Abstract

Under stringent regulatory restrictions, the banking industry must innovate, yet little is known about the psychological factors that support innovation in risk-averse environments. This study explores how digital leadership shapes technology vision, empowers teams through data, and normalizes experimentation. Using a qualitative approach, semi-structured interviews were conducted with six participants: one manager, two customer support representatives, two account officers, and one teller. Credibility is strengthened through role triangulation and member checking. Thematic analysis, combining deductive and inductive coding, examines leadership practices that build psychological safety and stimulate innovation within a compliance-driven culture. Findings indicate that employees with strong digital literacy adapt more effectively to new technologies. Those working in psychologically safe environments feel comfortable expressing ideas and are less afraid of making mistakes. The study concludes that psychological safety, digital leadership, and digital literacy positively influence employee innovation at Bank BRI Batulicin. Without compromising risk management, the study offers practical recommendations on work design and leadership development, providing insight into how innovation can thrive in highly regulated industries.