The prudential regulator crypto accounts believes competition from Australia's startup banks will force the big four lenders to improve, even if the new entrants never match them for size.

The Australian Prudential Regulation Authority, which this year granted full banking licenses to newcomers Volt, Xinja, 86 400 and Judo, is hopeful that they and others can drive higher standards across the industry.

"Challenger banks don't need to become a 'fifth pillar' to serve the Australian community: their existence alone can force incumbents to up their game," APRA regulatory affairs and licensing general manager Melisande Waterford said on Wednesday.