Payment Convenience and Competition for Deposits

Abstract

I study how payment technology reshapes deposit competition. I exploit quasi-exogenous variation in the usage of Pix, Brazil’s instant payment system, from two independent sources – the easing of COVID restrictions and counterparty timeouts – to show that instant payments increase deposit competition. Small bank deposits rise relative to large banks as Pix narrows the payment convenience gap. As small banks become more competitive in providing payment services, they reduce deposit rates relative to large banks. I show that the affected margins of convenience are transfer and retail payment costs. These findings suggest that universally available payment systems can increase competition among banks.

Presented at: American Finance Association, 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, Economics of Payments Conference, Financial Intermediation Research Society (FIRS), Georgia Tech - Atlanta Fed Household Finance Conference, NBER Summer Institute (Macro, Money, and Financial Frictions), Northern Finance Association, Princeton Conference on Resilience, SFS Cavalcade North America, University of Western Australia Blockchain and Cryptocurrency Conference, Wharton-INSEAD Doctoral Consortium, Bank of Israel, Boston College Carroll, Central Bank of Armenia, Columbia Business School, Federal Reserve Board of Governors, INSEAD, New York University Stern, Ohio State University Fisher, Peking University NSD, Rice University Jones, Stanford GSB, University of British Columbia Sauder, University of Chicago Booth, University of Illinois Gies, University of Virginia Darden

Mentioned by: American Banker, The Banker, The Economist, Vox

Mentioned by the World Bank’s Digital Public Infrastructure Report

Payment Convenience and Competition for Deposits

Abstract

Sergey Sarkisyan

Assistant Professor of Finance