Britain's banking industry will be unrecognisable within a few years.

A new report into banking by accountants PricewaterhouseCoopers has been issued as banks await the arrival of the Cruickshank Review into the industry.

PwC forecast that the arrival of electronic banking through the Internet will mean an end to traditional branch banking as we know it. Instead there will be much fiercer competition between increasingly hi-tech providers, with many new entrants coming on to the scene.

Angus Hislop, head of UK banking at PwC, said: "Our report shows the Internet posing both the biggest opportunity and the biggest threat to UK retail banking. In the next year alone we can expect to see another 50 new Internet-based providers offering banking and insurance products."

One casualty of this trend, the report forecasts, is the banks' traditional branch network. Between 1994 and 1997 the number of branches fell by 11 per cent to 16,000. The trend is set to continue.

The report says: "Branch networks, once a source of competitive advantage, are coming to be seen as a source of competitive disadvantage."

Another effect of increased competition will be that, while banking products will be more attractively priced, banks themselves will be more choosy about the customers they deal with.

As the report makes clear, a transforming market will lead to accelerating pressure to "cherry pick" profitable customers. But it warns that low income, low margin, subsidised customers will become increasingly unattractive to financial services groups and could be left on the sidelines in the new banking revolution.

This would run completely counter to the Government's drive to combat financial exclusion by widening access to financial services.

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