The Banking Revolution Could Finally Dethrone Barclays PLC, HSBC Holdings plc, Lloyds Banking Group PLC & Royal Bank of Scotland Group plc

Given the bashing they got after the financial crisis, it’s amazing the banks survived at all. Even former Bank of England governor Mervyn King was surprised people weren’t angrier at their behaviour.

Barclays (LSE: BARC), HSBC Holdings (LSE: HSBA), Lloyds Banking Group (LSE: LLOY) and Royal Bank of Scotland Group (LSE: RBS) escaped the guillotine that time, but they may be heading for the chopping block now.

There’s a revolution going on in the banking sector, and this time the ancient regime could be doomed.

Fine Time

Top dividend investor Neil Woodford saw it coming, and made good his escape. His concern was “fine inflation”, as regulators court favour with the mob by slapping ever harsher penalties on our banking overlords.

Now bankers are even been fined for simple incompetence, with RBS paying £56m for computer failures in 2012. When corruption is involved, as in last week’s forex scandal, the fines run into billions.

Challenges, Challenges

Regulatory revenge is a dish best eaten cold, and washed down with a cocktail of investigations. Barclays, HSBC, Lloyds and RBS now lie at the mercy of the Competition & Markets Authority, which could smash their 77% share of the retail current account market.

The big four are also being jabbed by pitchforks from all angles. Challenger banks Metro, M&S, Tesco, TSB, Virgin and others are now gouging chunks out of their business model.

Switching bank is easier than ever, as the internet destroys loyalty, and the seven-day switching service slowly gains acceptance. As branch closures leave the big banks with ever fewer boots on the ground, what is there to remain loyal to anyway?

Peer Pressure

The peer-to-peer revolution is another threat, with P2P lenders cutting out the banking middleman to offer better savers and borrowers more tempting rates.

The big banks are hoping to spearhead the mobile payments revolution, but it could just as easily spear them, especially if the big technology giants such as Google, Apple and Amazon produce a compelling rival offering.

Beneath all this, the customer grumblings continue. As wages stagnate, banker bonuses are more unacceptable than ever, as Barclays’ chief Antony Jenkins discovered earlier this year. Rewarding highly-paid staff for failure triggered a public backlash that effectively finished it as a global player in investment banking.

The revolution isn’t as bloody as it could have been, but it’s a revolution nonetheless. There are still investment opportunities out there, provided you keep your head.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.