BSA AnnualConference 2014 Chief Executive,Which? Peter Vicary-Smith, Chair oftheBankingStandards Review Sir Richard Lambert, Jonathan EvansMP Cathy JamiesonMP A report byResPublica The National Numeracycampaign Cumberland BuildingSociety Entering themobile paymentsmarket: Plus Markets fortheMany No. 31 Spring 2014

welcome

» spotlight on HELLO AND WELCOME TO THE SPRING EDITION OF MARK THOMSON SOCIETY MATTERS. CHIEF EXECUTIVE, SCOTTISH 3 technical ownership, but on the benefits people see and feel every time they interact » innovation with their society. CUMBERLAND BUILDING One of the key questions we feel needs attention SOCIETY: MOBILE MONEY 4 this year is “what is mutuality and why does it matter?” I doubt anyone reading this magazine » opinion will have a problem outlining what they feel are ROBIN FIETH: FLOODING: the fundamental differences between the mutual A 21ST CENTURY CHALLENGE 5 and plc models. However, the BSA hopes to delve deeper to find out why these differences matter » policy special and what building societies need to do in order to MARKETS FOR THE MANY 6 challenge the big and increase market shares in savings and mortgages. » insight Often I feel that the sector has a distinctly SIR RICHARD LAMBERT: “cuddly” and “old-fashioned” image. Personally BANKING ON HIGH STANDARDS 8 I think we are more than that. That’s not to say that values such as good customer service, high » overview satisfaction rates and a personal approach to RAISING NEW CAPITAL business should be downplayed, but we should ONE OF THE KEY QUESTIONS IN MUTUALS 9 also recognise that building societies are forward WE FEEL NEEDS ATTENTION thinking, continuously evolving institutions that » opinion THIS YEAR IS “WHAT IS more than meet the needs of their members. PETER VICARY SMITH: MUTUALITY AND WHY DOES IT MATTER?” This month I am delighted to welcome THE BANKING INDUSTRY contributions from Sir Richard Lambert, Cathy MUST IMPROVE CUSTOMER Jamieson MP, Jonathan Evans MP and Which? SERVICE TO RESTORE TRUST 10 I probably speak on behalf of everyone when Chief Executive Peter Vicary-Smith. Their articles I say how delighted I am that Spring is finally are challenging, but encouraging and offer » education here. It’s been a long winter! insights which I feel the sector will recognise when NATIONAL NUMERACY: planning future strategy. THERE’S STRENGTH IN As I sit typing this introduction, news of our NUMBERS 11 members’ yearly results continue to ping into Also in this edition, we find out more about my inbox. They make for a very positive read building society innovation - both social and and prove that our sector continues to provide technological and also feature a preview to our » comment excellent service and competitive products to Annual Conference, which will take place in BUILDING SOCIETIES: millions of people throughout the UK. Manchester in May this year. BUSINESS AS USUAL 12 As the trade body for all 45 building societies, Enjoy we feel that one of our most important roles insight Victoria Bamber » is to promote the value of customer-owned JEREMY SUDDARDS: Society Matters Editor SEVEN QUESTIONS EVERY institutions, not just on the merit of their CEO SHOULD BE ASKING OF IT. 14 » diary BSA ANNUAL Society Matters is a publication of the Building Societies Association - ISSN 1756-5928. CONFERENCE 2014 16 The views expressed by authors in this magazine are not necessarily those of the Association. Chief Executive Robin Fieth [email protected] 16 Editor Victoria Bamber [email protected] » new associate BSA, 6th Floor, York House, 23 Kingsway, London, WC2B 6UJ www.bsa.org.uk Designed by Solo, Mariners Wharf, 8 Holyrood Street, London, SE1 2El www.solodigital.co.uk

2 spotlight on

FIVE MINUTES WITH… MARK THOMSON CHIEF EXECUTIVE, SCOTTISH BUILDING SOCIETY

You have been at the helm of the Scottish to provide a clear and trusted alternative to society, and their appetite for risk. At Scottish Building Society for nine months now. high street banks in respect of savings and Building Society we have a focused approach What developments have you made during mortgages. We have a significant role to play in and, in the interests of our members, we only this time and what are your plans for the creating vibrancy and diversity in the financial participate in areas of the market where we next six months? services market through our ability to offer a consider we have something to offer. Currently Most of the changes I have made have been to personalised local service, where every member we therefore have no plans to become involved the way we do things internally, and although is treated as an individual. I do not personally in wider activities than those for which building they may not be immediately visible to the regard the smaller building societies as being societies have been traditionally renowned. outside world, will have a positive impact on there to challenge the banks across their entire What do you think the Government’s number customer service. The simplification of our product range, but to offer the consumer a one financial services priority should be? product ranges, and the harmonisation of the genuine alternative provider of financial services interest rates for our savers is more transparent and products. I would point to trust. Our industry has been and I believe provides a clear demonstration through a difficult time in recent years with Do you have a vision of where you would like of the direction we are taking to treat our both a ‘boom and bust’ economy, and with to see your Society in twenty years time? members fairly. some of the behaviours of individuals and Twenty years is a very long time to look ahead, institutions totally indefensible. We now need The Scottish Building Society was established but given that we have been around for 166 a period where the Government’s policies are in 1848 and is one of the world’s oldest years, I expect us to have built further on the designed to be for the longer term to enable trust mutuals. How do you ensure you stay considerable strengths of our brand. We aim to to be built between the voting public and the relevant in the 21st century and meet the ensure Scottish Building Society is a household financial services institutions. ever changing needs of your customers? name in the communities we serve and is Tell us a secret about the Scottish People still require mortgage finance to fulfil synonymous with fair treatment and member Building Society. their dream of home ownership, while others satisfaction. I obviously also expect our Society require a safe home for their hard-earned to continue to play a part in its chosen local Apart from being the oldest Building Society savings. Being able to provide both in a fair communities by offering a secure home for in the world (and the only remaining one in and responsible manner makes our Society as savings, and mortgage products to enable our Scotland), the current Scottish Building relevant today as it has ever been. members to achieve home ownership. Society is the sum of some eleven mergers; starting with the Scottish Progressive in 1946, How can the building society sector Many people suggest that building societies to the Century in 2013. continue to challenge the banks in 2014 should offer services such as current accounts What is the most important financial lesson and what would you personally suggest and SME lending. What do you say? you have learnt? they do to achieve it? I believe that it is wholly appropriate for some Speaking from the perspective of the Scottish building societies to engage in such activities. It Never to get involved in anything you don’t fully Building Society only, I believe we can continue really comes down to the size of the particular understand. I did once - but never again!

3 innovation MOBILE MONEY BY PETER TEMPLE, OPERATIONS AND HR DIRECTOR, CUMBERLAND BUILDING SOCIETY

THE PERKS OF LIVING IN THE LAKE DISTRICT EXTEND TO MORE THAN JUST THE STUNNING SCENERY. CUMBERLAND BUILDING SOCIETY IS CONTINUING TO PROVE THAT SIZE AND LOCATION OFFER NO RESTRICTIONS TO INNOVATION AFTER BECOMING THE FIRST BUILDING SOCIETY TO ALLOW ITS MEMBERS TO SEND AND RECEIVE MONEY VIA THEIR MOBILE PHONES.

In January 2014, Cumberland Cumberland current account to check the balances on their Pay2Mobile has been developed Building Society became one of using just their mobile phone Cumberland accounts without in partnership with Sandstone the first current account providers number, without needing to having to log on to the app or Technology, Sopra and Alaric, the in the UK, and the first building share account details. Mobile Banking. Society’s IT solution partners who society, to launch a P2P mobile have provided us with our internet To send money, our current Later this year the Cumberland payments service. The service - and mobile banking services over account customers can download will be one of just six institutions Pay2Mobile, allows customers to the last seven years. the free Pay2Mobile app, available to be part of the launch of the send money to another person’s on iOS and Android smartphones, Payments Council’s national In a fast changing world there follow a simple registration process mobile payments service. is a requirement to continually and they are then ready to go. To enhance customer service and This service has the potential to receive payments, customers link to respond to changes in how link up every account in the their mobile phone number to customers wish to interact and country using a mobile number. their Cumberland current account engage with their chosen financial Currently, financial institutions via internet banking. services provider. During 2013 we representing around 90 per cent introduced a balance alert facility If our customers need to share the of UK current accounts have so members receive a text alert if cost of a taxi, repay that £10 they committed to offering this service. their account balance falls below the borrowed or help out one of their level they themselves have set. To children by sending them some Later this year the help protect against fraud we also money, they can do so introduced ‘SecureCard’, a system simply, quickly and Cumberland will be one which protects our members from securely using Pay2Mobile. of just six institutions to be part of the launch of fraudulent overseas transactions The Pay2Mobile app also the Payments Council’s by preventing their debit card includes an innovative being used overseas without their feature called ‘Balance Peek’ national mobile authorisation. Further development which allows customers payments service. work is planned during 2014 which will see the introduction of contactless debit cards and the The Cumberland’s business ability to apply for a current strategy is focused on building account online. relationships with local people and our current account service Our internet and mobile banking is central to this. In 2007 we services complement our branch launched internet banking and network and allow our members followed this up in 2011 with the to combine the traditional personal introduction of mobile banking, service they receive in branch with ahead of a number of the high the convenience of being able to street banks. We see mobile access their account whenever and payments as a natural extension of wherever they wish. any money transmission service.

Find out more... For more information about this service or any of the features Cumberland Building Society provides, visit their website at www. cumberlandbs.co.uk

4 opinion

IN THIS NEW FEATURE FOR SOCIETY MATTERS, BSA CHIEF EXECUTIVE ROBIN FIETH TAKES A LOOK AT HOT TOPICS AFFECTING AND INFLUENCING BUILDING SOCIETIES, THEIR MEMBERS AND THE WIDER FINANCIAL SERVICES SECTOR. FLOODING: A 21ST CENTURY CHALLENGE

want to risk red-lining whole areas of the Thames Valley as un-insurable, un-mortgageable and therefore all bar un-saleable? It is entirely possible that there will be a number of significant flooding events over the next 25 years. Given how unpalatable the alternative is from a political, social and economic perspective, the Government should consider the option of retaining Flood Re into the long-term at least as a safety net of last resort. If the move towards risk-reflective pricing is to work, government will need to increase spending to minimise flooding in the first place - the maintenance of existing schemes, Last summer, we gave a cautious welcome to supplemented by new flood defences. the DEFRA consultation on securing the future We can all agree that a robust long term availability and affordability of home insurance in insurance solution is needed. Perhaps we could areas of flood risk known as Flood Re. Today we learn from the New Zealand Earthquake continue to have some serious reservations about Commission, which is government-owned and its scope and end-date. provides primary natural disaster insurance to the Firstly, we disagree with the wide-ranging owners of residential properties. exclusions from Flood Re, particularly the If properties do prove uninsurable, we could end exclusion of all properties built after 2009, those up with whole communities being uprooted Robin Fieth in Council Tax band H and the likely exclusion BSA Chief Executive and relocated to higher ground. It has been of leasehold and rental properties. done before to build reservoirs - Derwent is a Secondly, while we understand what is behind village drowned under Ladybower reservoir in the second part of the policy objective we have Derbyshire and Capel Celyn is under the flooded So January and February were the wettest on issues with it. The proposal is that over a 25 Tryweryn Valley in North Wales - but is this what record since 1766 and many of us have suffered year period, there should be a gradual transition we want for our citizens in the 21st century? the inconvenience of road and rail closures, towards risk-based open market insurance surface water and the potholes which result. premiums, based on robust evidence of localised Our hearts go out, though, to those whose risk. The aim is to increase the incentive for flood homes were flooded - in the case of those on risk to be managed whilst giving time for choices the Somerset Levels, for weeks on end. We have to be made and appropriate action to be taken. been involved in a crisis, but the fact that the It is sensible that vunerable households should UK has suffered substantial flooding a number be rewarded for undertaking flood resilience and of times in the recent past indicates a trend that resistance measures. By doing this it is possible to we need to pay serious attention to. reduce flood risk or at least minimise the damage Now that the mopping up process has begun, caused. But, ultimately it will be macro-level questions about the monetary cost of repairing flood-defence schemes which determine whether the damage, the impact on future insurance a flood happens, developments firmly in the gift premiums and the ability to get flood cover are of government not individuals. rising up the agenda. More importantly, it is essential that any move Find out more... And, as we know, these are not just issues for to an open market environment is accompanied homeowners. They are just as important for by sensible review and on-going assurance that a You can arrange to speak with Robin by calling 020 7520 5927 or emailing businesses, for private landlords (and potentially live insurance market for at-risk properties really [email protected] their tenants) and for lenders too. exists. Even 25-years down the line do we really

5 policy special

MARKETS FOR THE MANY At a parliamentary launch in February, an independent report from the think-tank ResPublica raised some interesting questions around how civic finance can open up markets and widen access.

René Kinzett @ReneKinzett Public Affairs Manager, Building Societies Association The BSA jointly with the Association of Financial Mutuals, the Community Development Finance Association and the Unity Trust Bank worked with leading think tank ResPublica to research what kinds of policies politicians would need to look to foster greater diversity in the UK’s financial services sector and how this would benefit consumers and improve the sector’s resilience and sustainability.

The Report was published in February 2014 Turning building societies into general purpose The BSA believes that it may be in the longer- and the BSA has welcomed it as an important mutual banks may not be the right answer. term public interest to use the opportunity contribution to the debate on the need for a strong to create new mutually owned or stakeholder This Report celebrates diversity in the financial and diverse financial sector post the 2008 crisis. banks, rather than re-coup the taxpayer’s money services sector. That includes the variety of immediately by means of a trade sale or IPO. approaches and models that exist within the Put simply, do we want cash today or value WHAT WE HAVE TODAY IS A building society sector itself. The BSA would for tomorrow? MARKET DOMINATED BY A FEW worry about a recommendation that potentially LARGE, LONDON CENTRIC, reduces the diversity of institutions within the SHAREHOLDER BANKS. NOW mutual sector. IS THE TIME TO DEBATE IF THIS IS WHAT THE UK The BSA is not convinced by the Report’s WANTS AND NEEDS. recommendation that building societies should be allowed to take over high street banks. However, it does raise a very interesting point What we have today is a market dominated by a about the future of public holdings in high street few large, London centric, shareholder banks. Now banking groups that needs to be addressed by is the time to debate if this is what the UK wants Government and political parties. and needs. We welcome the recommendation for a “trigger policy” - that any reforms to the financial sector that are focused primarily on banks should trigger a compulsory review of building society legislation to determine how the proposals might impact the building society sector. But we would go further, beyond legislation to regulation. We would like to see this duty manifested in regulatory behaviours that more tangibly recognise different ownership models and ensures a regulatory response that is both proportionate and appropriate. The recommendation that the regulatory and legal framework within which building societies operate should be reformed to enable them to undertake more SME lending provides us with an interesting point of debate.

6 policy special

By Cathy Jamieson MP @CathyJamieson (Labour, Kilmarnock and Loudoun), Shadow Treasury Minister This Parliament has arguably been the most significant in recent times for its impact on financial reform. The Financial Services Act 2012 and the Financial Services (Banking Reform) Act 2013 both set out the Coalition Government’s programme of financial reform and attempt to safeguard the economy against future shocks.

While the Government’s reforms are a step in One of the most striking realities to surface Provision of finance has been severely limited, the right direction, they do not go far enough in from the financial crash was how little choice in some parts of society, leaving large numbers creating the financial services that support our and diversity exists in our financial sector. of people and communities underserved by our small businesses and truly serve the needs of our Thanks in large part to the demutualisation current system. Ensuring these communities receive citizens and communities. of the late 80s and early 90s, we have been left bespoke financial options should be a priority. with a highly concentrated market dominated As ResPublica argues in Markets for the Many, Levelling the playing field for building societies, by a small number of large companies of the this must be the primary and civic duty of the mutual insurers and community finance institutions plc shareholder model. The lack of diversity in financial sector. In order to fulfil this, we need to provide personal, business and community ownership models is telling when compared to financial institutions capable of meeting society’s finance services alongside the established financial our European competitors, where mutual and demands to play a greater role in our financial institutions can only be a positive step. That is why I co-operative models enjoy a strong presence in sector. Building societies, mutual societies and back the call in this Report to support the growth of both banking and insurance services. Whereas community finance institutions, because of their these civic finance institutions. our citizens once enjoyed a bustling mutual and growth prospects and inclusive models, have the co-operative financial sector, existing alongside In creating the financial sector Britain needs, ability to make the financial sector inherently the plc model, their presence today is amongst adopting such an approach should be fundamental more secure, capable and responsive. the lowest in Europe. to the next wave of financial reforms.

By Jonathan Evans MP @JonathanEvansMP (Conservative, Cardiff North), Chair of the All-Party Parliamentary Group on Mutuals Parliament has passed a substantial amount of legislation affecting the financial services sector since 2010, but this has almost without exception been focused on fixing the problems of the immediate past. In particular, it has been about improving regulation and making the big banks more resilient to the sort of severe shocks the global financial system experienced in 2008.

SO FAR, PARLIAMENT HAS DONE So far, parliament has done little to address the business and society. This is vividly illustrated by the LITTLE TO ADDRESS THE MORE more fundamental flaws in our financial system: emergence of irresponsible payday loan companies. FUNDAMENTAL FLAWS IN OUR customer detachment and disillusion, lack of These are addressing a need seen by many people FINANCIAL SYSTEM: CUSTOMER diversity and choice, limited competition and as so urgent that they will pay high interest rates DETACHMENT AND DISILLUSION, poor support for the SME sector. These are not and risk greater debt by dealing with these lenders. LACK OF DIVERSITY AND CHOICE, new problems. We urgently need to encourage credit unions and LIMITED COMPETITION AND other community-based finance initiatives to step Indeed, they have been with us for many years POOR SUPPORT FOR THE forward to provide an ethical, affordable and viable but now we have the ideal opportunity to address SME SECTOR. THESE alternative to irresponsible lending. ARE NOT NEW them afresh. This Report from ResPublica sets out PROBLEMS. an ambitious, constructive and timely agenda for In encouraging mutual and community ownership, doing just that. however, we mustn’t be blind to some of the shortcomings we have seen in the sector. Many Promoting greater diversity of ownership has to be of these, I believe, have come about because the a priority because we have a series of opportunities current legislation forces them to behave like coming up to expand the customer-owned mutual everybody else, especially when it comes to the huge model as the state-owned banks are returned to challenges of raising finance to expand and develop. the private sector. An expansion of the mutual sector, accompanied by the sort of modernisation We have to create a legislative and regulatory measures advocated in this report, will, I believe environment that plays to the strengths of re-invigorate the whole market. The bond between mutuality while ensuring they are managed and the institution and its customers that is the take the same care over their business process, hallmark of a well-run mutual will influence the security and reporting as proprietary institutions. established players in the market much as it did It is not a question of lower standards but, as this before the wave of demutualisations in the banking report argues, more appropriate regulation. and insurance sectors from the late 1980s. The key challenge is to create a financial services sector that is much more closely Find out more... aligned with the needs of communities, If you would like to read the ResPublica report in full, visit their website at www.respublica.org.uk/publications

7 insight

BANKING ON HIGH STANDARDS BY SIR RICHARD LAMBERT, CHAIR OF THE BANKING STANDARDS REVIEW BODY

SINCE ITS ANNOUNCEMENT, THE BANKING STANDARDS REVIEW HAS CAUSED QUITE A STIR IN THE WORLD OF FINANCIAL SERVICES. THERE IS LITTLE DOUBT THAT STANDARDS OF COMPETENCE AND CONDUCT HAVE BEEN LOW IN THE PAST WITH SOME ORGANISATIONS, HOWEVER THIS NEW INITIATIVE AIMS TO CHAMPION GOOD BEHAVIOUR AND RAISE STANDARDS ACROSS ALL BANKING ACTIVITIES.

Groucho Marx once said: “I don’t care to belong And that’s the second reason for building ...one size does not fit all. It would to any club that will have me as a member”. societies to get involved. plainly be absurd to benchmark a Twisting Groucho’s argument around a little, They play a crucial role in the regions where small mutual against a big a building society might well ask the question: they operate and in which they serve, and they investment bank. “Why would I want to join a new organisation have a clear focus on customers. That’s why they intended to raise standards of conduct and are trusted by their members, many of whom succeed. If it fails, however, the rule books competence in the British banking system? have been with them for years, and they have a may well get fatter. strong interest in maintaining and burnishing Isn’t it the banks that need fixing, not the On to reason number four, which is that the their reputation for integrity. building societies?” new organisation will be designed on the That’s why I’m so pleased that Nationwide principle that...one size does not fit all. It would I am in the process of designing such a body, at agreed to get involved at an early stage, and why plainly be absurd to benchmark a small mutual the request of Nationwide and the six biggest I hope others will follow this lead. against a big investment bank. British banks and I have five answers to this question. I very much hope that they will Costs of membership will be proportionate, too. They play a crucial role in the regions help to persuade as many building societies as And no one will be trying to reinvent the wheel. where they operate and in which they possible to take this new initiative seriously. Where good practice already exists, it should be serve, and they have a clear focus on upheld and championed, not subsumed into Isn’t it the banks that need fixing, customers. That’s why they are trusted by new structures. not the building societies? their members, many of whom have been with them for years, and they have a strong Finally, support of the new body will be entirely The five questions interest in maintaining and burnishing their voluntary. It’s not going to get in the way of the First, the goal is to set and raise standards in reputation for integrity. regulators, because it will align all its work with all banking activities - including mortgage and what they do. And it should not generate masses of new red tape and bureaucracy, since savings activities - across the UK, in a process of Reason number three: the regulators want this the questions it will be asking institutions to continuous improvement. Each building society project to be a success. They argue that although address will be ones that they should be or bank will be asked to agree on standards they can write rules to punish bad conduct, it thinking about already. relevant to its business, which it will aim to meet is just about impossible to legislate for good and surpass. And it will report back annually on behaviour. Rather than writing whole libraries I would be hugely grateful if as many people its progress. of new rules, they believe it’s much better to rely as possible could take a look at the Banking This is not about punishing wrongdoing - on the judgment and good sense of responsible Standards Review consultation paper and that’s the job of senior management and of the practioners to do the right thing. And the wider answer the questions which I have posed in this regulators. It’s about championing excellence the participation of banks and building societies document. To get things right, I’m going to and learning from best practice, rather than in this new body, the more likely it is to need your help. rolling out sanctions. Supporting this new body will be a visible sign that the bank or building society concerned aspires to raise the bar. Find out more... To read the Banking Standards Review consultation paper in full, visit www.bankingstandardsreview.org.uk/ consultation-paper. You can follow Sir Richard Lambert on Twitter @RichardLambert5

8 overview

RAISING NEW CAPITAL IN MUTUALS MARK GOODALE, CHAIRMAN OF THE ASSOCIATION OF FINANCIAL MUTUALS

“WHENEVER WE TALK TO A JOURNALIST, POLITICIAN OR REGULATOR ABOUT MUTUALS, WE GENERALLY GET A VERY SYMPATHETIC HEARING. INCREASINGLY THEY APPRECIATE THE PRODUCTS WE OFFER, THE WORK THAT WE DO FOR CUSTOMERS AND THE VITAL IMPORTANCE OF HAVING A DIVERSE MARKETPLACE FOR FINANCIAL SERVICES. HOWEVER, THEY USUALLY CAVEAT THIS BY THE PERCEIVED MAJOR SHORTCOMING OF THE SECTOR: LACK OF ACCESS TO CAPITAL.”

capital. Proposals recently approved in some European countries also enable the shares to count towards the higher capital requirements expected when Solvency 2 takes full effect in January 2016.

Acquisitions Lack of capital has a significant impact on the ability of friendly societies and mutual insurers to raise funds to grow by acquisition. This is not an effective way to compete with PLCs that have no such restrictions.

Currently, if one society wishes to acquire another, or buy a firm outside the sector to enhance its overall proposition, it would need to wait to save up the requisite capital. A new source of capital for friendly societies and mutual insurers will enable them to act on equal terms with the proprietary sector, and to thus deliver A mutual insurer or friendly society, like A new solution value for their members and customers. other mutuals, aggregates capital slowly, largely Last July, a Private Member’s Bill had its first by retaining profits, and via conservative reading in the House of Lords, for a ‘Mutuals’ Increasing membership of mutuals actuarial assumptions. The sector has duly Redeemable Shares Bill’. In essence, this is For some friendly societies and mutual insurers, built up strong reserves: and free assets (a designed to provide new forms of capital for new products - particularly general insurance standard measure of capital strength in co-operatives, housing associations and mutual products that may comprise much of their insurance) amongst members of the insurers/friendly societies. As organisations that business - do not confer membership. The Association of Financial Mutuals are the have developed over 150 years or more, there is long-term effect of this is that there is a decline strongest in the industry. reluctance to put members’ money at risk, so the in the membership of the society, and potentially challenge is to amend the capital regime, whilst a dilution of ownership and accountability. This However, slow accumulation of capital also safeguarding both the core purpose and mutual could be arrested in part through new shares that restricts the basis by which we can respond to integrity of the business. confer a new form of membership right. emerging developments in the market. That puts a limit on new product development, Growth potential The mutual insurance sector has seen strong mergers or tactical acquisitions. And there is Larger mutuals have successfully issued bonds or growth in recent years. Its ability to keep on more uncertainty on capital requirements in debt to increase their pool of capital. However growing is critically dependent on being able to the future, both as a result of the EU’s Solvency this is not viable for smaller firms. The form compete on equal terms with PLC insurers, and 2 Directive, as well as our long-running debate of shares created by The Mutuals’ Redeemable this in turn relies on proper access to capital. The with regulators on the ownership of capital Shares Bill would permit smaller societies - as Mutuals’ Redeemable Shares Bill is therefore a (known as Project Chrysalis). well as their larger counterparts - to raise capital key element in sustaining the mutual sector. As a result we looked on with interest at by issuing new shares. developments in the building society sector Crucially, such shares are not debt, making Find out more... to create new forms of capital - via Core them appealing to institutional and individual Capital Deferred Shares, and have been For more information visit investors alike, as well as potentially being more www.financialmutuals.org busy working with other mutuals to develop flexible for the issuer as a form of regulatory a similar solution.

9 opinion

THE BANKING INDUSTRY MUST IMPROVE CUSTOMER SERVICE TO RESTORE TRUST BY PETER VICARY-SMITH, WHICH? GROUP CHIEF EXECUTIVE

CUSTOMER SERVICE AND SATISFACTION ARE TWO AREAS WHERE THE BUILDING SOCIETY SECTOR AND WHICH? ARE PERFECTLY IN TUNE. IN A RECENT SURVEY BY THE CONSUMER CHAMPION, THE MUTUAL SECTOR OUT-PERFORMED THAT OF THE BIG BANKS, BUT MORE CAN ALWAYS BE DONE TO ENSURE CUSTOMER OUTCOMES ARE CONSISTENTLY WELL ABOVE AVERAGE.

Despite positive noises from the accounts, credit cards, savings ...but with easier current account We also want banks and building banking industry that it is finally accounts and mortgages, the five switching it’s important that societies to release personal account starting to change its broken mutual institutions we looked at mutuals work hard to showcase usage data in a downloadable format culture, this hasn’t filtered down all scored above average compared their point of difference to which can be used to develop to consumer confidence. Trust in to the big banks. consumers. comparison tools so people can find day-to-day banking is still abysmally This is good news for the mutual the best account for them based low at just 32 per cent, and trust sector, but with easier current is a cut above the rest, particularly on their own personal needs and in longer-term financial products - account switching it’s important when handling complaints. financial situation. Without this, including mortgages - is half that. that mutuals work hard to choosing a current account will Clearly there is still a long way to go Mutuals must lose no time in remain a guessing game that we showcase their point of difference putting all this into practice. to consumers. found could leave some consumers Many consumers find the idea Which? is also campaigning for thousands of pounds worse off a year. So what else can they do to set of a mutual business, owned by all financial firms to provide basic Which? has 800,000 members and its customers appealing, but this themselves apart and put the charge phone numbers for their customer first? we know the value they place on alone is not enough - mutuals customers after we found that 73 excellent customer service. We also need to be offering the reality of The brands that rank in the top per cent of the phone numbers consumer-friendly banking too. know, as an independent commercial ten of our recent big brands they used for customer service or not-for-profit funded entirely by the customer service survey are the complaint lines were high rate First and foremost, greater sale of goods and services, that there likes of First Direct, John Lewis telephone numbers. is real opportunity for alternatively competition is urgently needed to and Amazon. All of them have tackle the unhealthy dominance of We know four in ten people prefer structured businesses to change the something in common: customer to call financial firms with an status quo. the biggest banks, forcing them to service and staff loyalty. compete for customers by offering enquiry, and nearly a third would Building societies have not been better service and products. We When Which? analysed customer rather complain by phone. It’s not immune from the scandals of recent need new, different entrants to satisfaction with financial brands fair that customers face bumper years and the financial industry has a the market, but also need existing last year, looking across current bills just to ask a question or make hard task ahead to restore consumer providers to offer a genuinely accounts, credit cards, savings a complaint, and these costly calls trust. Sir Richard Lambert’s consumer-friendly alternative and accounts and mortgages, the sometimes even discourage them independent banking standards set themselves apart. five mutual institutions we looked from calling. The best financial body should help to do just that but at all scored above average services organisations actively Many consumers find the idea of compared to the big banks. in the meantime the industry must encourage customer feedback and do much more to restore our trust, a mutual business, owned by its use it to improve their service. customers appealing, but this alone At the other end of the spectrum, starting with better products and is not enough - mutuals need to be top customer service irritations for better customer service. offering the reality of consumer- consumers included automated Find out more... friendly banking too. telephone systems, staff trying to sell you products you don’t want, Find out more about Sir Richard Lambert and the Banking There is a glimmer of hope on the Standards Review by turning back to page eight. horizon. and being passed around lots of different people. To combat this, Peter Vicary-Smith will be speaking at the BSA’s Annual When Which? analysed customer staff need to be rewarded for Conference in Manchester on Wednesday 7 May 2014. satisfaction with financial brands customer service, not sales, and For more information turn to page 14, or visit last year, looking across current empowered to deliver service that www.bsaconference.org

10 education

THERE’S STRENGTH IN NUMBERS BY LAURA HOGG, CITIZENSHIP MANAGER, NATIONWIDE BUILDING SOCIETY

RECENT RESEARCH SHOWS THAT 16 PER CENT OF PEOPLE CAN’T IDENTIFY THE AVAILABLE BALANCE ON A BANK STATEMENT, 33 PER CENT DON’T UNDERSTAND THE IMPACT OF INFLATION, AND 11 PER CENT BELIEVE THE CURRENT BANK OF ENGLAND BASE RATE TO BE OVER 10 PER CENT.*

There’s no denying that financial capability is a huge issue, and an important area to focus on and improve. It’s one that many are seeking to address and it’s estimated that financial services businesses spend around £25m each year* on trying to improve the financial capability of the UK.

But is it the only area we should be focusing on?

A report by The World Bank back in 2011 looked into the relationship between financial capability and numerical ability. They concluded that financial awareness training on its own doesn’t make people more confident in making comparisons and choices about financial products.

“Results indicate that a financial education program that does not specifically address numeracy has little impact on an individual’s ability to make financial calculations.” ** The Challenge Central to the drive is the ‘Challenge Online’, National Numeracy is initiating a UK drive to an interactive website which helps people to Almost half of the working-age population in improve adults’ confidence and competence understand and improve their numeracy skills. England - around 17 million people - have in maths. The National Numeracy Challenge The key to the Challenge Online is instilling numeracy skills no better than those expected launched on 12 March 2014 and is a call to the belief that maths is valuable in everyday life of primary school leavers. Nationwide is a action to everyone - individuals, employees and anyone can improve their skills with a ‘can founding partner of National Numeracy, a charity in workplaces, those in adult education or do’ attitude, whilst also understanding that all established in 2012 which focuses on adults and community organisations. learning will take some effort. children with low levels of numeracy. Nationwide is leading the way; we’re Here’s how it works: Stephen Uden, Head of Citizenship explains: encouraging all of our employees and members “Our members told us that one of the areas they want You can try the Challenge out for yourself at a to get involved by promoting the Challenge, us to support with our Citizenship agenda is helping special link for Society Matters readers at www. running competitions and building it into people to save and better manage their money. While nnchallenge.org.uk/bsa1. Don’t worry, your training programmes. While our employees financial education is undoubtedly important, we responses are all anonymous! might not be the exact target audience for the need to establish and address the root causes too. Challenge (as they’re already likely to have a “If people have a low level of numeracy, not only can decent level of numeracy), everyone can benefit Find out more... it mean they may have difficulty managing money, from polishing up their everyday number skills, If you work for a building society and but it also has a wider social impact in areas such as and we’re asking them to raise awareness of the would like to get involved in the National issue and share the news of the Challenge far Numeracy Challenge, contact unemployment. We believe that raising the profile [email protected] or visit of the work of National Numeracy amongst our and wide, to family, friends and schools. www.nationalnumeracy.org.uk/ staff and members will hopefully address some of the nnchallenge for more information. myths around being ‘bad’ at maths, and help people to see that improving their number skills can help them in everyday life.” *Statistics taken from the 2013 Money Advice Service report ‘The financial capability of the UK’ **Carpena, Fenella, Shawn Cole, Jeremy Shapiro, and Bilal Zia. 2011. “Unpacking the Causal Chain of Financial Literacy”.

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BUILDING SOCIETIES: BUSINESS AS USUAL

Furness Building Society Bolton Lads and Girls Club

Bolton Lads and Girls Club was founded in 1889 by a group of local businessmen who wanted to support youngsters working in some of the town’s mills. Many things have changed over the years but the club’s dedication to providing young people with a safe place to spend their spare time remains at the heart of what they do. Each week nearly 3,000 young people visit the club to engage in a wide range of recreations, performing arts and sporting activities. As a registered charity none of the Bolton Lads and Girls Club income is guaranteed and they Nottingham Building Society National Empty Homes Loans Fund rely on patrons, supporters and fundraisers to Nottingham launch philanthropic open their doors. With this in mind, early in saver with homelessness charity In September 2013, The Ecology launched the 2013 the decided to National Empty Homes Loans Fund (NEHLF) launch one of its charity savings accounts which In 2013, Nottingham Building Society were in partnership with the Empty Homes Agency, operate on the principle “you save and we give”. at The House of Commons launching its central government and participating local Each year The Furness donates the equivalent of philanthropic savings scheme supporting authorities in England. Funded by a £3million one per cent of the average balances in all of the charity partner homelessness charity, grant from central government, the pilot charity savings accounts and this will become a Framework who it has been supporting initiative has been designed to address the sustainable income stream for the club for years since 2011. country’s chronic housing shortage by bringing to come. Early indications are encouraging and some of England’s 710,000 empty homes back the local Furness branch is working closely with The Nottingham agreed to lend Framework into use as affordable housing. the club to help generate as many new accounts an £800,000 mortgage on commercial terms as possible. to help provide 14 units of crucial move-on Administered by The Ecology, the scheme accommodation in Lincoln and Swadlincote, provides loans of up to £15,000 to owners Derbyshire. of empty properties. Many homes are empty because it is difficult for owners to raise the The cost of the loan is being partly offset by money to bring them back up to a habitable savers’ investment in special Framework savings standard. By giving access to loans for accounts - where the lower the interest rate paid refurbishment works, the NEHLF enables on their savings bond, the cheaper the loan to these owners to bring their property back into Framework will be. use as affordable housing, so helping to break The Nottingham’s David Marlow originated the vicious cycle of decline in areas with high the idea of a loan backed by a range of numbers of empty properties. dedicated savings products. Commenting Not only is the project helping to encourage on the initiative, he said: “This arrangement regeneration of run-down communities, its provides a double benefit for supporters of the stipulation that properties be refurbished to excellent work that Framework does - allowing Decent Homes Standard and be re-let at an them to know that their savings are doing good affordable rent level means that more individuals for people in need but enabling them to retain and families will be able to find quality housing their investment in a reputable Society with at a fair rate. It also encourages the re-use of all the protection and flexibility this brings. We existing building resources, helping to conserve are delighted to be able to set up this win-win materials and make the best use of available situation which benefits charity supporters and land while reviving local neighbourhoods. More homeless people.” information is available at www.ecology.co.uk/ emptyhomes.

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IT COMES AS NO SURPRISE THAT HEADLINE GRABBING STORIES ABOUT THE FINANCIAL SERVICES SECTOR TEND TO FOCUS ON THE NEGATIVE, RATHER THAN THE POSITIVE. SOCIAL INNOVATION, PHILANTHROPY AND COMMUNITY OUTREACH PROGRAMMES MAY NOT MAKE THE FRONT PAGES, BUT IT IS THESE OFTEN UNREPORTED ACTIVITIES WHICH REMAIN AT THE HEART OF BUILDING SOCIETY BUSINESS.

Skipton Building Society Grassroots Giving

Last year celebrated its 160th anniversary by giving back to the local community. Grassroots Giving was the appropriate name given to a campaign which sought to reward those people who had fostered a real sense of community spirit. Skipton set aside £80,000 to reward 160 community groups across the UK and invited small community groups to apply for the funding. Cambridge Building Society The Society was overwhelmed by the response. Staff training centre 1,000 groups applied and a staggering 20,000 Vernon Building Society people cast their vote to determine the 160 In 2013 The Cambridge Building Society made Poynton brass band winners. the decision to open a dedicated training centre after looking in depth at customer and staff Free resources were also offered to all Stockport’s Vernon Building Society has feedback. community groups on a bespoke Grassroots sponsored a local brass band for the past 25 Giving website. Topics included ranged from It became apparent that The Cambridge’s years, providing financial support and uniforms managing aspects of running a community induction process and training programme needed to the group at a time when the number of brass group and advice on how best to utilise social to be developed to bring it further in-line with all bands in the UK has declined considerably. media. This led to 63 per cent of the winning of the positive changes that the Society is currently Founded in the early 19th century within groups who were not already on social media making to ensure that the customer is truly at the the local coal mining community, the band signing up to a platform. heart of everything it does. partnered with the Society in 1988. Their Winning groups declared that Skipton’s The new programme runs for six weeks and covers mutual association with the local area fitted generosity had allowed them to make a the following: well, particularly as the Society has a branch difference (87 per cent), reach more • Week one: Understanding the Society in Poynton where the band is based. With people (73 per cent), traditional values and a modern outlook, the • Week two: Understanding your Role grow (66 per cent), ethos of the band works well with the Vernon’s • Week three: Understanding your Customer and generate more principles as a traditional building society which money (34 per cent). • Week four: Understanding the Bigger Picture provides innovative financial products. • Week five and six: Role Plays and Observations In 2013 The Vernon raised over £1,500 for The training centre which was officially opened local charities from events held in conjunction on 9 August 2013 has now seen 26 new recruits with the band. These events, coupled with the go through the programme. The induction and name and reputation of the band, continue to training programme is now more structured and raise the profile and strengthen the brand of the interactive with a mock branch and interview Society in the local area as well as supporting its room being part of the new training centre. Corporate Social Responsibility aims. Since then mystery shopping results have shown that new recruits are leaving the training centre with more confidence, a higher level of product knowledge and a better understanding of the Society’s brand personality and values which all go toward providing an enhanced customer experience.

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SEVEN QUESTIONS EVERY CEO SHOULD BE ASKING OF IT. BY JEREMY SUDDARDS, VICE PRESIDENT - FINANCIAL SERVICES, RETAIL & CONSUMER INDUSTRIES, HP

IN AN INCREASINGLY DIGITAL WORLD, For example, in a survey of retail FS customers BUILDING SOCIETIES NEED TO ENSURE the limited availability of services across channels THAT THEY HAVE THE RIGHT TECHNOLOGY was the largest pain point impacting convenience, TO GROW AND MANAGE RISK AND with 92% of comments attributed to lack of features in the mobile channel.1 COMPLIANCE, WHILE MAINTAINING A COMPETITIVE COST BASE. How can we ensure customers have a Traditionally technology has been the domain Growth of IT specialists, however, given its prevalence 2 seamless experience How can we in today’s world and the way it underpins 1 across all channels? use technology almost every aspect of a society, it is now New channels must be integrated with old paramount that CEOs have a grounding in to attract new customer to ensure that the customer receives the same the technology issues facing their business. segments and demographics? information and treatment through each channel So what are the key questions that Most societies draw heavily on their traditional, and is able to hop between channels. But, now ageing customer base, so the future depends the Martini proposition, “anytime, anyplace, every CEO should be asking of IT? on attracting new generations, where ‘generation’ anywhere”, is not affordable so you will need a is defined not by age but the technology people well thought-out investment strategy. use. Internet and mobile access are ‘givens’. Today it’s all about social media, personalisation and enabling customers to use the right mix of devices (tablet, mobile and PC) and operating systems (Android, iOS and Windows).

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How do we avoid losing the personal 3 touch and alienating our traditional, loyal customer base? Digital channels have the potential to alienate changes must be cascaded across the processes traditional customers, or to provide an and documentation in all your systems so impersonal service where it is hard to build the technology must be a fundamental strand in trust that is the essence of each society. You will, your compliance plans. therefore, want to consider interactive channels such as social media, web and video chat and Cost to add digital access into branch where staff can assist customers. Where are our principal cost areas and how can Security & Resiliency technology help realise efficiency savings? 6 How do we safeguard our customers’ data? Most functions in a society in traditional core systems but more modern are underpinned by processing information, systems allow business users - not IT - to make The importance of yet many tasks are often manual. With changes. Likewise, 10-15 years ago each system security is high-lighted 4 today’s technology it is possible to introduce required its own server but cloud computing by a survey which showed automation by layering over new systems now makes it possible to share computing power that 70% of customers without having to change your core systems. and thereby dramatically reduce costs. would consider leaving their bank if their personal data was lost or stolen.2 Each channel Considering these key questions, it is important presents its own data risk. From robust ID&V What are we doing to that CEOs make an honest assessment of processes in branch, to authentication and manage, and reduce, whether the right technical skills and capabilities cyber security threats online, technology must the IT cost base? are in place and, if not, how best to fill any gaps; be in place to protect data. With security it’s whether through recruitment or outsourcing. all about the business case because it’s always 75% of the life-time cost of 7 a system lies in its operation As you can see, getting to grips with technology possible to make things more secure - so the key is fundamental to giving building societies the is to balance cost of protection versus potential and change so flexibility is a vital best chance possible to grow and compete business impact. consideration, not just to react to the market, but to keep costs down. Agility is hard to achieve effectively in an increasingly tough market.

How do we ensure the Find out more... business is compliant Jeremy Suddards will be speaking at the BSA’s Annual Conference in Manchester on with the latest regulations? Wednesday 7 May 2014, or you can email him at [email protected] to find out 5 more about technology solutions for building societies from HP Enterprise Services. Mis-selling and administration errors are key risks to any FSI. Technology can play a vital role in ensuring

that the correct steps are followed in a process 1DNA UK Retail Banking Research, 2014 along with an audit trail. Equally, regulatory 2Banking on Privacy: Data Security and trust in financial services, 2013.

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BSA - ANNUAL CONFERENCE 2014 7 & 8 MAY MANCHESTER CENTRAL WE ARE SEEKING TO BRING Speakers include: TOGETHER A CONFERENCE Peter Hill James Meekings LINE-UP THAT WILL PRESENT Chief Executive, Co-Founder, Funding Circle AND STIMULATE OUTSTANDING Jeremy Suddards ANALYSIS, DEBATE, INSIGHT Marion King Vice President, FSI, Retail & President, UK and Ireland Consumer Industries, AND OPINION. ALL COMBINED Division, MasterCard Worldwide Hewlett-Packard Company WITH A COMPELLING Douglas McWilliams Jim Willens EXHIBITION AND AN ENJOYABLE Executive Chairman, Chief Executive, SOCIAL PROGRAMME. Centre for Economics and Newcastle Building Society Business Research

With an environment which I hope you will come away We could not bring this conference to you might still be seen as toxic for from this year’s conference with without the support of our sponsors. the major banks, and in which renewed appreciation for what challenges are being actively the mutual sector, and building Headline sponsor Lunch day one encouraged, the BSA is focusing societies in particular, have to on the real need for diversity offer; and fresh determination across the financial services sector to make our businesses not only and on the vital role that mutuals leaders in the UK banking sector; play in contributing to that but bright lights showing the diversity of ownership model. way for ever better member and Conference breakfast Lunch day two customer outcomes.

new associate

Information Processing Limited (IPL)

We understand how to build a With a turnover of £30m beautiful, intuitive and easy-to- and more than 300 expert use experience that will help you consultants and software retain your existing customers engineers, we’re big enough The digital revolution is happening and your and attract the next generation. to trust, but small enough But more importantly, we know to care. We’re more than organisation can be a part of it. how to link this to your systems a supplier; we’ll become of record, to bring together the your trusted partner on your If you’re thinking of offering Nationwide for well over a right information at the right time. journey to delivering first- greater value to your decade, and have helped deliver And our long track record in the class customer-centric customers by reaching out some of their core customer- financial services sector means digital services. We’ll be beyond your branch network, centric digital services, including that we understand the security there to help you make the then IPL can help. We’ve the multi-award-winning online and regulatory challenges right decisions, and to deliver worked with a whole range of bank, highly rated mobile inside out - and know how to the right level of services for organisations, helping them banking apps, their new overcome them. your organisation. grow and prosper through mortgage intermediary apps for building closer relations with iOS and Android, and much of their customers. the underlying technology that Find out more... makes this comprehensive digital Wherever you are on your digital journey, take the next In fact, we’ve done it for offering possible. organisations just like yours. step today. Visit www.ipl.com/bsa, or get in touch by We’ve been working with emailing [email protected] or calling 01225 475000.

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