Instant Payment Systems and Competition for Deposits

Sergey Sarkisyan, PhD Candidate in Finance, The Wharton School

Abstract: How do instant payment technologies impact financial intermediation? I use municipality-level data on the development of Pix in Brazil and combine it with branch-level banking data to provide evidence that instant payments positively impact deposit market competition—Pix usage increases checking, saving, and time deposits of small banks relative to large banks. I further exploit municipality-level COVID-19 restrictions to identify a persistent effect of Pix on local deposit market concentration over seven months after the launch, and a positive impact on bank deposits, resulting in more lending and lower loan rates. The findings suggest that instant payment systems can promote banking competition with positive consequences for deposits and loans.