Building a better society
In the debate about the future of UK retail banking, the role of the building society is often overlooked, but technological change is playing to their strengths.
In the UK, there are currently 46 active building societies. Together, they manage total assets of £325 billion, according to figures provided by the Building Societies Association. Today, building societies are drawing on two main strategies: their positive public image relative to the big banks, and the potential offered by new technology to make their services more efficient.
The positive public image is perhaps the strongest weapon in the building societies’ arsenal. In March, a study by Accenture reported a steep decline in consumer trust in banks, from 45% in 2011 to 40% in 2012, as well as a reduction from 41% to 38% in customers that believed their bank is fair and transparent. Consumers in the age range 18-24 were the most severely affected, registering declines of 61% to 49% in customer satisfaction and 48% to 37% in trust, as well as a decline from 41% to 31% in those who believe their bank is fair and transparent.
By comparison, 79% of consumers said their trust in building societies has stayed the same or increased, according to a separate study of 2,000 UK adults carried out in July 2012 by the Building Societies Association. The same survey found that 66% of those surveyed reported their trust in banks had fallen.
So why do consumers trust building societies, and how can those societies benefit the consumer? Newcastle Building Society provides a useful illustration of how building societies work in the UK. In keeping with the regional focus on many building societies, the Newcastle focuses entirely on the Northeast of England, and offers just three products: savings accounts, mortgages and protection insurance. Customers become a ‘member’ of the society by taking a mortgage, or by reaching a qualifying balance in their savings account.
“We see ourselves as an alternative to the banks,” said Steve Urwin, sales and marketing executive at Newcastle Building Society. “We don’t have shareholders so we don’t have to follow a profit maximisation strategy. Yes, we aren’t a charity so we do have to cover our costs, but maximising profits is not the be all and end all for us, so we can typically offer customers a slightly better deal or reinvest in service.”
Historically, building societies have been a strong feature of financial life in the UK. In 1995, there were 80 building societies active in the UK. However, many of these firms later demutualised; the effect was to reduce staff numbers from 99,000 in 1995 to just 43,151 three years later. These numbers have not changed significantly since; building societies employed 37,996 people in 2011, according to the most recent figures available from the BSA. Building society branch numbers fell from 5,141 in 1995 to just 1,652 by 2010; however, the societies still have a large customer base; Nationwide alone has 15 million members. As consumer adoption of digital channels grows, the survivors are now well-placed to launch a recovery.
Conventional banks are sometimes criticised for being slow to adapt. According to financial services author Brett King, founder of online banking service provider Moven, a shift in consumer behaviour is redefining the way customers interact with their banking service providers away from bank branches towards online and mobile interaction. This is supported by Accenture research, which found that daily and weekly branch visits in the UK and Ireland fell from 19% to 15% between 2010 and 2012. Meanwhile, inherently brief, more transactional banking activity rose significantly, with daily and weekly mobile banking more than doubling – from 7% in 2010 to 15% in 2012.
Building societies are keen to get to grips with this change, with some firms selling their technology and others concentrating on the development of mobile apps and services. In November, Nationwide launched a mobile banking app, which it claims has the highest app store ratings of all equivalent banking apps. The app allows users to make payments, move funds between accounts and check balances. It is available on iPhone and Android and is free.
Adding social value
Another differentiator for the building societies is their role within the community they serve.
According to Urwin, one of Newcastle Building Society’s best performing products is a savings account named after former Newcastle football club manager Sir Bobby Robson. For every pound that customers invest in their account, the society contributes some of its own money to the Sir Bobby Robson Foundation, which is a charity for the early detection and treatment of cancer. The Foundation has already equipped a Cancer Trials Research Centre at Freeman Hospital in Newcastle, and funded two specialist research posts.
“It’s a simple product that also benefits the local community,” said Urwin. “Bobby Robson is a national figure known for managing Newcastle United football club, as well as the England football team. He was a victim of cancer, but he set up a charity before he died to help find a cure for cancer. We’ve been able to generate a significant amount of money to support that charity. Supporting our community is what we’re about.”
This is echoed at many other societies, which often either have an intensely regional focus – Barnsley, Derbyshire and Penrith all have their own building societies – while others support members based on a common interest, such as the Stafford Railway Building Society or the Teachers Building Society.
Nationwide has its own version of this social ideal, which involves three main targets: helping 750,000 people to be in a home of their own by 2017; helping one million people to start saving by 2017; and strengthening local communities by investing £15 million by 2017. The mutual says these goals are based on research with its stakeholders, which identified supporting first time buyers, providing financial advice and education and supporting local communities as three key themes that were important to its members, especially young people and new families with parents aged 25-40.
To support first time buyers, Nationwide has its own Foundation which provided £300,000 of funding to the Community Land Trust Fund, a non-profit organisation that develops housing at affordable levels. The society offers a ‘save to buy’ savings account that allows first time buyers to get a mortgage with a 5% deposit if they save regularly; in total, Nationwide claims to have put £9 billion into the affordable housing sector.
To support financial education, the society has trained 200,000 people through collaboration with the Citizen’s Advice Bureau, called the Money Active programme. It also donates at least 1% of its pre-tax profits to charities and good causes, encourages employees to volunteer 14 hours per year and supports local schools.
Over the next 18 months the building society plans to improve its mobile app with applications designed to help homebuyers through the process of securing a mortgage and moving in to their new home. Nationwide is also exploring alternative payment solutions, both card based and using smartphones, tablet apps, and innovations in its branch network, which currently consists of some 800 branches. The society also claims to be very active on Twitter, Facebook and YouTube; Daryl Wilkinson, head of group digital development at Nationwide, reports an increasing desire of consumers to engage through social media.
“Our members are adopting new technology in their everyday lives, and increasingly to help them research, buy, and manage their financial affairs,” said Wilkinson. “With our commitment to being ‘On Your Side’, we are speaking to members about their preferences for innovation. We do this in a number of ways, and not least of which through our Connect and Your Voice services, both of which allow us to converse with customers online about the digital innovations most relevant to them and which we are exploring through R&D.”
Other building societies are also developing mobile apps. Newcastle Building Society is currently in the process of developing the technology to make its online savings account suitable for mobile devices before the end of the year.
“Today, technology can benefit mutuals and their customers,” said Adrian Coles, director general at the BSA. “In fact, Darlington Building Society was the first to launch an app for the iPhone. West Bromwich has a mobile app that will direct you to the nearest ATM. Even a small building society like Penrith in Cumbria has an app that will help you with your mortgage; so customers don’t need to get in the car and drive to a specific branch to access their building society.”
Meanwhile, building societies are also collaborating on their own shared technology. Mutual Vision Technologies is a technology company that develops systems for building societies. It was established by a group of 10 building societies in 2001, and operates a mutual, not for profit structure. Drawing on its mutual structure, the organisation prides itself on its ability to provide services at a price that its competitors would not be able to match.
Tools include Pro Vision, which assists with mortgages, insurance, loan and savings administration and teller cashier processing; Palm, which manages mortgage insurance savings and investment leads and analyses the performance of advisors and front-office staff, Mitre, which alerts firms to possible attack by fraudsters or money launderers as well as assisting with regulatory requirements; and ProActive, which helps manage customer contact, complaints and internal events that would affect customer service.
Member businesses have sustained building societies for well over a century. Nationwide can trace its history back to 1846; the Newcastle Building Society goes back to 1863.
Meanwhile, demand from existing financial service providers for outsourced solutions has created new opportunities for building societies. Newcastle Building Society has a Solutions business that provides services to third parties – including banks. This involves a white label client account solution used for managing client funds, financial systems including full IT system support, and savings management services, which means account administration. The building society also offers to manage existing portfolios for institutions that are looking to control their costs.
“We provide an outsourced savings management service for organisations bigger than ourselves,” said Urwin. “It’s an important part of our diversification strategy since 2007, which draws on the core competencies that we have had for 150 years.”
