Credit unions and building societies' lack of tech leadership means they are under threat from a new wave of digital banks, according to ratings agency Moody's.
Volt, co-founded by a former chief executive of mortgages at UK giant Barclays, this week became the first fintech granted a banking licence - allowing it to raise deposits up to a maximum $2 million.
Moody's Investors Service vice president Frank Mirenzi on Tuesday said the big four banks - ANZ, Commonwealth Bank, National Australia Bank and Westpac - were already well placed to compete with the new players, given their sizeable budgets for technological innovation and digital transformation.
But smaller banks, building societies and credit unions will be vulnerable to competition, he said, "given their lack of technological leadership and lower levels of profitability and economies of scale, which can significantly constrain budgets for technological change".
Volt is headed by former Barclays executive Steve Weston, while chief financial officer Angus McBean also held that role at G&C Mutual Bank.
The restricted licence the Australian Prudential Regulation Authority granted it on Monday allows the digital-only bank to accumulate total deposits of $2 million and its total assets cannot exceed $100 million.
Mr Mirenzi said those caps will mean it remains very small in a banking system that has assets in the trillions.
"Nevertheless, the granting of a banking licence marks the first steps towards enhanced competition to traditional banks from newer, technologically driven entrants," he said.
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