessity of regulating the Iranian card payments system (SHAPARAK) based on the theory of two-sided markets. The expansion of the payment card system in recent years has arisen some questions regarding the role of all kinds of costs and expenses such as interchange fees, cardholder fees, merchant fees, and network externality in balancing the market. Since there is only an interchange fee in Iran, regulation of the card payments system is necessary to assess the variables affecting this system. The data used in this study consist of 1218 observations of 29 banks from March 2016 to August 2019. The econometric method for this purpose is the fixed effects panel data model. The results indicate that the interchange fee has an essential role in balancing the Iranian card payment system market. Also, network externality makes the opportunity for balancing the market by decreasing the interchange fee and finally reducing transaction costs for acquirer banks. This policy can lower the interest rate of the bank loans because, in the Iranian card payment system, cardholders and merchants do not pay fees for transactions. So, banks try to attract clients for issuing cards and receive interchange fees as revenue to compensate for the payment network costs by the interest rate of loans. Overall, the results of the estimated model show that improving the card payments system in Iran should be regulated by related organizations.

Suggested Citation

  • Aghaei, Hossein & Talebloo, Reza & Khodada Kashi, Farhad, 2020. "Regulating Iranian Card payments System as a Two-Sided Market," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 15(2), pages 199-220, April.
  • Handle: RePEc:mbr:jmonec:v:15:y:2020:i:2:p:199-220
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    References listed on IDEAS

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    More about this item

    Keywords

    Payment card system; two sided market; regulation;
    All these keywords.

    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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