This paper studies how financial technology reshapes competition among banks. I exploit quasi-random variation in the exposure to the introduction of Brazil’s Pix, an instant payment system, and show that instant payments increase deposit market competition – small bank deposits rise relative to large banks because Pix allows small banks to offer greater payment convenience to depositors. Since small banks become more competitive in the provision of payment services, they can reduce their deposit rates relative to large banks. Finally, I estimate a deposit demand model and find that depositors' welfare increases after Pix. These findings suggest that universally available payment systems can foster banking competition.
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