Can Instant Payments Fuel Credit Card Expansion? (draft available upon request)

Abstract

We study how digital payments affect consumer credit through the information they generate. Using Brazilian credit registry and transaction-level data on Pix, credit and debit cards, we show that Pix users are more likely to receive credit cards, higher limits, and lower interest rates from the bank observing their payments. Pix data improve banks’ predictions of future default and expand credit within their customer base. Digital payment expansion is also associated with greater credit-card borrowing. Interchange fees and rewards remain unchanged, ruling out pricing and competition explanations. Finally, we estimate a structural model quantifying information acquisition, payment demand, pricing incentives, and counterfactual market designs.

Presented at: Central Bank of Colombia (scheduled), National University of Singapore (scheduled), Nanyang Technological University (scheduled), University of Southern California Marshall (scheduled), PUC-Chile (scheduled), Banco Central de Chile (scheduled)

*denotes presentation by co-author