Instant Payment Systems and Competition for Deposits

How do instant payment technologies impact financial intermediation? I use municipality-level data on the development of Pix in Brazil to provide evidence that instant payments positively impact deposit market competition -- small banks increase deposits and reduce deposit rates in areas with more Pix usage. I further exploit municipality-level COVID-19 restrictions to identify a persistent effect of Pix on local deposit market concentration over five months after the launch, and a positive impact on bank deposits, resulting in more loans by both large and small banks. I estimate the deposit demand model and show that the deposit markets would be 34% more concentrated if Pix were never introduced. The findings suggest that the universally available instant payment systems can foster banking competition with positive consequences for deposits and loans.