Instant Payment Systems and Competition for Deposits

Abstract

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

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, 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, 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

Sergey Sarkisyan

Assistant Professor of Finance

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