Instant Payments: Regulatory Innovation and Payment Substitution Across Countries

Abstract

This paper provides the first causal evidence on how instant payment infrastructure affects household finance and bank intermediation. Exploiting the staggered rollout of SEPA Instant Payments across Europe and detailed microdata from the ECB's SPACE survey (2019-2024), we employ a Difference-inDifferences framework augmented with a control function to address selection. We find that instant payments significantly reduce precautionary cash holdings, increase household investment in equities and digital assets, and shift payment preferences toward digital channels. Concurrently, banks respond to compressed transaction-fee revenues by expanding unsecured consumer lending. We develop a theoretical model where faster payment settlement improves bank signal precision, enabling broader credit access and inducing new household liquidity management strategies. Our results have important implications for financial inclusion, banking sector risk-taking, and systemic stability in the digital era.