Banks ultimately won’t be too troubled by upstart fintech disruptors in the battle for ascendancy and market share, Luci Ellis, the head of the Reserve Bank of Australia’s financial stability department, says.

In the lending market in particular, peer-to-peer lenders and consumer credit providers trying to disrupt the big-four will find themselves at an unassailable disadvantage because of their inability to access central bank liquidity and adequately fund credit assessment, says Ellis, during a presentation to academics at Sydney University Business School’s Banking and Financial Stability conference in July.

Bank lending accounts for most of the credit that’s provided in Australia by a long way, followed by other sources including capital markets as well as market-based finance structures such as credit funds used by niche lenders such as peer-to-peer lenders, Ellis highlights.

Low-leverage or unleveraged credit funds will always play some role in the system, but they are unlikely to be the main provider of credit to the rest of the economy, she says.

“They are more likely to fill in some niches that the mainstream banking system doesn't service. In particular, they will tend to be at the riskier end of the spectrum, often lending to borrowers that the banks rejected,” she highlights.

While market-based finance might create structures intended to reduce cost disadvantages, they will always struggle to compete with traditional financial intermediation, Ellis says.

One of the ways market-based finance is creating structures to level the playing field in lending can be seen in the evolution of credit raters, such as the recently ASX-listed fintech company, Veda.

“Start-ups and smaller lenders are challenged with a paucity of internal data with which to develop credit risk models and insights. The use of Credit Bureau Scores and Wholesale Credit Ratings provide an opportunity to access insights and decision making tools that are both more robust and more accurate than they would be able to develop using their own data alone,” comments Mike Cutter Veda’s head of credit risk and advisory services.

Start-ups and smaller lenders are challenged with a paucity of internal data with which to develop credit risk models and insights.

“Many smaller institutions do not have the expertise or analytical infrastructure with which to develop the sophisticated tools that their larger, more established competitors can produce. Bureau scores and bespoke credit scorecard from vendors such as Veda can help level the playing field,” Cutter says to InFinance.

The Veda model will utilise pooled data sources and insights on customer and industry performance across entire markets to expand the understanding of the applicant and ultimately improve the accuracy of the risk assessment for banks and non-bank lenders.

But the RBA’s Ellis doesn’t expect these types of solutions to start eroding the banks’ market share in lending any time soon.

“We have already seen earlier episodes of this particular movie franchise,” Ellis says, describing the narrative that banks today will be challenged by new entrants enabled by new technologies.

Ellis points out that as recent as the mid-1990s, academics and policy thinkers were pointing to the banks’ inevitable decline as financial market were growing in importance.

“We say fintech will disrupt well, no, banks will use tech. There will be some disruption but banks will use tech too,” Ellis comments.

The disruption narrative, meanwhile, is used liberally in venture capital fund raising circles as well as more broadly, leading to an explosion of investors willing to stump up funding for fintech ideas.

Fintech start-ups raised a total of $US12.1 billion globally in 2014, more than three times the $US4 billion raised in 2013, according to SWIFT Institute and Accenture paper published in April this year on distributed ledger technology adoption.

The buzz that’s been created around blockchain and distributed ledger technology on the back of crypto currency hype alone has alone resulted in $US1.1 billion in cumulative venture capital has been raised for more than 200 related ventures, according to Accenture numbers.

“One of the things about Bitcoin and blockchain is everyone seems to spend all their time on conferences about blockchain. That might be a consumption of real resources issue more than anything,” Ellis comments.

It’s not the first time a central bank has raised scepticism about fintech’s ability to challenge entrenched incumbency of the banks; in April the European Central Bank published a paper, dousing the start-up hype in the segment.

But disrupting the banks will be next to impossible for would be newcomers, Ellis says.

“There will be some things that might pose risks [to the banks] as the financial sector innovates but not all will and the banks will innovate themselves,” she says.

Ellis also highlights the “quid pro quo” for the social license to offer deposits is a requirement to submit to public intervention or prudential supervision.