Digital Banking Transformation in Central America: Fintech Innovation, Structural Risk and Pathways to Financial Resilience

Abstract

Digital banking is reshaping retail financial systems across Central America, offering a route toward greater efficiency, financial inclusion and resilience in economies long constrained by dollarization, external funding dependence, regulatory fragmentation and institutional heterogeneity. This study provides a comprehensive examination of digital banking and fintech transformation in the region using a mixed-methods approach that integrates econometric analysis of digital adoption and stability indicators with qualitative insights from senior financial sector and fintech stakeholders. The findings show that digitalization measurably improves access and efficiency for households and small and medium-sized enterprises (SMEs), but that its stabilizing potential is bounded by the same structural and governance constraints that have historically driven banking crises in the region. Regulatory adaptation, cybersecurity capacity and regional payment integration emerge as decisive factors in whether digital transformation strengthens or strains financial stability. The article contributes to the literature by offering a region-specific framework for digital financial resilience applicable to small, open and externally dependent economies.