The Building Societies Association (BSA) Annual Conference 2023 is a valuable opportunity to connect with people from all levels of the sector and is always a source of inspiration for those of us attending from Sandstone Technology. As an exhibitor, we had some compelling conversations with a large cross-section of financial services professionals from across the UK.
Importantly, the conference is a barometer for current and emerging trends, as well as having industry thought leaders contribute salient views on critical topics. The following are some of the key themes that resonated most with us and offer valuable insights for our building society clients in 2023.
From the pandemic to the Russia-Ukraine war; the cost-of-living crisis, inflation, escalating interest rates, subdued economic growth… so many factors have contributed to the financial difficulties now faced by many UK households, from mortgage stress to constant bill shock.
Romanovitch spoke about how building societies have evolved to meet changing needs, while staying true to their founding purpose: to look after their members.
She urged building societies to look at their products and explore how they can adapt them to help the people they serve now - and in the future.
It’s something building societies have always done
There is an argument that building societies were the original crowd funders, gathering funds for mutual benefit as an alternative to traditional finance models. The products they offer are often more innovative than that of the larger banks, and they cater to niche audiences - from 100% mortgages and Rent- a- Room mortgages to specialist lending for ecological new builds.
In 2023, many building societies are harnessing that spirit of innovation, working with partners to find solutions for some of the UK’s biggest economic challenges.
They include encouraging better savings habits and enhancing members’ and future members’ financial literacy and resilience. Also helping the vulnerable get on the housing ladder.
Robin Lieth, chief executive, Building Societies Association touched on the Basel 3.1 framework when he encouraged government and regulators to support the UK housing market and consumers’ dreams of home ownership. In his view, pushing up capital requirements is unnecessarily undermining the market and affecting the cost and availability of mortgages.
2. Continuing focus on community and charity
Since Ketley’s Building Society opened in Birmingham in 1775 – the first of its kind in the UK, the focus of building societies has been on community. The fact that all 43 building societies in the UK today have headquarters outside of London shows they stand by their values of social purpose and community focus. As Robin Fieth reminded us, these organisations continue to work to maximise member value, not shareholder value.
The UK’s building societies continue to be united by their mutual ownership structures and diverse membership. With nearly 1350 branches and 26 million members, building societies are vital to the financial sector in the UK, servicing those in the local community who might otherwise not be able to access financial services.
Even as economic stressors and industry upheavals introduce more complexities into the market, the sector is holding fast to that powerful social purpose, ensuring that no-one is left behind.
Where building societies win out
With so many digital-only banks emerging and traditional bank branches closing rapidly across the UK, building societies have a strong advantage. Embedded as they are in their communities, their physical branches offer a strong face-to-face channel to interact with their customers. It enables them to go beyond the transactional customer relationship, to attract and retain members.
Digital workshops, financial advice workshops and charity events are all opportunities for building societies to entrench themselves in the community.
Rodney E Hood from the US National Credit Union Administration
called on his audience to “keep sight of the true mission of financial providers”, namely, their social purpose beyond simply generating profits and growth. He spoke of “stewardship and trust both being essential to the functioning of a sound financial system”.
When it comes to building trust, Hood believes that smaller financial services institutions – including credit unions, building societies and other cooperative finance entities – should have a distinct advantage. At a time when trust in so many of our society’s institutions is declining, “these entities have maintained a strong commitment to the first principle of their founding, which is to serve their members and their communities,” Hood says.
Not to forget charities
The other place where building societies play a pivotal role is in supporting charities. Most societies are linked to or regularly fundraise for their own charities. But charities are struggling. With the cashless trend that has escalated out of Covid, cash donations to charities are at an all-time low (just 6% of payments will be made in cash by 2031). Yet many charities aren’t set up for digital payments.
Building societies can assist charities to raise funds through digital channels, providing donation links on their websites, enabling members to make payments via open banking, and more.
3. Attracting the younger generation
Today, building societies must maintain a balance between heritage and values, which are central to everything they do - and modernisation, which is rising quickly to the top of the agenda.
While stressing the importance of stewardship, Rodney Hood advocated for experimenting with new approaches to doing business that will heighten building societies’ competitive advantage in a crowded marketplace. And digital banking technology plays a big role in that.
According to Hood, “smaller institutions like credit unions and building societies need to be working to make sure these innovative tools are working on behalf of your members and your institutions.”
Debbie Crosbie CEO of Nationwide, agreed that while the values of building societies are more relevant now than ever, there is a responsibility to deliver on digitisation. She discussed how the sector needs to attract younger customers in a rapidly changing world, especially with the massive shift to digital after Covid 19.
As representatives from global consulting firm Protiviti reinforced, the demographic of members is changing. Institutions need to evolve their strategies to meet the demands of future members.
Children’s accounts no longer the way in
For decades, building societies have relied on parents and grandparents opening accounts for their children and grandchildren, and building loyalty from a young age. But there is a new challenge, in the form of neobanks and retail banks offering digital children’s accounts - often wrapped up in a far better digital experience.
Building societies need to work harder to implement digital tools that will attract people to open these accounts – and keep that historical connection intact; but also to retain these customers when they reach an age of financial freedom and expect more from their financial provider.
“More” might include online account origination including loan origination, digital banking platforms and mobile applications – building societies will need to implement these to stay relevant. There is increasingly an expectation of personalised financial advice; also the ability to be able to serve-self and receive instant help when they need it, delivered on a choice of channels. While this new cohort is digital-first and used to banking on the go, they may require direct human contact if they’re making a big decision.
Digital natives want account transparency, and to be able to manage their money intuitively on their phones with as few taps as possible - just like they can track a parcel delivery.
That’s why Sandstone Technology constantly refines its digital banking solutions and mobile app to improve account visibility and provide data relevant to the customer’s financial wellbeing. We’re constantly working to simplify the customer experience, improve performance and responsiveness and ensure a seamless flow between web and mobile, not to replace existing traditional banking channels but, to compliment them digitally.
4. Growing investments in AI and data
This BSA 2023 round-up wouldn’t be complete without a discussion of data and AI.
Building societies have been on the AI track for some years now as part of digital banking upgrades, and some have successfully integrated it into their strategies and technology stacks.
Like all financial organisations, building societies gather a lot of customer data which they can use to enhance the customer experience - in branch, in app and online (provided they comply with data protection rules). Protiviti representatives explained how this can include improving personalisation, product recommendations and even assisting with product development, ultimately helping to foster long-term relationships.
Organisations are reporting that AI is not only a powerful enabler for marketing and sales, but it can transform processing.
Many building societies don’t have the expertise in house to implement technology and deliver on their digital transformation goals, including AI-driven solutions. When they do seek out technology providers, they find the core banking systems of previous years have morphed into cloud banking engines and offer a lot more functionality.
5. Forming partnerships
Another key theme from BSA 2023 is the power of partnerships. According to Rodney Hood, constructive alliances between building societies and credit unions strengthen the cooperative finance system as a whole.
As Hood said, “one of the great strengths of the cooperative finance movement is that credit unions and building societies can often work together in mutually supportive ways, because they’re not necessarily in direct competition with one another.”
Building societies and other financial institutions could look to partner with community organisations such as Fair4all Finance, who spoke at the conference. Together they can develop products and services that solve problems in their communities, e.g., affordable credit options.
With 3 in 5 UK adults reported to have used embedded financial services during checkout on a purchase, there is also opportunity to collaborate with other sectors, such as online retailers, and embed financial services into their offerings, whether e-wallet Buy Now, Pay Later or rounding up their total with a charity donation.
And finally, partnering with fintechs can help building societies level up on their tech expertise and digital banking, without the cost and time it takes to hire inhouse. Ultimately these relationships can deliver a better service for members through a more streamlined ecosystem, and a fresh, personalised customer experience driven by a better use of data. It can reduce the cost to serve and cost to acquire.
Sandstone’s consultative approach
Technology is the key to ensuring building societies remain relevant in the future, with services that meet ever-evolving customer expectations.
It’s crucial that customer-owned banks select the right digital transformation partners to empower them: not to push their products and services, but to ensure parties are the right fit. Ask the right questions and listen, helping organisations identify what they need to drive efficiencies and productivity. Offering solutions that address their specific pain points, educating clients along the way as necessary, so they can make informed decisions.
Rather than trying to force a square peg into a round hole, Sandstone Technology believes in this consultative approach and we have employed it in our long history with building societies and credit unions. That, and the deep knowledge we have in market, are how we’ve built trust.
Published June 2023
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