Engaging conversations

Member engagement at building societies

May 2015 What we do We fulfil two key roles. We provide our members, all 44 building societies and two credit unions, with information to help them run their businesses. We also represent their interests to audiences including regulators, the government and parliament, the of England, the media and the general public. Our members have total assets of over £330 billion, and account for approximately 20% of each of the UK mortgage and savings markets. It’s estimated that more than a third of the UK population has a financial service relationship with a . Engaging conversations May 2015 1

Contents

Foreword 2 1 Why engage with members? 4 2 Member engagement and corporate governance 14 3 Communicating with members 18 4 Loyalty products 28 5 Assessing member engagement performance 29 6 Effective member engagement 30 2 Engaging conversations May 2015

Foreword

One ongoing consequence Building societies are owned by their This, our fifth report into member of the financial crisis is saving and borrowing members, not engagement at building societies since shareholders. Many building societies 2003, addresses the following questions: that the financial services have come to appreciate that effectively • What • is effective member engagement? sector remains at the engaging these owners, who are also centre of questions about their customers, can help them to What • is the impact of effective for what, or for whom, understand changes in the market, member engagement on how 1 helping to connect the building a building society is run? businesses are being run . society to its fundamental purpose of supporting homebuyers and savers. What • constitutes a building society As the economy recovered from the member engagement strategy today? financial crisis the impetus to develop For many years, including prior to a corporate environment where the latest financial crisis, they have How • has this changed since our last businesses give greater consideration developed their approach to engaging report in 20102? to their role in society grew. members as owners and as customers of the business. In many ways these In • particular, how have new technologies This corporate social contract cannot two relationships are indivisible. affected member engagement? be explicitly defined, nor is it static. There is a significant opportunity Therefore, to ensure the stewardship As member owned organisations, for building societies to leverage the of organisations is appropriate to member engagement is crucial to strengths of their unique ownership fulfil this contract over the long holding building society executives and structure. This report demonstrates term, financial institutions need to boards to account. This has always been, how building societies are investing engage in conversations about the and remains challenging, despite action in opportunities to engage with outcomes society wants, and learn to on the part of societies. But with a keen their membership both as owners interpret and anticipate what these cohort of members/customers that and customers and the rewards to demands will be in the future. are actively engaged it can be so much more; it can bolster the competitive stakeholders that are being realised advantage of building societies relative from doing so. to firms with other ownership structures by giving them deeper insight into the needs of customers. If these aspects of member engagement are addressed successfully it will result in a better Robin Fieth run building society for the benefit of Chief Executive members, staff, the communities they Building Societies Association serve, and the financial services sector.

4 Engaging conversations May 2015

1. Why engage with members?

Building society Chief A BSA survey shows that 90% At all of the societies that responded Executives understand of responding building societies to our survey, responsibility for member (Figure 1) said member engagement engagement ultimately lay with a the importance of is very important to fulfilling their member of the board. At almost three member engagement. responsibility as a customer-owned fifths of societies (57%) the Chief organisation. Interestingly, a large Executive was responsible. Another proportion of Chief Executives who Executive Director was responsible responded said that engaged members at a further quarter (24%). At the also fed into strategic decisions, with remainder it was either the Chairman 57% saying member engagement (14%) or another Non-Executive was very important for this and Director (5%) (Figure 2). There is regular 29% saying it was quite important. reporting to the board on member engagement measures and activities. For example, Scottish Building Society has a member engagement dashboard that goes to the board on a quarterly basis and at Stafford Railway Building Society this forms part of a Balanced Scorecard approach to reporting.

How important is member engagement to the following...

Your responsibility as a customer-owned organisation Communication with members

Understanding your markets

Product testing and development

Public relations

Setting strategic direction

Operational decisions

Risk control and management

Very important Quite important Neither important nor unimportant

Quite unimportant Very unimportant

Figure 1 – Based on 22 responses out of a total of 44 building societies, representing 73% of the sector based on total assets. Engaging conversations May 2015 5

Who is ultimately responsible for member also focus on engagement with engagement at your society? their customers, but engagement at building societies is different because they are owned by their customers – the Non-executive directors, 5% members. This gives customers the direct Chairman, 14% right to participate in the governance of their society. Membership rights include voting in the election of Directors and on other resolutions. They can also attend Annual General Meetings, stand for election, support a member resolution, and request a Special General Meeting. Chief Executive, 57% Hanley Economic Building Society Executive directors, 24% Hanley Economic Building Society reports that many members say the level of engagement is far higher than they are accustomed to elsewhere, and as a result they have a real sense of being valued Figure 2 – Based on 22 responses out of a total of 44 building societies, as a customer. representing 73% of the sector based on total assets. 6 Engaging conversations May 2015

Ipswich Building Society’s explanation of its ownership structure

How do we work?

All are owners of the Society

The money received from savers Is used to help other members to buy a home with a mortgage

Any surplus is used to pay running costs, invest in services and ensure our reserves are healthy for the future Engaging conversations May 2015 7

I can trust my provider to act How have resources commited to member Member engagement in my best interests (% agreeing) engagement changed over the last two years after the recession and how will they change over the next two years? The reputation of building societies 5% did not suffer as badly from the global financial crisis as those banks which 24% 19% were involved in cases of bad practice. 92% Since the crisis ended banks have been 83% focusing on rebuilding their reputations. Building societies have been able to continue the focus on members. During a time when the reputation 43% 48% of the financial services sector is low, this can produce real competitive advantages. Over three quarters (76%) of societies that responded to the BSA survey had increased resources committed to member engagement over the 33% 29% last two years. None had reduced them (Figure 4). A similar proportion (77%) have indicated that they will be increasing resources over the coming Building Societies Banks Over the last two years Over the next two years two years. A number of societies have Increased a lot Increased a little recently established, or will soon Survey by Canadean Consumer for the BSA* Figure 4 be establishing, new departments Decreased a little Decreased a lot focused on customer experience, including member engagement. Stayed the same

Figure 3 Figure 4 8 Engaging conversations May 2015

Although the range of member How important is member engagement Very important 2015 Very important 2010 engagement practices are similar to to the following... (2015 vs 2010) those in place at the time of the last 90% survey in 2010, the responses to our 86% survey show that member engagement is now much more important. 81% 81% 71% This is shown in figure 5. Across each 62% dimension member engagement 62% 57% is seen as more important now than it was in 2010. 52% The largest shift in Chief Executive 48% 38% opinion compared to five years ago 42% relates to setting strategic direction. Whereas 57% said that member 19% engagement was very important to 26% strategic setting in the latest survey, just 16% said this in 2010. This 16% indicates a greater appreciation for 6% owned organisation as a customer Your responsibility direction Setting strategic decisions Operational and management Risk control with members Communication and development Product testing relations Public the role that engaged members can your markets Understanding play in helping a building society to differentiate itself from the competition. Newcastle Building Society note that their attitude to member engagement has not changed, but their approach has. They have been more adaptable in implementing new services, have Figure 5 adopted new products based on member feedback and gained new advocates through strengthened links with their local community. Engaging conversations May 2015 9

Competitive advantage Several banks are now focusing on customer service, traditionally a stand Darlington Building from mutuality out characteristic of building societies. Society Global banking markets have entered Mutuals may also be disadvantaged Darlington building society has a new era following the financial as they are not able to raise external engaged in multiple conversations crisis. All firms are facing increased capital like publicly listed banks, which with its members, staff and regulation and the associated costs. could hamper their ability to rapidly non-members as part of a brand Customer perceptions of the financial grow lending or invest in technologies. refresh. A quarter of members asked, service sector are still low, and ethical Whilst the current environment does considered the opportunity to standards are under scrutiny by bring challenge for the sector, building participate in decisions affecting customers and the wider community. societies can capitalise on their the operation of the society to be Consumer needs and lifestyles are also differences to banks and use this to very important, but not all translated changing, and so are the ways they do gain competitive advantage. The mutual this view into action. business with their financial services model favours long term relationships Factors like loyalty products, provider. This has mostly been driven by with members compared to shorter better service, no shareholders technological advancement, in particular term relationships that banks have with and providing support to local web and mobile based services. their shareholders. This focus on the communities and causes were seen There has been great debate within longer term allows building societies as some of the tangible benefits of the building society sector on how to sacrifice some short-term returns a building society. the customer ownership model can to deliver industry leading service, Despite the rise of the internet in be made more relevant for consumers particularly as pressure grows on banks 3 financial services, the local branch today. Many societies have conducted to increase returns to shareholders . was felt to have an important role research into the views of members By investing in engagement with their and is a determinant in the choice and non-members to understand members now, societies can pinpoint of financial services provider. how they can leverage the difference areas that mean the most to their There was strong opposition to their ownership structure makes. members and begin to strengthen them. the replacement of humans by Mutuality itself is often not the main machines, which has happened at pull for consumers, so societies need A member engagement strategy that some of the big banks. Face to face to demonstrate how their ownership fits with other elements of a society’s contact or the opportunity for it can result in better value, including offering is likely to be more successful. was considered crucial. pricing, service and fairer treatment. In recent years But building societies’ superior has increased its focus on member performance is not a forgone conclusion. engagement as it developed its community programme. The objective has been to create a greater sense of belonging and deeper relationship with customers. While increased engagement does not by itself achieve this, improving the quality of service delivery and product offering alongside has been very successful in terms of customer ratings. 10 Engaging conversations May 2015

I feel as though myI feel provider as though treats my me provider treats me My provider offersMy competitive provider offers rates competitive rates fairly as a customerfairly (% asagreeing) a customer (% agreeing) (% agreeing) (% agreeing)

95% 95% 92% 92% 88% 88% 80% 80%

Building Societies Building BanksSocieties Banks Building Societies Building BanksSocieties Banks

Survey by Canadean SurveyConsumer by Canadean for the BSA* Consumer for the BSA* Survey by Canadean SurveyConsumer by Canadean for the BSA* Consumer for the BSA*

Figure 6 Figure 7 Engaging conversations May 2015 11

Leveraging the competitive advantage of mutuals A number of international strategic consultancies have analysed what member ownership can mean in terms of competitive advantage4. Although they looked at cooperative financial institutions internationally, these studies suggest that closeness to customers can give member-owned organisations the edge if they use it as the basis of their response to current challenges. The findings from our survey of building society chief executives suggests that many see member engagement as playing a similarly important role in setting the objectives for their building society.

McKinsey – 2012 Bain & Company – 2014 Oliver Wyman – 2014 Change is opportunity – Member Experience – Cooperative Banking – Leveraging Cooperative banks on Unlocking the Cooperative the cooperative difference to adapt the cusp of a new era Competitive Advantage to a new environment A new phase of low growth and Cooperatives are in a unique position Cooperative banks should meet tougher competition in banking can to be member advocacy and loyalty technological and regulatory create opportunities for cooperative leaders – a powerful source of challenges by preserving and building banks to fulfil their mission. competitive advantage. on their distinctive characteristics. They can do this in three main ways; Invest in key dimensions of their To lead in member advocacy and promise to members while the big experience cooperatives must not Manage financial constraints to banks are distracted by restructuring. only put the member at the centre continue supporting local economies. of their mission, but also build the Re-assess the branch network to Leverage their roots to emphasize the “operating model” that supports a preserve proximity while remaining cooperative difference: Membership continuous focus on improving the profitable: either shrink the network is the defining characteristic of member experience. Success requires or find new roles for branches. cooperative banks. They should try front line to increase the portion of customers Use technology to deepen who are members and increase the relationships with members and engagement of members in setting respond to their needs and delivering their guiding principles Invest in member relationships and business practices. via loyalty products and creating Use technology to rejuvenate opportunities to engage with the cooperative relationship; to members. complement and revitalise physical Collaborate with other cooperatives branches, enhancing proximity, trust to guard against unintended and the overall banking relationship. consequences from regulatory reform. They can also use technology to improve the involvement of members Optimise balance sheets by in the bank’s life. developing the opportunities for members to invest in mutual capital instruments. Assess alternative growth opportunities related to the current member base that could better match members’ interests while providing adequate return on capital. 12 Engaging conversations May 2015

All In at Building Society has become the first building society to package and brand its membership. All In is how Ipswich makes the mutual difference real – the difference between being a customer and being a member, or buying a product and having a share. The different aspects of All In combine to make being a member feel real. They also help keep the society in great shape, and contribute to a stronger community for everyone. All In is making membership mean more. From having a say in how the society is run and helping to improve products and services, to finding new ways to support those who need their help. All In allows members to share in the society’s success. All In allows Ipswich to showcase why being a member of a building society is different to being a customer at a bank. The society has lifted the lid of how they operate, clearly demonstrating how members own the business. They have a dedicated ‘members lounge’ on its website where members can find a wealth of information about their society including upcoming society and community events. All In has delivered instant success increased turnout at their AGM threefold in 2014. This was achieved by rebranding their AGM as a member event of which part of it was the Meeting. Engaging conversations May 2015 13

The impact of new technology The rapid advancement in technology is changing how people establish and maintain relationships. This is Mobile Money having a profound impact on how financial service providers interact In 2014 Cumberland Building Society became one of the first current account with their customers. It is also providers in the UK to launch a peer to peer mobile payments service. The increasing customer expectations Pay2Mobile app allows members to send money to another person’s Cumberland of the level of service provided. current account using just their mobile phone and phone number without the need to share account details. Technology is bringing new opportunities for building societies Cumberland was one of six institutions to take part in the launch of the national to engage and deepen relationships mobile payment service Paym which has the potential to link up every bank with their members, and to account in the country using a mobile number. reach those who were previously Cumberland realise they have a responsibility to their members to continually disengaged. This covers everything enhance their services and respond to how customers wish to interact and engage from how accounts are opened and with them. Cumberland, which already has internet and mobile banking and offers administered, to how customer business current accounts, say that being at the forefront of banking technology service teams deal with feedback and is one example of them fulfilling this responsibility. complaints, to how a society forges links with its local community. The increasing use of technology also brings challenges and risks. One significant challenge is to ensure that technology does not distance the society from its members. It is crucial to ensure that any change improves the experience and service received by members. There are also more specific issues, such as legal requirements around the promotion of financial products using social media channels. 14 Engaging conversations May 2015

2. Member engagement and corporate governance

Corporate governance If an institution is underperforming, Annual General encompasses the rules, members of building societies and shareholders at banks, have two Meetings practices and processes main courses of action available to One important way for members to 5 by which a firm is them. These are exit and voice . actively exercise control of their society directed. Successful Exit is available to both shareholders is by participating at the Annual General governance balances and members. Shareholders of a bank Meeting (AGM). At this meeting all the interests of owners can sell a shareholding and relinquish eligible members are entitled to cast and managers, together their ownership rights. Members of a a vote to elect directors to the board building society can close a savings or and to vote on other resolutions. with those of other mortgage account. This exit discipline Measuring attendance is one stakeholders in the firm. may in fact be stronger at building straightforward way of gauging These include customers, societies because when a member how engaged building society staff, and the community leaves there is a reduction in assets, members are, and what role they are whereas when a shareholder sells shares in which a building playing in the governance of their on the stockmarket there is no such society. In 2014 turnout averaged society operates. In reduction, just a transfer of ownership. 11.8% of eligable members. contrast to shareholder- Voice is also available in both ownership It has proved challenging for building owned banks, voting structures, where members and societies to raise voter turnout because rights at building societies shareholders can exercise their voting some members may not understand are non-transferable and rights to influence policy and change the relevance or importance of their cannot be concentrated. management. Yet, concerns about how role as a voting member. However, the effective and active shareholders were relatively low voter turnout rate could in the run up to the financial crisis led also indicate that members are generally to the Government instigating the content with how their society is being 6 Kay Review into equity markets . run. This is illustrated by the fact that Two sources of external discipline – voter turnout reached its peak at the the competitive constraints in product height of the financial crisis. During this markets and the regulatory regime time members were concerned that – apply to building societies in the their society, and their deposits, might same way that they do to banks. Listed be at risk. However, as it became clear companies also face the threat of a that there was little or no risk to their hostile takeover if they underperform, money, voter turnout fell at subsequent whilst building societies do not face this AGMs. Lower turnout may also reflect external discipline. Therefore at building the various other opportunities that are societies more focus is placed on now available to raise issues throughout internal mechanisms of accountability. the year outside of the AGM. Building societies can encourage This does not mean member turnout members to use their voice, and engage is unimportant to building societies. in the corporate governance of their On the contrary, they understand how society. This helps align the interests vital it is for their members to exercise of management, staff and members. their rights and are making concerted Engaging conversations May 2015 15

Ipswich Building Society: ‘By helping members understand their status as owners of the business we can increase their engagement in the Society, bringing direct benefits to them and continual improvement to us.’

efforts to improve turnout. They review AGM packs and communications every Building society Do all members have year to make it easier for members to understand and vote. They engage membership rights the same rights? in marketing of the AGM in branches, Take • part and vote at One member has one vote, no online and via email. Ecology Building the society’s AGM matter how much money they Society invites members to submit have invested or borrowed. questions to directors online in advance Ask • questions of the board of the AGM, with answers posted on and make comments on the Most people taking out a mortgage their website after the event. And society’s business at the AGM or opening a savings account become members and therefore many societies make a charitable Put • forward resolutions have the rights mentioned above. donation for every vote cast. to be discussed and voted on at the AGM Saving members with less than Using technology to £100 in their account, borrowing • Ask • for the society to organise members with a mortgage of less bridge the generation a Special General Meeting in order than £100, and members under to put forward a valid resolution gap in AGM turnout the age of 18 have restricted rights. • Nominate • candidates Many building societies have found Some investors have deposit for the board that it is usually members with longer accounts. They are not members relationships that vote at the AGM. • Stand • for election as a and have no membership rights. Some younger members may not director themselves understand the relevance of the AGM Furthermore, some safeguards are and participating in the voting process. Entitled • to receive information in place to prevent an individual including rules and memorandum, member pushing through a By using technology to modernise their the annual summary financial resolution to suit their own agenda democratic processes building societies statement, detailed annual but which may not be in the interests can reach out to those who are now report and accounts, and of the membership in general. using email and other web services as a notice of the AGM their primary means of communication. For example, a member resolution One of the most successful tools may need be backed by 500 other used to increase member voting at members, though this is out of the AGM is the ability to vote over a total membership which can the internet. Approximately 90% of be in the hundreds of thousands, societies offer their members the and in some cases millions option of voting using the internet. At these societies, 25% of votes were cast online. The percentage of votes Yorkshire Building Society cast online is likely to grow as more building societies adopt web based Yorkshire Building Society identifies levels of voter turnout as a key confidence services and more customers begin to indicator of its members. This is why it has invested in its AGM communications. feel comfortable transacting online. Based on feedback from members, Yorkshire has restructured their AGM pack to make it quicker and easier to digest, and reduced the technical jargon which can be difficult for people to understand. They have also increased staff education on the AGM process to encourage more conversations with members. 16 Engaging conversations May 2015

Appointment of Directors The majority of building societies allow Directors’ remuneration members to nominate Independent The appointment of Directors to the Directors to their boards, and stand Directors’ remuneration has become Board is a fundamental means by to be a Director themselves, but this a more contentious issue since the which members exercise control over rarely occurs. The management team financial crisis and the spotlight on management of the society. Members at has been the distribution of wealth in the appoint independent Non-Executive challenged by their membership on country. Inappropriate remuneration Directors with the appropriate skills why there is not a wider choice of policies have been identified as a and expertise to the board to represent Director candidates. It was explained contributory factor behind the financial their interests. The Directors bring an to members that they are able crisis, and the then FSA was the first independent voice to the board and to nominate a candidate, but major financial regulator to respond are there to challenge the decisions this has not yet resulted in any to this issue with the introduction of made by Executive Directors and senior nominations from their members. a remuneration code. The aim of this management of the society. Non- code is to bring about fundamental Executive Directors must meet certain It is particularly important for Non- changes in firms’ approaches to requirements set out by the regulators Executive Directors to communicate remuneration to help avoid future crises. to ensure they are fit and proper for with members. Ecology Building From October 2013 shareholders of the role. They must fully understand Society has made a more official link listed companies were given a binding the business of the society and have between the Board and its members vote on a resolution to approve the sufficient relevant working experience, by giving one Non-Executive Director directors’ remuneration policy. This although this does not necessarily need the special responsibility to act as an policy sets out how the company to be in financial services. The majority advocate for members and ensure proposes to pay directors, including of Directors do have a background in the Board considers the views of the every element of remuneration that accounting, finance, or banking but there membership in all its decisions. a director will be entitled to and how are also Directors with experience in law, It is important that building society it supports the company’s long-term survey and valuation, human resources, boards are representative of their strategy and performance. The policy and general management. Societies membership, so they are becoming also includes details of the company’s often also look for applicants showing increasingly gender diverse. In 2014, proposed approach to recruitment and an understanding of and appreciation of the 385 building society directors, loss of office payments. Companies for the mutual ownership model or 18% (68) were female. This is up must put the remuneration policy links with the local community. from 15% in 2013. However, FTSE to a shareholder resolution at least 100 companies lead the way with every three years. If a company an increase to 21% female directors, wishes to make any changes to the following a surge after the Davies remuneration policy it needs to put 7 Report . 11% (5) of societies have the new policy to shareholders for no female representation on their approval at a general meeting. board, which is significant reduction from 26% (12) last year. In the FTSE 100, just two companies have no women on their board. Engaging conversations May 2015 17

It is not compulsory for building Linking remuneration Nottingham Building Society societies to put their remuneration All staff have an element policy to a vote of the members. to member engagement of their variable pay However, an increasing number Some building societies link their reward linked to delivery are choosing to produce a separate member engagement objectives directly of pre-agreed customer remuneration policy report, and all to the remuneration received by their building societies hold an advisory vote satisfaction scores. directors. At the majority of societies This means that everyone of their members on the remuneration there is some element of member policy, irrespective of whether or engagement or customer service from Chief Executive not it is presented separately from measure that is used in calculating to customer adviser are their annual report and accounts. rewards for directors and other members aligned behind the same West Brom Building Society is one of staff. At Nottingham Building Society objectives and values. of many societies that now present all staff have an element of their a separate Remuneration Policy and variable pay reward linked to delivery Remuneration Report. The society of pre-agreed customer satisfaction believes that this change has allowed scores. This means that everyone greater transparency and allowed them from Chief Executive to customer to present information in a way that is adviser are aligned behind the same easier to understand. It was noted that objectives and values, which in turn at their 2014 AGM there were fewer aligns the society’s culture with the questions than usual regarding directors’ best interests of their members. remuneration, which may suggest that the information published in this format Percent of building society members votes had covered many member queries. approving Directors’ remuneration package All building societies voluntarily put their board remuneration package Maximum Simple average Minimum to a member vote at the AGM, and 100% over the last five years this has been 95% approved on average by over 90% 90% of voting members (Figure 8). 85% 80% 75% 60% 2010 2011 2012 2013 2014

Figure 8 18 Engaging conversations May 2015

3. Communicating with members

Compared to most This can include alternative ways Newcastle Building Society distributes individual shareholders to hold the management to account, a bi-monthly e-newsletter which such as through member panels, includes items such as top financial of a publicly quoted bank, forums and talkback events. Building tips, community update, key product communications between societies are increasingly using information, and legislative or regulatory a building society and its technology to broaden the range of changes. It also invites members to give members tend to be more communication with members. feedback to the society. This type of communication, which combines both Many provide newsletters or interactive, consultative, useful financial information and society magazines to their members. and occur more often updates in a readable and informal tone, A newsletter is often sent with the is a powerful way to engage members. outside of the AGM. AGM pack which provides customers with insights into the society’s current performance, events and news from the year past, and information on what members can expect from the year ahead. Some societies provide Building societies’ more frequent newsletters. communication informal specific

direct two-way consultativeinteractivefrequent Engaging conversations May 2015 19

Social media Monmouthshire Building Society is using Facebook to maintain its profile as The potential reach of social media a friendly, customer-focused financial institution. Facebook allows the society is huge, and around two thirds of to increase its engagement with members and allows members to digest building societies now use it to interact information when and where they want. Customer queries ranging from product with their members. This gives them information requests to the benefits of being a mutual organisation are often the ability to communicate in a handled via Facebook. personable, timely and efficient way. This is typically achieved by using Facebook or Twitter. Building societies are finding it easier to engage with younger consumers online, but how they optimise their online presence varies. 20 Engaging conversations May 2015

Nationwide Building Society now More advanced operates its Twitter channel 24 hours a day, seven days a week, giving members website features the opportunity to get in touch at Websites have traditionally been their convenience. The channel is used as a source of information, but friendly, informative, and the first of the continued advancement in web its kind to operate 24/7 in the UK. technology is making their use ever Social media has enabled Market more powerful. Information provision Harborough Building Society to connect and management of accounts remain Nationwide’s digital watch app more closely with its local community, the primary uses of most building something it would not be able to society websites, but new technology is afford to do through more traditional allowing the content to be customised models. They use social media to to its users, making it more relevant and communicate events, local activities and engaging. For example the West Brom connect with the wider community. Building Society’s website filters out irrelevant mortgage products displayed Nottingham Building Society uses its on-screen depending on a person’s social media channels to communicate borrowing requirements. This helps keep about charitable activities and volunteer the user engaged with the content and work as well as profile the range of local less likely to exit the website before sponsorship activities the society is finding the information they need. involved with. It is also used as a means to inform and educate on topics like the Nationwide is at the forefront of mortgage application process in the form banking technology. At the end of 2014 of short videos. Saving tips, for example, As well as using social media it was the first UK financial services are submitted daily by members and provider to bring real-time balance as a means to communicate access to Android smartwatches. turned into cartoons, upping the levels with their digitally-savvy of engagement and interaction. Nationwide explains that providing members, Ecology Building customers with a variety of ways to Since committing to social media, Society uses Twitter and manage their money, whenever and Nottingham has seen significant Facebook as a means to however they want is a priority. Giving increases in its reach, making members lobby and campaign on members who have the technology and potential members aware of its to check their balance on their watch activities. The Society has over 11,000 environmental matters. This has the benefit of provides Nationwide with even more ‘likes’ on its Facebook page. Recent ways for members to interact with them. videos have been viewed thousands building affinity with of times and individual updates reach members, many of whom To provide a joined up approach to around 3,000 people on average. are passionate about these their communications, some building issues. By broadening the societies have introduced an online conversation beyond products tool that allows users to request a call-back from a customer service and services the society can representative in a single click. build deeper relationships with its members. Engaging conversations May 2015 21

In-branch engagement Rather than consolidating the branch West Brom Building Society: network, many building societies are ‘We use digital screens to Building societies traditionally have choosing to invest in them, promoting a promote key products and a strong branch network which helps wide range of in-branch events for their services, but the content cement their presence on the high members and the wider community. is tailored to each branch street. However, with technology making Some of these are relatively informal, it easier for consumers to administer for example Newcastle Building Society location. This means we their financial affairs online, access to holds a number of coffee mornings can put some personality a branch is becoming less important where staff chat with members on behind the campaign – local to some consumers. Yet, there are still a range of topics. Some societies customers see references many people who prefer to transact have developed community spaces to the staff and managers face-to-face. Many societies feel that within their branches. This includes who work in their branches. this is still the best way to get to know exhibiting local artwork, offering space Similarly the screens can their members. If building societies want to charity and volunteer groups and promote any events specific to maintain personal contact, and want providing educational activities. the branch network to remain relevant to a local branch, such as and financially justifiable, they have Investment in branches is diverse, workshops, seminars or to create new reasons for members to ranging from rebranding to fundraising activities’ visit them, and new uses for branches. modernising facilities. Both ensure that banking experiences are user- Newcastle Building Society: friendly and as enjoyable as possible. ‘We host a variety of Nottingham Building Society: branch-related events ‘In branch we offer access to throughout the year, such independent expert advice as history walks and tea for estate planning, financial and coffee mornings. They planning and whole of are informal, but also enable market mortgage sourcing. staff to engage with members These are areas we know on a regular basis and form are increasingly relevant, meaningful relationships’. important and not easily accessed through many other providers’. 22 Engaging conversations May 2015

In-branch technology Member panels The second type of panel comprises a large group of members, and is now The branch network remains a vital tool Running member panels is one method typically conducted online. Web based for building societies to engage with used by building societies to gain in surveys have made conducting this their members. Principality Building depth feedback from members. These online more effective in terms of cost, Society is using technology to customise panels are usually made up of longer turnaround time and reach. There is in-branch information depending term members that take an active a growing adoption of internet use on its location. This allows them to interest in how the society is run. amongst one of building societies’ core promote local events such as workshops, demographics – the older generation, There are two types of panels used seminars and fundraising activities, and therefore an increased demand by building societies. The first is a making information more relevant to for communication and engagement group comprised of a small number members in specific communities. online. This larger panel is typically of members, perhaps no more than open to all members who wish to Nationwide Building Society has 15 people. Typically the group will take part and can therefore consist launched ‘Nationwide Now’ a service meet in person on a regular basis, of thousands of participants. that allows mortgage customers to and a senior member of the society’s contact its administrative office via in- management team will often attend. Scottish Building Society has recently branch video link. This is the first of its At some societies, such as Hinckley & introduced an online member panel kind in Europe and is currently available Rugby, the views of the member panel and send out a maximum of four in 166 branches. Customer feedback are reviewed by the whole Board. short surveys a year to canvas views has been very positive, and Nationwide on product development, marketing This type of panel allows societies plans to expand this service to around communications and charitable to get detailed feedback on issues 400 branches. This is a prime example initiatives. The response rate has such as product development, brand of utilising technology to bring the been above 80% which is far higher values, policy issues and marketing. member closer to the society and to than average for such a survey. The Some societies have asked their panel receive a more personal experience. society is able to achieve this high to sign a non-disclosure agreement response rate by keeping surveys short which allows societies to share and relevant to their members. confidential information on new products and innovative ideas. These panels and forums are more than just talking shops – they are a valuable consultation device that is less formal than the governance checks set out in a society’s constitution. Societies, where panels have been successful, Nationwide Now describe how they have a wide influence on corporate culture. With business decisions being influenced by the expected reaction of the member panel. Engaging conversations May 2015 23

Coventry Building Society’s Member Skipton Building Society: Council has made a real difference to getting members involved. the Society’s operations. Skipton Building Society has carried out over 30 pieces Coventry Building Society has developed the concept of research with its panel since it launched. This is a very of a member panel further and introduced a Members’ cost effective and efficient way of carrying out research, Council which has been in operation for over seven years. and has enabled the society to get much more feedback The Council is provided with confidential material such as from its customers than it may otherwise have been board papers, which demonstrates the trust the society able to. Results have fed into the development of overall has in the Council. The Council is made up of 12 members strategy, propositions, specific products and services, and and each one is recruited to sit for a two to three year communications. The member panel has given information term. The existence of the Council and the need to which has contributed to the development of the society’s explain decisions to them serves as a constant reminder strategy over the last 18 months, including providing to the management team of its responsibilities to feedback on the importance of rewarding member loyalty. its members and the purpose of a customer owned This has recently led to the development of a loyalty financial organisation. savings account. The Council has been used to test systems such as the Overall, having these initiatives in place has enabled the society’s new interactive voice telephone system. The society to be much more customer-focused, and to feed Council were able to act as callers in a test environment customer views into a much wider range of projects. and report if the service had made it easier for members It has been very useful for the society to have a group of to access services. The feedback was that there were a very engaged customers who have a good understanding number of areas for improvement, and so the society was of the organisation and its strategy to give feedback as able to make changes before the system went live. plans develop. The panel has enabled the society to have Managers from across the Society actively seek out the valuable two-way communication with these members, Council when they are considering major projects. It has with key stakeholders within the society getting the become a recognised business tool within the Society. opportunity to be directly involved with the discussions, and to hear from customers. This also gives members the opportunity to get involved and feel that they are making a contribution to the way that Skipton Building Society operates. This is valued highly by the panel. 24 Engaging conversations May 2015

Nottingham achieves a typical Roadshows West Brom is clear that its Members’ response rate of 50% from its ViewPoint events are not sales pitches, online member panel. This is a Member roadshows or ‘Meet the but an opportunity for members to high rate for an online panel, Director’ sessions are popular events pose questions to the people running hosted by building societies where the the society in an informal, relaxed and demonstrates that panel public can meet the management team environment. The society finds the face- members are interested in or the directors of the board, including to-face interaction particularly effective engaging with the society the CEO. Some societies host these for understanding what members think. and keen to provide feedback. across their branch network, others hire interesting venues in their locality. Over the past year the society These events give members a chance has covered numerous topics, to be updated on developments and including; have an opportunity to ask questions. • Member reaction to a For example, Yorkshire holds a regular change in the distribution Member Question Time as part of its of its mortgage offerings member engagement programme. In • Clarity of communications 2014 the society invited 6,000 members to Member Question Time events. These West Brom Members’ ViewPoint and messaging provide an opportunity for members • Feedback on sponsorship to find out how the society is looking programmes and the after their interests direct from senior society’s community management, and for the Society to find strategy out what really matters to members. • Feedback on the society’s proposition • Feedback on complaints handling

The output from the panel informs the society’s product governance and conduct risk management and are taken into consideration when working through new product proposals or customer service developments. Engaging conversations May 2015 25

Questionnaires Societies also target customers to get specific insight. West Brom Principality Building and surveys Building Society asks new mortgage Society Understanding members is central to a customers to answer a questionnaire Principality Building Society has a member owned organisation, and shape on completion of their mortgage. dedicated Customer Insight team how it operates. By using surveys and They also speak to customers in more that is responsible for representing questionnaires, building societies are difficult circumstances, for example the ‘voice of the customer’. It able to obtain a deeper understanding those who have fallen into arrears, to provides insight that helps to of their members’ needs. This helps find out how satisfied they are with the identify areas for improvement and shape all aspects of the organisation way their situation is being handled. develop customer strategies that from top level strategy, testing products This type of research allows building increase member value. The Society and services, to helping improve societies to reach all member generates this insight through customer service levels. This method demographics from those who use a number of different methods, allows societies to get both quantitative branch services to those who only including primary and secondary and qualitative results that can be fed interact online. This allows all staff research, and analysis of feedback back to management and front line staff who interact with members to get received from members. This is used to improve the customer experience. feedback on how well they are meeting to recognise behavioural patterns For example, Leek United Building their customers’ requirements. to try and anticipate members’ Society uses an AGM questionnaire future needs. which has provided helpful insight into members’ views and requests. Some societies run regular surveys, whereas others use them on a more ad-hoc basis when there is a particular issue they want to address. Some of the larger building societies run a monthly survey, usually conducted by a third party on their behalf. West Brom Building Society conducts both regular structured surveys and ad-hoc surveys that reach around 5,000 members every year. Yorkshire Building Society reaches out to 30,000 customers every year to understand how they perceive the society and how the society can improve its products and customer service. 26 Engaging conversations May 2015

Customer feedback about their views of the AGM process More meaningful and member communications. All businesses should take customer feedback Social media has also opened up feedback and complaints very Technology is also allowing societies seriously, especially a customer- new channels for societies to receive feedback. Through the use of channels to process feedback faster and more owned institution such as a building efficiently than ever before. Some society. Responding to customers like Twitter and Facebook building societies can capture comments societies have introduced new and making sure they are happy with technology that manages the feedback the service that is being provided is and feedback, in real-time, online. Monmouthshire Building Society offers they receive from members on the a fundamental part of engaging with telephone. It is also allowing societies to members. If a customer feels their a swift response to all comments and questions posted on its Facebook page analyse feedback in new ways, providing feedback or comments are not being more meaningful information to staff. listened to it can quickly make them and actively monitors all responses to feel disenchanted with their provider. make sure that members are satisfied. Principality Building Society is using technology to improve the performance Most building societies have processes My provider provides a good of their staff and the customer service in place to capture feedback and make customer service (% agreeing) experience. In 2014 it launched a this available to staff right across the new feedback tool that allows staff business. Many also publish the results to receive immediate feedback from on their websites. There are numerous its customers on the service they are channels through which feedback is 97% providing. Customers have responded received from members. These range very well to the system, and Principality from casual comments made to staff 92% is receiving a high response rate in the branch to formal questionnaires. and a high quality of feedback. The Some societies such as Stafford Railway feedback received from customers is Building Society will respond to each being used to make improvements individual letter or email with a message across the distribution network to from either a manager or the Chief improve customer experience. Executive. West Brom has automated ‘instant action alerts’ that are triggered West Brom Building Society has by negative feedback, leading to these a ‘Customer Champion’ in every being investigated and the customer department who is used to cascade key being called back straight away. messages to colleagues and challenge actions they see as not being fully The Mansfield Building Society in line with customer interests. receives regular feedback which is collated and distributed back to senior Building societies continue to management on a monthly basis. outperform banks in the customer service arena. Consumer research carried Individual feedback from customers, Building Societies Banks both positive and negative, is assessed out by the BSA shows that in March by managers and any action required 2015 97% of building society members is then implemented. It is not just Survey by Canadean Consumer for the BSA* agreed that their provider provides about products. For example, Scottish Figure 9 good customer service compared to Building Society surveys its members 92% of bank customers (Figure 9). Engaging conversations May 2015 27

Community Involving themselves in community work allows societies to engage involvement with their members in two ways. Bath Building Society has been Community involvement has always Firstly it gives them an opportunity part of the local community since been a focus for building societies, to open conversations with their 1904 and is keen to support local, with many societies striving to be members about issues and causes independent businesses that ensure more than just a customer-centred that have real importance to them. Bath is a unique, vibrant place to live financial service provider; they want Community projects are often and visit. to make a real difference to the discussed with member panels or This year Bath launched The Bath communities they operate in. in online surveys to find out what causes are close to members’ hearts. Reward Card, in partnership with Building society members are often part the Bath Independent Guest of the communities where their society Via Nottingham Building Society’s House Association, to support local, is based, and so care deeply about the online panel, members voted on how independent businesses in the area. activities their society is involved in. they would like the society’s sponsorship The Bath Reward Card is a unique activities to be divided. Many said discount card, and currently has Community activity takes on a variety they wanted efforts to be focussed on over 70 vendors taking part in of forms depending on the size and charities, followed by the elderly, young the scheme. operational reach of the firm. Many people and local businesses. Nottingham focus on the local communities in has used this feedback to help develop which they operate. For example their community and charity work. Coventry Building Society allocates a local community partner to each of its Secondly, the activities themselves branches. The branch team helps raise allow societies to interact with their funds and awareness for their partner as members and forge new relationships. well as providing direct support to them The fact that the building society is where necessary. This helps to make looking beyond its product range can their charitable giving more meaningful help to develop closer relationships with for local members and deepens their members. Many societies encourage level of engagement with the society. staff to take part in community days together with their members which gives the opportunity for staff to get to know the people they serve.

Nationwide Building Society says ‘We want our members to feel that we’re their Society and that there are meaningful ways in which they can The Hanley Economic supports the local get involved and influence what we’re doing to support Douglas Macmillan hospice with donations their communities.’ and helping hands. The society has also established an affiliated savings account for members where the society donates a proportion of the total balances held each year. 28 Engaging conversations May 2015

4. Loyalty products

One way some societies Members who have been with the My provider provides good are rewarding their society for certain period of time, or value for money (% agreeing) meet other set criteria are rewarded members is with the with a better interest rate. This has been use of loyalty products. particularly attractive to savers in the current low interest rate environment. For example, Monmouthshire Building Society launched a Members’ 92% Loyalty ISA at its 2014 AGM with an attractive interest rate. 84% Nationwide Building Society operates a Loyalty Saver account with tiered rates of interest based on the duration of continuous membership of the society. Loyal mortgage customers are also offered a discounted rate on remortgaging. Mansfield Building Society offers a range of enhanced products available only to existing members of varying lengths of membership. Loyalty products can help to encourage a longer term relationship, and many building societies have found these types of Building Societies Banks products as popular, if not more popular, than savings accounts that offer bonus rates that end after an initial period. Survey by Canadean Consumer for the BSA* Figure 10 Other societies have opted not to offer Figure 10 loyalty products, or have experimented with them and are now phasing them out. This is for a variety of reasons, but primarily because they want to have a simple and uncomplicated approach to their product range and to offer the best value to all members at all times no matter how long they have been with the society. Engaging conversations May 2015 29

5. Assessing member engagement performance

Assessing how engaged Some societies measure participation with them, and the quality of ideas a building society’s levels as a proxy to gauge how well generated as a results of these they are engaging their members. interactions. In order to combine members are is a This may be done by recording the these different metrics the society difficult task. Levels response rates to questionnaires is in the early stages of creating an of engagement can and surveys, number of newsletters ‘engagement index’ so they can easily change quickly as new opened when sent via email, and click track how well they are performing. through rates on certain pages of the Twice a year Ipswich Building Society members join, attitudes society’s website. Others track customer plans to ask members if they feel towards financial service satisfaction and Net Promoter Scores. like a member rather than just a Scottish Building Society runs a specific providers change, customer. This will give the society an Customer Survey that is designed to technology develops and idea of the level of understanding of measure the effectiveness of member mutuality within their membership. It customer expectations engagement activities over time. of their providers adjust. will also let them track how effectively Coventry Building Society takes into they are conveying the message consideration the amount of activity, of mutuality and the privileges of the number of members that interact membership to their customers.

My provider provides good My provider makes me feel as though My provider treats me value for money (% agreeing) my business is valuable to them (% agreeing) as an individual (% agreeing)

88% 88% 79% 80%

Figure 11 and Figure 12 – Building society members are more likely to say that they Building Societies Banks Building Societies Banks feel valued by their provider, and more likely to say they are treated like an individual. Survey by Canadean Consumer for the BSA* Survey by Canadean Consumer for the BSA* 30 Engaging conversations May 2015

6. Effective member engagement

Building societies face Many consumers want only to have Effective member engagement means a number of challenges a customer relationship, interacting both entitling and inviting a building simply to open or close accounts, society’s savers and borrowers to to effectively engage or when something goes wrong. participate in the organisation. This their members as owners A significant reason behind this is is not to say that every member has of their society. that people are increasingly ‘time to be an active participant, although poor’. This is not, however, true of all they should be able to if they wish. members. Some are strong fundamental Societies may aim to move more supporters of mutual ownership, and members towards the top of the others have more time to engage. engagement pyramid (Figure 13). Consumer apathy towards financial This movement may not be most services as a whole is a further challenge. effectively achieved by ‘advertising’ Some consumers do not believe financial membership itself. Instead the challenge service firms offer much to society in for building societies is to demonstrate return for the profits they generate, the advantages in terms of tangible and therefore see little appeal in factors like their approach to doing engaging. Building societies endeavour business; value for money; quality to be different, but without member products; social responsibility; service engagement it is more difficult for levels and convenience that can flow customers to see these differences. from the long-term, lower risk approach that in turn can flow from customer- There are also geographical restrictions ownership. These advantages can for some societies. The internet attract new members as well as help has made this geographical gap build the loyalty of existing members. smaller, and societies can now easily contact members who live outside Carefully designed communications, their core geographic operating together with community activities that area. However these members may help to deepen the relationship with still feel removed from the society, members, can together demonstrate and be less inclined to engage. that being a member means something and that they are free to contribute to the future direction of the building society that they own. Engaging conversations May 2015 31

Member engagement hierachy

Actively engaged, care about membership (as well as other factors)

Interested, but generally not active

Generally supportive of member ownership in principle, but not interested or active

Not engaged: other factors such as price, service, convenience most important (even if these may be the result of ownership)

Figure 13 32 Engaging conversations May 2015

References

1 See for example; ‘Firm Commitment’, Colin Mayer, Oxford University Press, 2013, and ‘A Force for Good’, John G Taft (ed.), MacMillan, 2015 2 ‘Conversations with members’, Building Societies Association, 2010. Available at: https://www.bsa.org.uk/information/publications/industry-publications/conversations-with-members/ 3 ‘Banking results 2014: A paradox of forces’ KPMG, 2015 4 ‘Cooperative Banking – Leveraging the cooperative difference to adapt to a new environment’, Oliver Wyman, 2014. ‘Change is opportunity – Cooperative banks on the cusp of a new era’, McKinsey, 2012 ‘Member Experience – Unlocking the Cooperative Competitive Advantage’, Bain & Co., International Co-operative Summit, 8 October 2014 5 ‘The Governance of Mutuality: Building Societies, Property Rights, and Corporate Governance’, Cook, J, Deakin, S and Hughes, A, ESRC Centre for Business Research, University of Cambridge, 2001 6 ‘The Kay Review of UK equity markets and long-term decision making’, John Kay, Kay Review, BIS, 2012 7 ‘Women on boards’, Lord Davies, The Davies Report, BIS, 2011 * Survey conducted by Canadean Consumer in March 2015. Total sample size was 2,000 adults. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+) Design www.playnedesign.co.uk York House 23 Kingsway London WC2B 6UJ

020 7520 5900 @BSABuildingSocs

www.bsa.org.uk