Senior Westpac banker Jason Yetton has flagged the potential for online forms of financing outside traditional banking, such as peer-to-peer lending and crowdfunding, to play bigger roles in funding small businesses.
With chief executive Brian Hartzer putting technology at the centre of Westpac's strategy, Mr Yetton, who runs retail and business banking, also backed a taskforce with government to explore alternative financing options for small and medium enterprises.
Banks face growing competition from nascent online industries including peer-to-peer (P2P) lending, which allow savers to directly fund borrowers via a digital platform, and crowdfunding, which raises an amount from a large number of funders.
Some bankers have recently highlighted the risks of P2P lending.
Westpac has a $5 million equity stake in P2P lender SocietyOne.
He argued there was more to be done to improve the financing of start-ups and small firms, noting that P2P and crowdfunding were growing quickly overseas, with $2.7 billion raised in these markets in 2012.
Given this overseas growth, he said there "may be opportunities for equity-based and peer-to-peer lending to be increased both domestically and globally".
Mr Yetton said the investment in SocietyOne – whereby Westpac is financing a potential rival – was believed to be the first equity investment by a bank in a P2P lender in the world.
"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," Mr Yetton said.
"We choose to embrace innovation as an opportunity rather than rely on scale and incumbency."
Mr Yetton also noted many small and medium businesses' concern that they faced difficulties in accessing finance; an issue also raised by the financial system inquiry.
He said Westpac would support a taskforce to explore alternative financing options for this large part of the economy.
Since Mr Hartzer took over from Gail Kelly in February, he has promoted the central role of technology in banking, as competition emerges from technology firms eyeing banks' huge profits.
Mr Yetton also emphasised that "tie-ups" between banks and firms in other industries would play a bigger role, noting that online retail giant Amazon had in recent years started to offer loans to small businesses.
Products that crossed industry boundaries – such as a product aimed at retirees that combined travel bookings, retirement income, insurance and currency exchange – would become "the norm", he said.