We examine the impact of digital payments on the transmission of monetary policy. Leveraging administrative data on Pix, a digital payment system introduced by the Central Bank of Brazil, we find that Pix adoption has diminished banks’ market power, making them more responsive to changes in policy rates. Subsequently, we estimate a dynamic banking model in which digital payment amplifies deposit elasticity through the household sector. Our counterfactual results reveal that digital payments amplify the monetary policy transmission by reducing banks’ market power – banks respond more to policy rate changes after Pix. We find that digital payments impact monetary transmission primarily through the deposit channel.