How UK building societies are finding balance amid the rise of digital
Digital transformation across the financial services industry is inherently driven by the ambition to enhance the end-user experience, whether that’s the customers themselves or the employees knee-deep in back-office operations in dire need of a little automation.
Building societies are working to balance their physical and digital presence
Financial institutions have been quick to tap the potential of new technological advancements. From high-street firms to nimble neobanks, all have taken their shot at refining various financial processes for the betterment of service delivery and user retention.
However, while larger banks have the financial muscle to test and deploy new technologies, smaller institutions, such as regional building societies, must be more focused and selective with their digital transformation projects to get the biggest return from their investment as they look to keep up with the ever-increasing pace of digital change.
The rise of digital has also resulted in a wider decline in physical bank branches. UK building societies pride themselves on their customer service and community-centred offerings, and so finding a balance between their digital services and physical branch presence is essential to ensure all customer needs and wants are met while maintaining a strong community-focused drive.
Moving as one
It’s estimated that the UK’s 43 active building societies serve approximately 26 million people.
Like banks, building societies typically count mortgage lending and savings accounts among their core provision, and like credit unions – a sector that also has an ever-focused eye on digital – they intend to serve a specific geographic area.
One of the foundational differences with building societies however is their unwavering focus on their members and their community, an approach inherent to the sector since the founding of the first building society in Birmingham, UK in 1775. A founding father of community-based banking, Ketley’s Building Society set the standard for pooling assets, and lent heavily on the familiarity of its origins in the country’s prolific pub culture to maintain trust among its inaugural members.
In more recent times, this effort to move as one for the benefit of all has culminated in a community-led operating model where members leverage a stake in the building society to direct matters regarding social policy, the distribution of funds, leadership appointments and so on.
While this dynamic serves its purpose effectively for the 26 million people currently subscribed to a building society in the UK, it also poses a string of limitations when it comes to the rise of digital.
Among these are a restricted capacity to trigger a transformation internally with such closely governed capital, and a quite often unique wish list of tailored transformation tools specific to the needs of the sector.
Furthermore, building societies remain a sure pillar of physical banking, and routinely support their presence in the market through a careful balance between online services and brick and mortar branches.
This is evidenced through the case of Newbury Building Society, a mutual building society currently maintaining a total of 10 branches throughout Berkshire, Hampshire and Oxfordshire for its 75,000 members, alongside a suite of online services.
“We’re very member-centric and service-driven, but we underpin it with digital as well as the human touch,” comments chief executive Phillippa Cardno.
Newbury Building Society operates 10 branches in the UK
“The human touch is really important to us and we want to make sure that our members can choose how they want to transact and engage with Newbury.”
She explains that the building society, which was founded in 1856, has recently been engaged in a “major upgrade to our core software”, and reveals that it first decided to branch out into app-based services five years ago.
The offering, which launched in April, is currently powered through the mobile app solution of French fintech firm Sopra Banking Software (SBS), and supports self-service capabilities for viewing statements, handling deposits, and managing savings and mortgage accounts.
Further innovations expected to emerge from Newbury Building Society are to include a product switch service for its mortgage line, and mobile-operated deposit transfers in line with the maturing of its payments strategy.
Cardno emphasises that this digital transformation, which has been underway “for a number of years”, is centred on “digital complementing, not digital replacing”, without the sacrifice of its core values and structure.
She highlights how a significant portion of this endeavour, as exemplified by its extended partnership with SBS, has lent on the capabilities and know-how of third-party vendors, which for Cardno, must “always understand our purpose, and align to our values”.
“There’s no point partnering with an organisation that’s more attuned to big banks, which want full automation, AI and the customer experience to be fully automated. That’s not our model,” says Cardno.
“We’re member-based and member-owned, everything we do is for member benefit. So it’s important that whatever we’re investing in, it’s is giving us back that member value.”
Providing a choice
Unlike banks, building societies operate on a not-for-profit model, which enables more energy to be directed towards actioning member-facing initiatives in a way that isn’t solely shaped by the balance sheet.
Many exist in a market niche halfway between the heavyweights of the high street – many of which have been cutting branch numbers in recent years – and the digitally exclusive services of the neobanks.
This variety in service delivery, if maintained, ensures that building societies are able to provide a standardised set of services via the most convenient channel for their members as possible.
Therefore, any effort to implement digital, as Cardno stated earlier, must complement existing workflows, structures and values, instead of the typical all-ends overhaul induced in other areas of the industry.
Vernon Building Society offers another example of this practice in action. The firm has also led its provision of savings accounts and mortgages for the community of Stockport through a hybrid structure of digital combined with a strong physical branch presence.
Celebrating its centenary this year, Vernon Building Society exists “to best serve the needs of our over 25,000 members as they want to be served,” states chief digital and information officer, Manmohan Purewal.
Vernon Building Society is based in Stockport, UK
He explains how the building society has adopted a “blended approach” to serving its members, over 70% of whom are aged 60 or above. “A lot of those people value the high-street presence. It’s about giving them the choice.”
To double down on this valued trait in particular, the building society is currently engaged in a £1.2 million refurbishment of its six branches, which will see a multi-purpose community space installed in its headquarters at street level.
Given its community-driven strategy, the building society remains largely dependent on a close relationship with its members to guide its decision making.
Purewal explains that input on its initiatives is primarily generated through “several feedback mechanisms”, including AGMs, online surveys, and feedback delivered directly to in-branch teams.
This approach, he says, is supported by a relationship with UK-based technology provider Mutual Vision, which currently provides Vernon Building Society’s line of business software.
Tim Bowen, CEO of Mutual Vision, tells FinTech Futures that its ready-made banking platform is tailored to the specific needs of building societies and specialist lenders that might otherwise struggle to build an offering from scratch.
“This lets them compete with larger lenders at a fraction of the cost digital business transformation firms would charge,” he explains, stating that the sector’s ability to pool their investments in technology “keeps costs down”.
Purewal cites Mutual Vision’s own ownership structure as a direct attribute of its selection, as the vendor itself is owned by a cohort of UK building societies. “You’re not going to get a supplier who understands your business any better than that,” he states.
The vendor notably introduced its Mambu-powered “bank-in-a-box” MV Solar platform in May, in an attempt to provide its target audience with tools for loan origination, underwriting and savings, as well as the management of arrears, workflows, payments, regulatory reporting and online services.
“We are helping small to midsize building societies and other specialist lenders level the technological playing field with Tier 1 players,” claims Bowen.
Managing the balance
Other examples to emerge from building societies’ increasing pursuit of digital this year include Nationwide’s partnerships with Auriga and Signly to bolster the accessibility of its self-service channels, Newcastle Building Society’s efforts to enhance its workplace flexible benefits programme with Zest, and Nottingham Building Society’s deal with Nova Credit in May to enable foreign nationals to utilise their overseas credit history when applying for mortgages in the UK, among many others.
Boasting an unmatched market view of these developments at large is the Building Societies Association, a trade association that voices the views of all the 43 building societies currently active in the UK.
Chief executive Robin Fieth tells FinTech Futures that “technology is evolving rapidly” amid “considerable investment amongst building societies as they partner with a range of technology firms to benefit their members”.
He claims the sector has a particular penchant for “cloud-based systems, with associated modern API connectivity and data management”, with a balanced approach in “supporting those members wanting a face-to-face service and those who expect a full digital offering”.
“Technological innovations to help manage that balance are increasingly being employed by the sector with a real focus on the end customer,” he says.
If banks are to cut a single takeaway from the digital transformations of building societies, it should be the resounding message that all and every effort towards innovation should be shaped with the end-consumer in mind.
Digital capabilities can, and continue to, elevate the market status of early adaptors to new heights. But they are also capable of widening existing cracks between firms and their customers should they fail to align with the innermost wants and needs of the intended first line of users.
Building societies continue to put customer service and community focus at the forefront of their strategies as they adapt to the increasing pace of digital change, and ensuring customers have the choice between physical and digital banking remains key.
