Does Digital Commerce Deepening Increase Banking Fragility? Evidence from Household Leverage in a Cross-Country Panel

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Abstract
This study examines whether digital commerce deepening and digital financial use are associated with banking fragility through the household leverage channel. Using country-year data from Euromonitor International Passport for 16 economies over 2015-2025, the analysis links bank nonperforming loans to household debt, app-based mobile commerce, internet banking, smartphone possession, and government effectiveness. The empirical strategy applies dynamic two-way fixed effects models with country and year effects, clustered standard errors, Driscoll-Kraay sensitivity checks, restricted housing-stress controls, crisis-year exclusions, alternative winsorization, mechanism regressions, and placebo leads. The findings show strong persistence in banking fragility and a positive household-debt signal, although the effect is strongest in robust covariance and alternative winsorization specifications. App-based mobile commerce is negatively associated with nonperforming loans in the dynamic models, suggesting that digital commerce may capture formalization, payment efficiency, or digital maturity rather than mechanical overborrowing. Internet banking and the household-debt-by-government-effectiveness interaction are not robust predictors. Overall, digitalization does not mechanically amplify banking fragility; the more consistent channel is household leverage, moderated only weakly by institutional execution in the available panel.

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