Treasurer Scott Morrison has paved the way for about 58 smaller lenders to become banks, potentially driving Australians away from the Big Four and helping struggling families get lower home loan rates.

Canberra said this move would ramp up competition and provide more options to customers. Similar reforms have been undertaken in the United Kingdom, which has seen their market flooded with new lenders and prompted their big banks to offer cheaper mortgages.

These 58 lenders include credit unions and buildings societies, who’ll now be able to call themselves banks as a result of the federal government’s new ruling.

“Allowing more lenders to be called banks will mean better access to cheaper loans and more generous deposit rates for Australians,” Morrison told The Daily Telegraph. “This is about giving Australians more opportunities to get a better deal for their home loan and their deposits.”

The change could also encourage innovative online-only banks to provide banking and lending services on digital platforms to customers who do not want to use brick-and-mortar branches and ATMs.

The federal government has prepared draft legislation for the reforms, which were flagged in the 2017-18 budget, to allow authorised deposit-taking institutions to identify themselves as banks. Currently, only those with capital that exceeds $50m can use the title.

If the changes pass parliament, almost 60 credit unions and building societies will be able to change their names – and the government hopes that other smaller lenders will enter the market.

Morrison said that all deposit-taking institutions were subject to scrutiny by the Australian Prudential Regulation Authority (APRA). Additionally, all deposits with registered lenders were protected by the government’s financial claims scheme guarantee.

The draft legislation was released for consultation on July 16.