Borrowers are rejecting traditional banks when applying for loans, flocking to digital, mobile-centric platforms and peer-to-peer lenders.

A CommSec Economic Insights report shows loans by non-bank institutions were up 10.3% in the year to August. CommSec chief economist Craig James says banks are facing greater competition from non-banks.

“It is clearly a competitive and challenging environment for financial institutions,” he says.

Peer-to-peer lender SocietyOne has become the first marketplace lender of its kind in Australia to hit $500 million in loans, to 20,000 Australian borrowers, and is on track to reach $1 billion in 2019. Society One CEO Mark Jones says the influx is about convenience for the next generation of borrowers. He says the royal commission spotlight on bad banking behaviour has also turned borrowers away from major lenders.

Ratesetter Australia is another peer-to-peer lender that has seen a spike in activity, with debt consolidation, car financing and home renovations among top wish list items for borrowers.