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Starling CEO: Focus on account switching misses the point of UK's Open Banking

New so-called Open Banking regulations are less about encouraging current account switching and more about having customers use services from a variety of providers, according to Anne Boden, the CEO of online-only lender Starling Bank Ltd.

Open Banking is a directive that came into force in the U.K. on Jan. 13, and it is intended to boost competition in the country's retail banking market. It was inspired by a 2016 U.K. Competition and Markets Authority study that showed that business in the retail banking market was disproportionately concentrated in the hands of the five largest banks: HSBC Holdings PLC, Barclays PLC, Lloyds Banking Group PLC, Royal Bank of Scotland Group PLC and Santander UK PLC.

The directive requires that banks share customer data — with their permission — to third parties such as financial technology and payment services firms so that customers can compare and access financial products and services from a range of providers.

"I think Open Banking has been described in a misleading way," Boden said at a Sept. 4 London event organized by financial information website Finimize. "I don't think it will particularly help with current account switching. In any case, switching is irrelevant. The point of Open Banking is that consumers should be encouraged to pick and choose financial services from a variety of providers."

According to data from BACS, an electronic system that facilitates payments directly from one bank account to another, 69,235 people switched current accounts in July, down from 84,041 in July 2017.

Consumers in the U.K. are increasingly becoming "multi-banked" and using services from different providers, whether these are mortgages, wealth management products or additional bank accounts, Boden said.

"If in 10 years from now we were to find that most people were just using a single bank for all their needs, we will have missed the point of Open Banking entirely," she said.

More important than current account switching is encouraging traditional financial services companies to adopt a "marketplace model" in which they offer customers the opportunity to buy products from other providers, Boden said.

"For the big banks, it's always been about cross-selling, and occasionally misselling, products," she said.

Starling Bank is reportedly providing payment services for RBS' new digital banking platform. The firm allows other financial services providers to sell products on its platform.