Simon Healy, Industry Director Financial Services EMEA, Unisys
Few financial organisations have the strength of community focus as building societies. Not only do they represent a form of grassroots empowerment that can be thin on the ground in the sector, they’re genuinely connected to their customers in a positive and personal way – after all, they’ve spent years helping them to buy homes or make the most of hard-earned savings. As a result, building societies live or die on reputation. And their challenge today is keeping that intact as the world they operate in changes, and the digital expectations of a new generation of customers continue to grow.
Combined with a general reliance on manual processes, building societies have been a little slow to transform, and are certainly far less agile than digital-first competitors. This is an issue all building societies need to address: as Unisys’ recent research shows, online account opening and management capabilities are desirable for many customers, and this is only set to increase as younger customers require banking services.
Most building societies are already well aware of this, and are making moves to invest in new digital processes, whether that’s internally or customer facing. And they know that digital is no longer a nice-to-have: it’s a must. Yet in the era of app-only challenger banks, this isn’t a way to get ahead of the competition. Instead, it’s the bare minimum that’s needed to keep up. To thrive, building societies need to aim beyond simply digitalising their operations.
Product diversification is likely to be the key here, helping building societies to delight existing customers, attract new ones, and extend their consumer base. But they should also be striving to maintain their community focus – which is a delicate balancing act. So how can they differentiate beyond digital, without losing the heart that defines them?
Building a new generation of savers
It makes sense that digital native customers might be more inclined to bank with app-based challengers, so building societies need to get in early if they’re going to secure a new generation of loyal fans. An obvious answer is to build new products that specifically target younger customers – or better still, products that appeal to parents planning to open an account on their child’s behalf. Especially since customers are nearly seven times more likely to open a digital current account with a building society, than a digital bank.
Traditionally the realm of the passbook and first savings account, a lot of building societies offer fairly simply savings accounts for children. But there’s a very real opportunity to do something that is richer in terms of its functionality and the way customers access it. These new accounts can become a much more engaging and interactive tool than has been the case in the past. App functionality could include a pocket money savings features and can be set up to grow up with the child – moving from child’s account to student saver and, in time, even a mortgage deposit. In short: a lifelong relationship.
A current approach
Of course, savings accounts shouldn’t be the only area of innovation. Ultimately, customers have a huge amount of trust in building societies – and these institutions should be capitalising on this to capture more primary banking relationships. For example, 86% of customers under 35 would be interested in a simple, intuitive digital current account offered by a building society – making this an ideal diversification route to target.
Best of all, there’s never been a better time to try. While current accounts have traditionally been difficult to offer, the cost of entry has significantly reduced, and the technology is much more accessible. There is customer appeal in a simple offer – many customers are comfortable without an overdraft facility anymore and this can help to simplify the regulatory considerations and to minimise both risk and complexity which allows financial institutions to get to market fast. Building societies can offer digital current accounts and a number of organisations are already awakening to the opportunity. And with the right technology and partners, they can continue to develop opportunities for more innovative services.
The business of change
Beyond this, building societies need to reach out to new markets and find their future, expanded customer base. And given their trustworthy grassroots reputation, there is another strong avenue to go prospecting in the communities they serve.
Long considered the backbone of British economy, SMEs and sole traders are in sore need of more accessible financial tools. The self-employed make up the vast majority of SMEs, but this group have been badly under-served by the traditional banking establishment, and often find it difficult to access mortgages because they don’t fit the standard assessment models of mainstream providers.
Since 55% of consumers think building societies should extend their product range to support local small businesses, there’s a real opportunity here to build new relationships and drive incremental lending opportunities. Best of all, this can be achieved while retaining the community focus building societies are so well known for, combining a new revenue stream with traditional values.
Future thinking, traditional feeling
The UK financial sector is in a state of constant flux, which can make responding to customers’ desires a tricky game. But given the goodwill people hold towards building societies, their future is bright – providing they’re able to grow and adapt in the right ways.
Ultimately, the key will be to move incrementally, respond to what people are looking for, ensure digital capabilities are up to scratch, and always retain the community values that define them. With the right strategy, it’s possible to be both innovative and traditional, building strong relationships with customers for decades to come.
