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.

Presented at: American Finance Association (scheduled), Annual Conference of the Banco Central do Brasil, Armenian Economic Association, Bank of Canada Payments and Securities Settlement Workshop, Conference on the Economics of CBDC (scheduled), Economics of Payments Conference (scheduled), FDIC Bank Research Conference (poster session) (scheduled), Financial Intermediation Research Society (FIRS), NBER Summer Institute (Macro, Money, and Financial Frictions), Northern Finance Association, University of Western Australia Blockchain and Cryptocurrency Conference, Wharton-INSEAD Doctoral Consortium, Bank of Israel, Central Bank of Armenia, Federal Reserve Board of Governors (scheduled)

Mentioned by: The Banker, The Economist

Sergey Sarkisyan

Ph.D. Candidate in Finance

My research interests include financial intermediation, monetary policy, and payment technologies