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Building Society Sector Analysis 2021

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Building Society Sector Analysis 2021 BUILDING SOCIETY 2021 Sector Analysis A review of the strategic landscape for building societies © Whitecap Consulting Table of contents Forewords 3 Whitecap Consulting Building Societies Association 4 Established in 2012, Whitecap Consulting is a regional strategy consultancy headquartered Whitecap Consulting 5 in Leeds, with offices in Manchester, Milton Keynes, Bristol, Newcastle and Birmingham. Overview 6 Whitecap typically works with boards, executives and investors of predominantly mid-sized Summary Infographic 7 organisations with a turnover of c£10m-£300m, helping clients analyse, develop Executive Summary 8 and implement growth strategies. Key themes, implications & potential actions 9 The firm works with clients across a range of market sectors, with strong experience in the for building societies financial services and technology. Over recent years, Whitecap has worked with a number Sector summary, statistics & insights 11 of building societies in relation to business strategy, technology strategy and partner selection, Summary of key findings, by research area 12 digital and FinTech engagement, and marketing strategy. Building Society Sector Analysis 2021 17 Project Team Economic landscape for building societies 18 Sector overview 19 Strategy 23 Mutuality 29 Regionality 34 Technology 38 Mortgages 46 Richard Coates Julian Wells Luke Freeman Chloe Thompson Michael Fletcher Managing Director Director Director Junior Consultant Junior Consultant Savings 50 Key challenges 56 Additional support including CEO interviews: Lal Tawney & Stefan Haase (Directors at Whitecap Consulting) Data & Analysis 60 Statistical analysis of the sector 61 Thank you to the organisations who have supported and co-funded this research: Methodology 65 Online survey data and findings 67 Further information 75 CEO interviews 76 Other participants and contributors 77 Sponsor profiles 78 2 © Whitecap Consulting April 2021 Forewords Building Societies Association Whitecap Consulting 3 © Whitecap Consulting Building Societies Association Thriving in a digital future We are seeing building societies reimagine the purpose It was against this backdrop that Whitecap Consulting of a branch using clever design and technology to turn proposed to research how building societies – a product of them into spaces for engagement and support within their the first industrial revolution - would continue to thrive in a communities. digital future. Technology is streamlining how they advise and on-board This final report shows the key strengths of the sector, customers, how they engage with intermediaries or report in particular focusing on the importance of its regional data, allowing societies to continue focusing on the needs focus and mutuality – or social purpose as it may be more of their customers. commonly known. In terms of other opportunities for the sector, collaboration Whitecap’s interviews with the executive teams and CEOs remains high. Taking a shared approach around non- at building societies shows the clear difference mutuality competitive areas like investment in APIs or access to Open Banking could foster advantages for the wider sector. Robin Fieth makes in terms of their organisations serving the needs of Chief Executive members rather than shareholders. Building Societies Association The Magic of Mutuality The foundation of the building sector is its customer The global pandemic has brought about a year of ownership and redistributing profits for the benefit of extraordinary change within communities across the globe. Mutuality still resonates in the fourth members rather than external shareholders. This deep industrial revolution connection with its membership remains the key part of With all of us forced to work and interact with each other in mutuality and is a clear point of difference with the wider new ways, it has underlined the fundamental importance of For the last 400 years, successive industrial revolutions have banking sector. community, of our own personal and professional networks transformed society around the world. Steam, gas and oil, and the support services upon which we all rely. For the building societies sectors’ 25 million customers this electricity and computers defined the first three industry translates to a trusted brand. Research carried out at the Where close contact and social engagement is actively revolutions. Digital transformation is powering the fourth and beginning of the Covid-19 pandemic last year by UK Open restricted, it has also shown the valuable role technology there is no doubt it is having a rapid and transformative Banking fintech Bud, showed trust for building societies to plays not just in terms of interacting with customers, but impact on the business of financial services. be greater even than the NHS! providing smarter and more agile ways of working and We are transitioning from an era of big hard-wired performing our day-to-day tasks. mainframes and decades of different programmes to one Digital innovation and opportunities How firms provide financial services to customers is of cloud-based services connected via APIs, data science In terms of the question of where societies go next, as this changing, but whether it’s via a paper-based passbook and intelligent automation. report makes abundantly clear, the answer will be different in a branch or via an app, the key element is maintaining As Ron Kalifa said in his 2021 Government review of the UK for each of our 43 building society members. the trust and connection with communities built up over fintech sector, “this is a technological revolution... changing Building societies are already deploying robotics, chatbots, decades and centuries. the way we do finance”. The likes of payments, mortgage cloud based solutions, API connectivity, mobile apps, digital It shows that an idea and legal construct born in the first lending, back office processing and regulatory reporting IDs and Open Banking right now. industrial revolution 250 years ago, still resonates and works are all being transformed by digital processes. for the fourth industrial revolution. 4 © Whitecap Consulting Whitecap Consulting Change is a familiar and constant challenge for Our analysis identifies four key themes: building societies, and going back hundreds of years • There are a range of proposition-led strategies from the sector has successfully navigated dramatic which societies can choose; but individual societies economic and social moments such as the industrial can’t pursue them all, so selection and focus are critical revolution, the 2008 economic crisis and more recently the Coronavirus pandemic. • Mutuality can become point of difference with greater relevance to customers, possibly with a Today, building societies face new competitive pressures modernised focus on social purpose from a wide variety of established and new providers • Meaningful community engagement is core to across UK Financial Services, fuelled by a combination regional success, for customer engagement and of changes in consumer behaviour and the advances branch-based savings of technology in the financial services sector. The technological and social changes for building societies • Societies will need to continue to invest for a Richard Coates today are the contemporary face of a long-standing Maaging Director digitally enabled future, for customer engagement, Whitecap Consulting requirement and challenge of how to engage with distribution and operating efficiency customers, partners and communities. The implications of each of these key areas is So how can today’s building societies differentiate highlighted, and potential actions for societies to themselves in an increasingly competitive market, consider are also identified. and what influence do mutuality, regionality and When assessing their future strategic options, we find technology play in their current and future strategies and that building societies have multiple viable routes open performance? to them. The key ingredient for success is less likely to Over recent months the Whitecap team has set out to be the strategy, more the ability to choose a strategy answer these questions, undertaking an analysis which and stay focused on it. Without this focus, societies of all has involved: sizes will find their evolution and ongoing sustainability challenging. • Interviews with 33 CEOs of building societies We would like to thank everyone who has supported this • Interviews and discussions with industry stakeholders project, including the CEOs and other stakeholders who • A data-based analysis of the sector gave their time to provide input, the Building Societies Association, and all the sponsors without whom this work • An online survey generating 134 responses would not have been possible. 5 © Whitecap Consulting Overview Summary infographic Executive summary Key themes, implications and potential actions Sector summary, statistics & insights Summary of key findings, by research area 6 © Whitecap Consulting Summary Infographic Building Society Sector & Support Ecosystem LARGE MEDIUM SMALL MICRO SPONSOR BANKS BANKING TECHNOLOGY BANKING G LDIN SOC UI IET B IE S S E C M T E O T R S PROVIDERS SERVICE S Y U OS PPORT EC TECH CONSULTANCY © Whitecap Consulting TECH, FINTECH, REGTECH REGULATION & POLICY PROFESSIONAL SERVICES uiling societies ae categoise otal ssets age n eiu n to n all n to n ico ess than n 7 Executive summary In this project, we set-out to understand the extent We have observed that mutuality influences both In reality, of
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