UPDATE 1-Customers intrigued by new UK bank Metro

* Possible IPO in 2013 - Chairman

* Long-term goal to have 5-10 pct of London market

* Analyst cautions that sector is hard for new entrants

* Critics unimpressed by interest rates (Adds comments from customers, Metro co-founder, detail)

By Sudip Kar-Gupta

LONDON, July 29 (Reuters) - Metro Bank, Britain's first new high street retail bank in more than 100 years, opened its doors to a steady stream of customers on Thursday, hoping to break into a sector whose reputation was damaged by the credit crisis.

The company's debut was accompanied by an array of gimmicks such as offering biscuits to customers' dogs and free breakfasts for clients.

"We're in the business of turning customers into fans," American billionaire and Metro Bank co-founder Vernon Hill told Reuters, accompanied by his pet dog Duffy.

Metro Bank aims to have more than 200 branches across greater London over the next decade and hopes to end up with a business evenly split between retail and commercial banking, offering a range of services including a Metro Bank-branded credit card.

Its business plan is largely inspired by a retail-focused model used by Hill when he founded America's Commerce Bank in 1973.

Commerce Bank grew rapidly to become a major force in the U.S. financial industry and was eventually sold to Canada's Toronto-Dominion Bank (TD.TO) in 2008.

"There seems to be a pent-up demand," said Hill, observing queues building up within Metro Bank's flagship branch in Holborn, near London's City financial district.

CURIOUS CUSTOMERS

Metro Bank is one of several new entrants seeking to break into a retail banking sector shaken up by the credit crisis which saw the near-collapse of some of its best-known names.

It is the first new start-up, however, to get a licence from the Financial Services Authority regulator, and it says it will use an old-style branch network to attract customers.

"I'm not entirely happy with my current bank HSBC. This is a new bank and it promises it will be different," said Dileepa Ranawake who was planning to open a Metro account.

Gregory Mann was among the first customers to open a Metro Bank account, attracted by the fact that its branches would be open when other banks were closed.

"These guys are open seven days a week," he said.

Metro Bank Chairman Anthony Thomson told Reuters last week that the bank had a long-term goal to grab up to 10 percent of London's retail and commercial banking market and has said the company could list on the stock market in 2013. [ID:nLDE66M141]

Britain's changing banking industry is set to become more competitive with various assets sold off from bailed-out groups Lloyds (LLOY.L) and Royal Bank of Scotland (RBS.L) that could attract the likes of Virgin Money and supermarket chain Tesco (TSCO.L), which also plans to enter the British bank sector.

However, Metro Bank has said it is not interested in acquisitions and aims to grow on a branch by branch basis.

Dorothy Armstrong, a senior executive at the banking industry practice of consultancy Accenture, said Metro Bank would have its work cut out making major inroads in its rivals' customer base.

"While Metro Bank and other expected entrants to the UK banking market, such as Tesco, stand every chance of becoming successful and profitable niche banking businesses over the coming years, it is most unlikely that these new players will gain sufficient scale across the full range of banking services to challenge the dominant five in the high street," she said.

Other critics said it needed to offer better rates.

"A key challenge for Metro Bank will be pure inertia," said Terry Tyrell from global branding agency The Brand Union.

(Editing by Elaine Hardcastle)