The broken trust and higher rates caused by Australia’s Big Four banks in the current climate may be discouraging a significant number of younger borrowers from using their services as they turn to alternatives such as peer-to-peer (P2P) lending.

With the Royal Commission inquiry revealing malpractice in mortgage lending from the major banks and out-of-cycle rate hikes coming in the face of a squeeze in affordability, many Australians are looking elsewhere, according to new research.

The digital age has seen a proliferation of new banking and lending companies, many of which eschew traditional brick-and-mortar stores for mobile app-led banking procedures. This allows them to cut costs and deliver a cheaper service than their rivals.

A recent report from CommSec’s Economic Insights team revealed that loans that did not come from banks increased by a noticeable 10.3% this year alone, showing that more options for borrowers are now on the table.

CommSec Chief Economist Craig James said that banks are offering “more considered” loans to position themselves more on the side of the customer, as they have less shareholder pressure.

Saying that “banks are facing greater competition from non-banks,” James noted that major financial institutions are now in a “competitive and challenging environment.” They need to secure additional external funding to cover the slight increase in the average bank deposit, which currently stands at 2.5% a year.

One of the highest-performing P2P lenders is SocietyOne, which has already managed to allocate $500m in loans and should double that figure in 2019. SocietyOne already has 20,000 customers, and its CEO Mark Jones said that the reason for its growth is because it offers borrowers convenience.

Jones noted that SocietyOne’s “millennial customers have been increasingly demanding a fairer, faster, easier and more personalized mobile-centric solution.” He added that financial services face no difference in expectations of service delivery than “Uber, Airbnb and the rest of the sharing economy.”

While the Royal Commission inquiry revealed bad news for the major banks, Jones said that SocietyOne benefited, as the inquiry “helped remind customers to check if they are getting a good deal from their bank.” He emphasized that getting “a second opinion” is never a bad idea. Many customers have switched from using major lenders following the revelations of malpractice over the last few years.

Another new market entrant, Ratesetter, said that its growth is mainly due to its digital offering being slicker and cheaper than that of its major rivals.

Ratesetter CEO Daniel Foggo said that “the take-up of digital alternative lending options has been steadily rising over the past several years in Australia” as consumers increasingly begin to trust “in fintechs.” Foggo said that this works in Ratesetter’s favor, as people have discovered that they have no need for “being stuck with the same options they’ve always used.”

As the fallout from the inquiry into financial misconduct continues, further public relations issues are likely to stem from the parliamentary grilling of executives over the next two weeks as the big banks look to regain the trust of the nation.

However, this comes at the same time as a clear move toward digital financing and P2P lending, which the bigger banks have yet to embrace. Foggo maintained that customers “know they can get better value” through some of these formats.