For banks, this new wave of rivals is sparking a debate about how best to respond to the growing competition from technology companies that although tiny, have the potential to pinch valuable customers.
The banks record share prices can make them appear indestructible, and the new challengers face enormous barriers in trying to enter the market, but there is a strong awareness of the power of disruption. Witness the upheaval unleashed by Uber in taxis, or iTunes in music.
As a seniorBank of England official, Andrew Haldane, argued back in 2012, there is no automatic need for banks if borrowers and savers could connect directly.
The banking middlemen may in time become the surplus links in the chain. Where music and publishing have led, finance could follow, Haldane said at the time.
So, what might the wave of new online competitors mean for Australias all-powerful banks?
Barely a week goes without a technology firm trumpeting a new offering in the finance market.
With unfamiliar brand names, and often led by former bankers, these businesses are typically offering cheaper or easier credit, to an online customer base that has little need to walk into a bank branch.
Peer-to-peer lending is perhaps the most visible example. Simply put, it is where a website facilitates lending between saver and borrower – cutting out the need for the bank. It is an approach that has sparked rapid growth overseas.
In Britain, peer-to-peer lending has been roughly doubling in size for the last few years and last year its volumes eclipsed pound;1 billion ($1.9 billion), the industry association says. Across the Atlantic in the United States, the worlds biggest P2P business Lending Club last year floated in a bumper initial public offering, with its shares surging 56 per cent on debut.
Daniel Foggo, chief executive of the Australian arm of UK peer-to-peer lender RateSetter, is eyeing the $100 billion personal loan market, which includes automotive, credit cards and unsecured credit. Ultimately, he says the peer-to-peer lenders could grab as much as 20 per cent of these markets in Australia.
While banks have argued the popularity of peer-to-peer platforms is being inflated by low interest rates, Foggo points out that in the UK it has been around for almost a decade.
Overseas there have been peer-to-peer lenders operating since 2006, he says. Zopa [a UK lender] has reported their return through that full credit cycle, and they had positive returns every year.
One reason peer-to-peer lenders like Foggo are eyeing Australia is that its an affluent, technology savvy market. Underlining this threat to the banks, a KPMG survey this week found young customers rate the mobile and online presence as the most important attribute when choosing a bank, and they were becoming less loyal.
But the growth overseas is not just being driven by new technology or lower costs, but something much more profound: erosion in trust towards banks and large corporations.
Australias banks have not had their reputations trashed like those overseas during the global financial crisis. But that does not make them immune to global forces unleashed by the internet.
SocietyOnes co-founder, Matt Symons, argues that what is really disruptive about peer-to-peer platforms is that trust is moving away from institutions -such as banks -towards individuals. Individual ratings of other peoples reliability through eBay or Airbnb allow more and more customers to cut out middlemen that were previously taking a profit.
In the world of credit, peer-to-peer and other online lending platforms achieve this by extending lower rates of interest to people who have the better credit ratings.
In that world, trust is moving away from the institutions and towards individuals; thats what is potentially very disruptive about these peer-to-peer lending platforms, Symons says.
SocietyOne is the longest-running peer-to-peer lender in Australia. It has attracted equity investments from Westpac, Rupert Murdochs News Corporation and companies controlled by James Packer and Kerry Stokes.
But there are plenty of others also eyeing their piece of the action. Other peer-to-peer lenders including MoneyPlace, Marketlend and ThinCats, whileDirectMoney, led by the former Aussie Home Loans boss Stephen Porges, has started writing personal loans via an online platform.
Then there are other online rivals using technology in other ways to target the banks turf in small business lending.
Kabbage, an American online lender thats writing $2 million a day in small business loans in the US, last month announced a partnership with locally based Kikka Capital. Its pitch is it can write working capital loans of up to $100,000 within seven minutes, by having businesses provide their financials online.
Australian start-upMoula last year began offering working capital loans to small business, something online payments giant PayPal now does as well.
Consultant Martin North says that such is the interest in online lending to smaller businesses that it is becoming quite a crowded market in terms of alternatives to the big banks.
North believes the peer-to-peer model has serious long-term potential, especially for business lending, which is a lucrative, high-margin segment for banks. Supporting this, North cites a survey he conducted that found 35 per cent of small business borrowers would be interested in using the service, and many investors would be happy to lend this way.
In the long term, we will see a substantial peer-to-peer lending market in Australia and it will be competitive with the banks, but it will take time to evolve, he says.
Statistics are hard to come by in Australia but Goldman last month estimated $US11 billion ($14 billion) out of $US150 billion in annual US bank profits could be threatened by non-traditional lending, such as on peer-to-peer platforms, over the next five years.
At the same time, however, the uphill battle facing these minnows of finance should not be understated.
For instance, there is no suggestion it will touch the largest source of bank profits in the country: the $1.3 trillion mortgage market.
Macquarie analyst MikeWiblinis sceptical of the long-term potential for peer-to-peer lending to be the game changer that proponents claim.
Wiblin says the big challenge facing the industry will be how investors respond when interest rates inevitably rise or there are higher rates of default by borrowers.
All P2P does is what a bank does, but it does it on an automated platform, he says.
While peer-to-peer businesses are getting much of the attention, Wiblin says there are other technology-based businesses eyeing banking that are more innovative and harder to copy -and therefore a bigger long-term threat to banks.
If there was a case to say peer-to-peer was getting big, then the banks would just buy them out, or start to do it themselves.
Indeed, this is what is already starting to happen in overseas: technology upstarts are being absorbed into conventional finance.
Some 80 to 90 per cent of the capital lent out by the two US giants, Prosper and Lending Club, actually comes from institutional investors, according to Forbes.
Westpacs head of retail and business banking, Jason Yetton, says the bank is watching the market closely and is keen to learn from these new rivals, after it invested $5 million in SocietyOne last year.
We could fight and defend against these new entrants, but we know partnering will provide insight into the development of financial products and online creditworthiness algorithms that would otherwise be blind to us, Yetton said last week.
For all the promise of greater competition, however, the wave of new financiers also raises questions about whether new risks are being created.
For one, there is the risk that investors who lend their money via a peer-to-peer platform may lose some of their capital because borrowers default, notwithstanding that many of these new firms have provision funds to protect lenders against bad loans.
There are no official statistics measuring the size of the peer-to-peer market in Australia, but the Reserve Bank last month noted that some retail investors have been attracted to the relatively high rates of return offered by the nascent market of peer-to lenders.
[The Australians Securities and Investments Commission] has warned that investors should understand and take into account the associated financial risks of these products, which include a lack of liquidity and a difficulty in assessing the quality of the borrower, the RBA said.
A further question is how these business models would cope with much higher interest rates or a wave of defaults, something they are yet to experience, certainly in Australia.
Banks have made a point of highlighting this.
ANZ chief executiveMike Smith last month said that digital change was as fundamental as the industrial revolution, and regulators should be wary of new risks being introduced.
He cited the example of peer-to-peerlenders, saying the industry was emerging at a time when very few loans were going bad and that needed to be taken into account by regulators.
When people get burnt, the question is going to be asked, why are you being burnt, who regulated it? Whos responsible? And I think that thats going to be the worry, Smith said.
It is true that the number of loans going bad is at a historic low -and this makes life easier for non-banks to compete in lending.
Yet both Foggo and Symons point out that default rates among peer-to-peer lenders in the UK have in fact been lower than for commercial banks. Both peer-to-peer lenders also say their platforms are targeting the most creditworthy borrowers, which would minimise the impact of a rise in bad debts, something many think is inevitable.
On the question of regulation, authorities are alert to the risks highlighted by Smith but a regulatory crackdown looks unlikely.
Instead, the financial system inquiry argued that it should be made easier for peer-to-peer lenders and other crowdfunders to do business, because they are a promising source of finance for start-up businesses that cant always access a bank loan.
The regulatory framework should facilitate financing via the internet, the report said.
At the moment, peer-to-peer lenders in Australia are regulated by the Australian Securities and Investments Commission, but unlike banks they are not subject to prudential regulation because they dont take deposits.
And despite the warnings of bankers such as Smith, it looks unlikely that this sector will be subject to greater regulatory constraints any time soon. The corporate regulator last month announced a new hub to help fintech start-ups navigate the regulatory system more quickly, and it is firmly against regulating peer-to-peer lenders as if they were banks.
Instead of resisting the change, the signs are that regulators are welcoming the extra competition as a win for customers.