A European Commission report on competition in the retail banking and payment cards sectors provides evidence of a lack of competition in the Irish banking market, according to a new entrant to the market.

"This report vindicates our position that the main banks continue to use their market position to limit competition," said Bank of Scotland (Ireland) chief executive Mark Duffy.

"While some improvements have been made, there are still significant problems with account switching and payment systems."

The report also highlighted the adverse effect of Government regulation of fees and charges and stamp duty on payment cards, he said.

However, a spokesman for the Irish Bankers' Federation said the report showed that competition issues had been and continue to be addressed. "In terms of account switching and competition, the Irish banking sector was shown in a generally positive light," he said. "Ireland is in the top echelons in foreign bank penetration."

Launching the report yesterday, competition commissioner Neelie Kroes said consumers and retailers in quite a few member states were being "ripped off" and there was something "rotten" in the system.

"We will not hesitate to take appropriate enforcement action," said Ms Kroes, who indicated that the lucrative payment card sector would be the first to be targeted.

The report concluded that in some member states "sustained high profitability, high market concentration and evidence of entry barriers raises concerns about banks' ability to exploit market power over consumers and small firms".

It highlighted particular concerns the way Irish banks co-operated in clearing and settling Laser card payments.