Banks were yesterday warned that they could face a fresh investigation from competition watchdogs amid increasing concerns over the dominance of four big players.
John Fingleton, chief executive of the Office of Fair Trading (OFT), demanded a "step change" in the way banks do business.
Without this, he said, the OFT would consider a reference to the Competition Commission which could come in the next three years.
Mr Fingleton said in a speech yesterday the market – dominated by Royal Bank of Scotland, Barclays, Lloyds and HSBC – is over-concentrated and works against new entrants.
The credit crisis exacerbated this situation, not least because of the rescue of HBOS by Lloyds Banking Group brokered by the previous government. Competition rules were suspended to allow that deal to proceed.
The problems for companies seeking to enter the market were highlighted by Tesco's recent decision to delay the launch of its current accounts.
Mr Fingleton said he wants to work with the new Prudential Regulation Authority to ensure its requirements do not make life impossible for "new" entrants or challengers, such as Virgin Money or Metro Bank, by forcing them to hold too much cash in reserve.
But in a warning to the existing players he added: "For too long banks have needed pressure... from regulators and enforcers to introduce things they should already have been doing.
"It shouldn't need a super-complaint for banks to provide clear information to consumers on obvious areas such as the interest rate paid on their saving account or the charges they pay when using their cards abroad."
Banks are currently dealing with fallout from the Independent Commission on Banking which demanded that they ringfence retail operations from more risky investment banking.
"Going forward we need to see evidence which demonstrates that the market dynamics of entry and (current account) switching are sufficient to drive stronger, customer-focused competition," Mr Fingleton said.
He also said he welcomed proposals by the new Financial Conduct Authority to attach greater importance to the "customer experience" of banks.
"Many of the issues that competition authorities have been grappling with stem from a lack of customer focus," he added.
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