Instant Payment Systems and Competition for Deposits

Abstract

How do instant payment systems impact the banking landscape? I exploit quasi-random variation in exposure to the introduction of Pix in Brazil, an instant payment technology, to estimate that instant payments increase deposit market competition – small bank deposits rise relative to large banks. Because instant payment systems allow small banks to offer greater payment convenience to depositors, small banks can reduce their deposit rates relative to large banks. I estimate the deposit demand model and show that the depositors' welfare increases by 10% after Pix. The findings suggest that the universally available instant payment systems can foster banking competition.

Keywords: Instant payment technologies, deposit market power, banking, Pix

JEL Classification: E42, G21, G11, E58