Thousands of retail investors are pumping cash into peer-to-peer lending, with RateSetter reporting about $45 million has been taken out of bank accounts and lent directly to borrowers.

The online lending platform, the largest in Australia accepting money from retail investors, has recently hit the milestone of having 5000 investors, helped by the very low interest rates being paid by banks.

Australian chief executive of peer-to-peer lender Ratesetter Daniel Foggo says P2P loans are becoming a more "mainstream" asset.

While it took two years to sign up its first 5000 investors, RateSetter's Australian arm expects this number to double in the next six months, as P2P lending tries to break into turf controlled by the banks.

P2P lending is where individuals bypass banks by directly lending their money to borrowers via an online platform. It is mainly focused on personal loans and small business loans, and it still only has a tiny portion of these markets.