Competition between banks has been "blunted" by a lack of choice for consumers and the problems people face in switching accounts, the Independent Commission on Banking (ICB) said today.
The group called for a number of measures to be introduced to make it easier for people to move their current account, including a set time period, possibly of seven working days, during which banks would have to complete the process.
A new redirection system could be created during the next couple of years which would automatically transfer direct debits and credits from old accounts to new ones.
The commission also suggested that consumers should be able to take their bank account number with them when they change provider, to avoid the need to transfer all of their direct debits and standing orders, which is one of the main areas in which problems arise.
It said this measure had been rejected in the past as being too costly but it should be reconsidered if no other solutions appeared to be effective.
The commission said competition between banks had been blunted by the actual and perceived difficulties people faced in switching their current account to another provider.
It cited research by Consumer Focus, which found that 31% of people had changed their energy supplier during the past two years, 26% had switched telephone provider and 22% had changed insurer, but only 7% of people had moved their current account.
The lack of switching has contributed to the UK's five largest banks holding an 87% share of current accounts in 2010.
There have been just six new entrants into the current account market during the past decade, of which only four remained for more than a year, with these failing to take a significant share of the market.
The commission said conditions were generally poor for consumer choice while people faced difficulties in understanding and comparing products, and there were barriers preventing new players, who may have better customer offerings, entering the market,
It said: "There is reason to believe that a radically-improved system for switching accounts could and should be introduced at a reasonable cost within a short timescale.
"This would help to reduce obstacles to switching, which constitute one of the main barriers to entry as well as blunting competition between established banks.
"This could be less costly and simpler to introduce than full account number portability while delivering many of the benefits."
Consumer groups welcomed the report.
Peter Vicary-Smith, chief executive of Which?, said: "Competition on the high street is at an all-time low, with the three biggest retail banking groups consisting of two that would have collapsed without taxpayer support and one that has a woeful record on customer services.
"The financial crisis has increased the market power of the largest banks, leading to a worse deal for consumers. We're pleased the commission recognised this, but need to consider whether the recommendations will go far enough to address the parlous state of competition in the UK."
Mike O'Connor, chief executive of Consumer Focus, said: "We welcome moves to encourage switching of accounts, which our research shows is unnecessarily problematic."Reuse content