This article first appeared in The Intermediary magazine and is reproduced below.
The mutual model is one of the oldest still operating in finance today. In 1775, the first building society began pooling the savings of poorer people together, helping them to invest in property for the first time. There are still more than 40 building societies in the UK, 250 years later.
So much for the past. Putting the history books to one side, what can we expect from the future? How are building societies likely to change and evolve, if not over the next 250 years, in the next decade?
First, building societies are going to have to focus on operational efficiencies. Tech modernisation and the adoption of automation will have to be a huge focus in the drive to streamline, save money, and economise on internal colleagues’ time; building societies simply will not be able to compete with low-overhead fintechs otherwise.
Fortunately, digital channels are already rising in importance for origination. The focus on process efficiencies will be post completion of the application – this is where the slack is now.
As part of the efficiency drive, building societies will have to start utilising artificial intelligence (AI). AI is no longer a something to look at in the future. It is a business consideration today.
While some societies have already adopted it (implementing it, as we did, for internal processes initially) this will need to go further. AI for document reading, data processing, and compliance: building societies will find it impossible to adhere to regulatory changes and compliance requirements in the future in a cost-effective manner if they do not adopt automation and AI more fully.
But building societies will have to overcome a fear of transformational programmes if they are to fully embrace the possibilities and ensure they are fit for the years ahead.
They may also have to overcome their love for their branch networks, too. As part of an examination of operational efficiencies, we need to face up to the declining use of branches. The idea that branch networks might become a point of difference in the future (given the exodus of banks from the high street) and that this sort of bricks and mortar footprint could offer building societies some sort of competitive advantage, appears wilfully jejune.
Given the direction of travel elsewhere in financial services, an attachment to the branch network feels like a legacy airline trying to justify not cutting their complimentary in-flight services (the meals, the drinks, and the newspapers), generous baggage allowances for economy passengers, and physical ticket offices in city centres and airports, staffed by expensive unionised employees.
Low-cost airlines made savings at the expense of comfort and flexibility – but for price-sensitive passengers, the trade-off was worthwhile. Legacy airlines soon discovered that these extras, while nice to have, just added to their overheads while passengers voted with their feet.
