Instant Payment Systems and Competition for Deposits

I study how payment 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. I show that the affected margins of payment convenience are transfer and retail payment costs. These findings suggest that universally available payment systems can foster banking competition.