The Effect of Instant Payments on the Banking System

Rodrigo Gonzalez, Yiming Ma and Yao Zeng

No 619, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: Instant payment systems have received considerable attention because of their integration with the banking system and their shared functionalities with CBDCs. We show that instant payments may have the unintended consequences of increasing the banking sector’s demand for liquidity. Using administrative banking data and transaction-level payment data from Brazil’s Pix, one of the most widely adopted instant payment systems, we find that banks increased their liquid asset holdings after the adoption of instant payments. We establish the causal relationship by constructing a novel instrument based on passive payment timeouts. These findings arise because the convenience of instant payments to consumers comes at the expense of banks’ ability to delay and net payment flows. The inability to delay payments increases banks’ demand for holding liquid assets over transforming illiquid ones. Our findings bear important financial stability implications in light of the global surge in adopting instant payment systems, e.g., FedNow in the US.

Date: 2025-03
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/WP619.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bcb:wpaper:619

Access Statistics for this paper

More papers in Working Papers Series from Central Bank of Brazil, Research Department
Bibliographic data for series maintained by Rodrigo Barbone Gonzalez ().