This chapter examines how Latvia’s banking sector is responding to digital innovation, regulatory transformation, and the imperative of climate risk management. The study, based on expert interviews conducted in 2024 with 29 key stakeholders—including banks, regulators, policymakers, and industry advocates—demonstrates that although fintechs and neobanks maintain niche positions, they significantly contribute to innovation within the ecosystem. The regulatory tightening that occurred after 2018 has led to a more cautious approach to lending and has maintained high interest rates, with climate finance integration (via ESG) primarily focused on meeting compliance requirements. The findings illustrate how a small, open banking system adapts under structural and policy constraints.