Bank or building society? What you need to know

Caroline Béguin: Okay. So first, for our listeners who might not be familiar with the concept, can you explain the main differences between a bank and a building society? 

Ben Verdin: Yeah. So there’s three main differences, I would say, between a building society and a bank. The biggest difference is that building societies are there for the good of their customers, and their customers are actually referred to as members. So, instead of where you have in traditional banks where they are trying to increase their profitability for their shareholder value to report back to the board and to their shareholders, actually, within a building society, they’re a mutual organization, so their customers are members. They share in the profits of the building society. So those profits are reinvested back into building societies in the terms of better products and services, so better rates on savings accounts, for example, or mortgage accounts. But also they are part of their community, so they reinvest a lot of their profits back into the community through local charities. So that’s really their purpose is very different from a traditional bank within the UK. Secondly, their product suite is slightly different to banks as well. They don’t have current accounts, or they don’t have other sorts of traditional banking products. They are purely focused on mortgages and savings, but they actually go into a little bit more specialist types of mortgages and savings as well. Because they’re seen as more high touch, having personalized relationships with their customers or their members, that means the building society can tailor their offering to their community and to the types of customers that they serve. So they have things like buy-to-let mortgages, they have retirement interest-only mortgages, they have expat mortgages. And then, for example, one of our customers, Teachers Building Society, they only look after the teacher community within the UK and only provide products and services to them. So then from a product set, they’re different as well. And then finally, they are typically regional as well. So where retail banks within the UK are typically national or global in some cases, building societies are very typical part of and integrated into their community, so they are regional building societies. Now, there are slight differences to that, so Nationwide, again, who are a customer of ours, they are a national building society, but it’s rare to have national building societies. They all spawn from being regional and part of their communities. So those are the three main differences between building societies and banks. 

Caroline Béguin: Okay. They seem very attractive building societies. How can banks keep up? 

Ben Verdin: So, it’s interesting. So where building societies really find their niche, I think, is going back to, like I say, they’re, they’re very part and integrated in the communities. Now, the struggles that building societies have is really when it comes to market share. So if you look at your traditional banks, myself as a customer within the UK, my retail bank or the bank that I use for my current account also does my mortgage as well, just because of the ease of it. So that’s really where some of the building societies have struggles within the market in terms of gaining a market share, because actually their customers are brand-new customers. They’re not customers that they pivot from their current accounts. So that creates a sort of a challenge. I think from a banking perspective, they’ve got huge market share already just because they have those customers that do their core banking with them as well, and then they can offer products on top of that. So in terms of going back to your question about how banks compete with the building societies, actually it’s almost the other way. Like, banks have the majority of the market share within the UK, where building societies really look at integrating themselves into those communities and really providing better products and services and more high touch to attract customers to come to that building society. But because they are regional, they do struggle because obviously they only have a certain customer set that they can serve. So it’s all about them competing against banks within that set region and really reinvesting those profits back into the products and services to attract new customers and to retain new current customers. 

Caroline Béguin: Okay, from what I understood, the difference in ownership models is important to people in the UK. Why is that so? 

Ben Verdin: A couple of different reasons. So like I said, it’s because building societies’ customers are actually members and they’re part of the society, they get to vote on big decisions. So who’s the chief exec of the building society? They get a say in a lot how the building society is run, and how those profits are reinvested back into the communities through charities or through better rates through their products. So there’s an element of because you feel part of the building society and part of your financial services provider, there’s an element of trust that comes with that because you contribute to a lot of the big decisions that get made. So I think that is really one of the biggest reasons why customers feel valued to be part of the building society is because they actually are members, and they do get to contribute to the big decisions that are made within the building societies. 

Caroline Béguin: As a consumer what would I feel differently if I were to walk into a building society compared to a branch bank? 

Ben Verdin: It’s a really good question. So we look after 50% of the building societies in the UK, and what I’d say is they’re all at different parts of their journey in terms of transforming their branch experiences, but they’ve all got the same goal in mind. They’re all moving towards a relationship-driven service and moving away from transactional level services within branches, especially as the digital adoption grows within their customer set. Actually, people just wanted to have the convenience and ease online for making payments, making changes to their accounts, paying into their account, for example. So, as I was saying, the building societies are moving towards that direction of offering more relationship-driven services within the branch or more advice-driven services within the branch. Now, what comes with that is actually they have to transition their space towards that more advice-driven and away from that transactional. So that really requires fostering those types of relationships within branches. It really requires building societies to set a new style of branches. So if we take a couple of live examples from our customers, if we look at Scottish Building Society, for example, they’ve renamed all of their branches to customer service centers, so they’re all really focused on having that sort of customer relationship. If we look at Nottingham Building Society, they opened their new branch at the beginning of this year, and again, their focus was really on how do I create a community space for our customers, with a more open plan, a more relaxed environment where customers can come in and just come in for advice. They don’t have to be making a payment, or they don’t have to be opening a product. But instead, how do I create an environment that is open plan, relaxed, and really fosters those levels of engagement around just coming in for advice, grab a coffee, have some advice with their customers and their advisors. And that really is starting to change how you see building societies in the UK now. So they’ve all got that north star of moving towards that, of those advice-driven services within the branch. But they’re all just at different parts of their journey, I would say, across the UK. 

Caroline Béguin: Okay. Today, we live in a world that is more digital and we are experiencing the rise of AI. So I was wondering, what are the main challenges building societies face in today’s market? 

Ben Verdin: So if we look at the history of building societies, and we’ve mentioned it a couple of times, it’s really driven by those personalized experiences for their members. It’s all the advice-driven, personalized, in-person, high-touch experiences and engagements between the building society and their customers. Now, there’s no getting away from it. Look, digital adoption is growing within the market. If you look at younger demographics now, a lot of their primary engagement channel with their financial services providers is purely through a mobile banking application. So building societies do recognize that the market is moving in that direction. However, a lot of the building societies’ customers today are of the older demographic, so the real challenge for them is going, “How do I find the right balance between offering the in-person high-touch relationships with the customers that still want it, still expect it, but also how do I start attracting the younger demographic through my digital channels?” So that’s really one of the main challenges that building societies focus on today. So what we’re doing is, so we have a web and mobile banking application called our Front Office Portal platform. And really, we’re looking to help our customers get that balance with digital as well. So keeping on enabling the investment into those products around the more transactional self-service capabilities, so we really start to attract those younger demographic then. So for example, in our latest release, we’re bringing in a development which allows customers to make a product switch through their digital channel, rather than having to phone up or go into a branch and say they wanna move from one product to another. ‘Cause really, if you look at, again, you look at the younger demographic that they’re trying to attract or the customers they’re trying to retain, something like that is extremely important to have those convenient ease of services within the digital channels. And then conversely in that is, look, there’s people still, their customer base still expects in-person relationships, and also the younger demographic still expect in-person relationships for larger financial decisions as well. So if they are looking to save money for a huge goal, whether maybe going to university or buying a car or something like that, or even looking at buying their first house, I think the level of interaction you need with a human is really important for that, that kind of thing. So we also, conversely to the digital applications, we’re investing heavily in our new branch teller solution as well, which is really enhancing the level of experiences that we have within branches to get a balance then, where if you’re a digital primary engagement channel customer, and actually now you need to come into branch after two or three years of being a customer of the building society, our solution is fully integrated between the two, and we have a 360-degree view of the client. So an advisor, although they might have never met this customer before, just capturing personal details for them is extreme. They can just have a relationship and engagement with their customer that it’s almost like they spent a lot of time with each other. They can see all the data, they can see their personal circumstances, they can see all the previous interactions they had, so they can treat them as an individual, and give them that personalized experience, even though this might be the first or second or third time they’ve ever met. So that’s really our focus, is supporting building societies in that challenge and going, “Look, let’s not lose the mutual experiences, in-person, personalized experiences. Let’s get the right balance between transactional on your front end, and then the advice in the branches and in person.” 

Caroline Béguin: In recent years we’ve seen many high street banks closing local branches. And we’re talking about more than 6,500 branches since January 2015. What are some reasons behind this? 

Ben Verdin: So there’s two reasons. I think the first reason is, and you saw banks doing it long before digital adoption really took off, even when the banking applications were fairly in their infancy. I remember three or four years ago, actually, a lot of the stuff you couldn’t really do through your mobile application. You still had to log on to the web banking application and make some of the bigger decisions there. So even in that period where people were still coming into branches and experiencing branches and wanted those in-person relationships, actually, banks were still starting to close branches just because of the increased infrastructure costs that banks had seen. So they really went through an optimization process with this. So they looked at the footprint that they currently have. They looked at the throughput in the particular branches, the popularity of the branches, and then also the population density of their customers, and then really optimized their footprints. They did reduce the number of branches, but they really optimized the locations of those branches to ensure, again, similar sort of topic we’re discussing, how do they get that right balance between the in-person and the digital interactions. So that is really one of the main reasons why banks did start to close branches, and they’re still continuing to close them. The second reason is obviously the digital adoption piece. Now that has really taken off. If you go on any sort of, It used to just be the neobanks that have really smart applications that you can do all self-service in through the mobile app now. Now, if you look at most of the banks in the UK, you can do exactly the same and have the same level of service. So obviously, as that’s starting to grow, there’s less people going into branches because there’s less need to go into branches now. So that’s really driven closure of branches even further. Now, what I would say, actually, the branches that have remained, a significant amount of investment has gone into those branches. So we’re now seeing, actually, although physical branches are closing and their numbers are reducing, we’re now seeing more pop-up branches or more advisors in community centers or visiting their customers independently. So, for example, to take something from my experience, I’m a Barclays customer within the UK. I had a problem with my web banking application and actually phoned up, but couldn’t do anything about it. Tried through the application, couldn’t do anything about it, and the only thing that they suggested was, “Look, you’ve got to go into the branch and reset it, do your identity checks,” all of those sorts of things. So I went online and went, “Look, I don’t even know where my local Barclays branch is anymore,” because the local one closed a number of years ago. Put my address in and actually multiple different options came up. There’s a branch in the local car park. There’s a branch in a garden center that was close to us as well, and then there was a physical branch a little bit further away. So I had quite a lot of choices. So although the physical branch locally to me had closed, actually, there were three branches that could service me in exactly the same way, but in different locations and not having a physical presence anymore. So I think although branches are closing, they are optimizing their footprints. The pop-up branches theme and experience is starting to grow and grow and grow. And actually, if you look at the physical footprints now, especially from a Barclays customer, there’s one local to our office in London. I use it every now and then in between meetings in London because go in there, get a free coffee, have a conversation with somebody around your accounts, get some small, light advice, and they’re really focused on their open plan. Similar sort of story that the building societies are looking at now. It’s like they’re focused on the advice, focused on open plan, just getting people into the branch to have a conversation, regardless of whether they’re coming in for a certain reason. So yeah, they are closing, but I think the optimization of those branches and the investment into the branches that remain is continuing to increase. 

Caroline Béguin: Okay. And if we consider building societies on the other hand, they are focusing on maintaining the physical network system. So why is it important? 

Ben Verdin: I think there’s two aspects to look at this. So one is, so if we look at it from today, from now, like I said earlier, the building society’s current demographic of clients are on a older age, and they want those in-branch experiences. They wanna come into the branch and have a conversation, even if it’s just as simple as making a payment and that’s for a couple of reasons. One is it’s just what they’re used to. It’s just their traditional way of banking. Their digital adoption is generally lower. A lot of them don’t have smartphones, so they can’t necessarily go online or go through the mobile application to make those transactions. And also, they just want a level of confidence. Like, especially if you look at fraud within the UK, it’s that demographic who get targeted by fraudsters. So by them going into branch and going, “Look, I need to make a large payment to somebody fixing my roof or somebody sort of cleaning the flat,” or something along those lines, actually just going into a branch and talking to a branch member about it just gives them that level of confidence and go, the branch can now do their checks against the person you’re sending your payment to. So it catches a lot of fraud as well. So I think those are the three reasons why they still use branches. So especially from a building society perspective, they need that physical footprint to service the current customer base they have. If they follow the similar sort of trend right now with the current customer base that they’ve got, or member base, they’ll just alienate a lot of their customers and won’t be able to serve their customers and start losing some of those customers. So that’s a really important thing. Secondly, again, still looking at why they’re retaining them now is, as I mentioned right at the start of the conversation, building societies are seen as part of the community. They’re there for the good of their community. They reinvest the profits back into community causes like charities. Having a physical footprint within the community is an important thing to maintain that message. So that’s why they say, “Look, that’s why we maintain our physical presence.” Even if they see the use of them dropping, actually maintaining that physical presence to foster the thinking around them being part of the community and also foster the relationships and the personalized experience that they currently have with their customers, that is really important that they maintain. And actually, we’re seeing a lot of our customers increase the number of branches that they’ve got. So that’s really it now. And then if we look at the future, yes, building societies recognize that that older demographic won’t be around forever, but they have generational wealth transfer from those older customers all the way to their grandchildren or children, and if they can’t provide a service that meets their needs, then they’ll then lose that wealth, and that wealth will transfer to another financial service provider. So it’s just about, again, it’s getting that balance right. But the last thing building societies wanna go and do is try and compete with the likes of Monzo, your Revolut, your Starlings, because if they just try and compete with them on, like, on technology solutions, then that’s just not their wheelhouse, and they’re just gonna lose. They’ve got huge technology budgets. They’re basically technology providers with a banking license. So they’re never gonna be able to compete with that level of mobile application in the market. The thing the building societies have got to hold on to is their competitive advantage that they have today and bring that into a digital space. Again, those advice-driven services, the personalized relationships that they have with their customers, how do they transfer that and that experience they have with their customers today into a digital experience? And that’s where technologies like, sort of, the capturing of data, putting in AI tools over the top of the data to really drive that personalization at scale for their customers. So, for example, when a customer comes towards the end of their mortgage term, actually, if the mobile application can go, “Look, Ben, we understand your personal circumstances. These are the mortgages you’ve had previously. This is the income that we can see from your open banking records. This is sort of the property prices that are happening within your local area. We think you should go for a three-year fixed term at this price because of X, Y, and Z.” So I think it’s bringing in those sorts of things, and that’s the level of advice they would get within a branch in an in-person interaction. So I think that’s really important to still maintain that. But actually, if we go back to the question around the physical footprint of branches, there’s still the balance. So there’s still gonna be customers who go, “Look, I’m buying a house. I really need to actually have a conversation with somebody. The last thing I want to do is mess this up because I’m stuck with a three-year mortgage term that I can’t move away from anymore.” So there’s, there’s always gonna be that level of in-person engagement that’s needed. And building societies never gonna move away from not being part of their community. They’re not gonna go full digital-only players, so they’re still gonna have to retain that physical footprint. 

Caroline Béguin: Okay. Circling back to the challenges you highlighted earlier. Can you share some examples of how you are supporting your customers in solving those? 

Ben Verdin: Yeah. So I think there’s, there’s five main challenges. So when I joined 18 months ago, one of the big things I wanted to do, especially from a product management perspective, is go and visit all of our customers and really understand what their challenges are today, but also they see the challenges over the next two, three, four, five years. And it really boiled down to five main problem areas. One was the rise of digital adoption, and we’ve spoken about that already. There is a transfer, generational wealth transfer to the younger generation, and they’re really digital-first customers. Secondly is building societies, like we said, they do find it difficult to compete with banks in the UK just because they have a larger presence, and they’re national, and also they hold most of their clients’ wealth anyway from a current account perspective. So really, they’ve got to look at opportunities to diversify themselves. Third is scalable growth. So if we look at building societies, again, they are traditional financial service providers in the UK. They are sort of very high touch, manual, paper-based providers. Now, obviously, we need to support them in that journey to move to more automated, streamlined back office operations, but still keep that personalized touch on the front end. So that’s really important for them. Net interest margins are only getting tighter and tighter and tighter, and actually the only way to keep the same levels of profitability, even when you scale your customers and increase the revenue, is actually how do I reduce the total cost of ownership with my core technology platform? How do I increase the level of automation with my back office operations? So those are two key points. Fourth is how do I drive value from my disparate data today? Like, I think if you asked any financial service providers or actually any business within the world and go, “How far down are you with your data journey and your AI journey?” I think they all say, “Look, we’re a million miles away from where we want to be.” So I think although building societies are a little bit behind the curve from that perspective, actually the whole industry is behind the curve because of the speed that it’s moving at. So that’s really a real focus for them, in going, “How do I drive those personalized services at scale?” And we’ve touched on some of those things. Look, that’s really important for building societies. But also, how do I look at my back office operations and find efficiencies in that with the data? And then for the fifth one, and I say this to our building societies customers all the time, I think based on all the stuff we’ve covered today, the next five years are probably gonna be the biggest shift that we’ve seen with the building society model. That’s coming from, look, there’s new players entering the market all the time. If you look at neobanks, yes, they’re really focused on current accounts and debit cards to start with, but actually now they’re starting to diversify their offerings as well. They’ve gone into investing spaces. They’ve now got savings accounts. They’re trialing mortgages across Europe now. It’s only gonna be a matter of time before they enter the UK market with those as well. And then, yeah, political, economic changes within the market. House prices are going up or down all the time. Interest rates all over the place. Like there’s huge amounts of change happening in the industry, and it’s really how do building societies select a technology provider that can react the fastest to the market? ‘Cause the ones that don’t react are just gonna fall far behind.So those are the five challenges. I think now sort of highlighting some of the things that we’re doing in that space. So if we look at the digital adoption piece, one of the biggest investments that we’ve made in our release coming out at the end of the month is our digital onboarding. So having full end-to-end digital onboarding, liveness check-in and identity check-in through the mobile application. So put us on level par with the likes of all those neobanks and also the sort of high street banks in the UK. Now it just takes me minutes to open an account. I don’t have to have a piece of paper sent to my address to prove the address, to prove that it’s me, and then send it back, and it takes me a week to open my account. So that’s really a big change that we’re making to bring parity to our mobile applications to the other providers in the market. If we look at scalable growth opportunity, for example, we’ve already mentioned it, but product switching is a big one. Again, another significant investment from us is you can do a fully automated mortgage product switch for your customer directly through the mobile application. So if their mortgage term’s coming to the end, we present them with a list of options that they can move to. They can just select it, and within minutes our back office system can automate the end-to-end process and move them onto the new mortgage at the end of their term. So that’s, again, from an automation standpoint, a lot of our customers do that manually today and go through it all paper-based to transfer mortgage products from one product to another product, so that’s a huge investment for us. And then if we look from the speed of changes and reacting fast to the market, I think with the big investment into our digital branch solution in the future, which is built on our new digital workbench platform, which is a SaaS-based platform, this just takes us to another place in terms of how, how quick we can react to the current, against our current product set. So those are some of the sort of significant investments that we’re making, into our product set. 

Caroline Béguin: I’m curious, looking forward, how do you see the role of building society member engagement evolving over the next five to 10 years? 

Ben Verdin: I’ll caveat this a little bit because it’s very difficult for anyone to predict five to 10 years in the future. But I think it’s gonna be the theme, it’s gonna be the important piece, and I think the theme will run for the rest of time. Again, how do you balance the in-person relationships with the digital interactions? And I think building societies are gonna struggle with that first, because I think building societies need to retain the human interactions, because that’s just who they are. They are part of their community. They, like, have those personalized relationships with their customers. But I do think the rest of the industry are gonna struggle with that a little bit too. So now I’ve, I’ve sort of caveated it. I think two themes that I see along the back of that is, one, I think human style relationships at scale will dominate the industry going forward. And the way I phrase that is key. It’s human style relationships. So I think that if you look at digital channels in the future, people are gonna expect exactly the same experience if they have an in-person relationship with a human, or they have an in-person relationship with an AI agent through their banking application. So I should be able to have a proper conversation and get advice from them. So I go, “Look, I’m looking to buy a house, as we discussed earlier. This is my income. This is the house I’m looking at. This is the property details.” And then start getting some feedback directly from them, like I’m having a conversation with them. And I think that is really where the industry is gonna go. But I do think, especially as society starts to move more and more down the AI agent route, I think we’re gonna go way too far, and everybody’s gonna go full AI agent interactions. And then I think it’s gonna start to scale back a little bit, because I think people are then gonna go, “Actually, spending time with a human is gonna be really like ” I don’t get it anymore.”And I think that aspect will start to come back. And again, I think this is where building societies can really focus on maintaining that, driving that, promoting those in-person relationships, and building those levels of trust to catch that market as it starts to rebound when it goes too far into sort of the AI model. So I think that is gonna be one big trend I think that sort of building societies are gonna have to juggle with. And then the second one is, I think building societies will start to expand their advice-driven services. So I think, look, in five or 10 years’ time, any transactional financial interaction is just gonna be fully digital. Like I said, making a payment, making changes to my account, maybe making a product switch. Any sort of transactional style interactions with your financial services provider is gonna go full digital. So that’s where I think building societies then go, “Look, how do I maintain that level of those services to my customers now more of them are moving away from what they use their bank for?” So I think advice-driven services for building societies will expand. It’ll move away from just, “How do I set savings goals and work towards those savings goals? How do I buy a house or transfer a mortgage to a new product?” To go into full-blown holistic wealth management services. So getting people in and going, “Look, let’s use open banking. Let’s use integrations to multiple of your different financial providers, but non-financial providers as well, and get a 360-degree view, holistic view of a client,” where advisors at building societies can then have those interactions on a more holistic wealth management perspective. So that’s the second trend. I think their advice services will expand massively, because that’s really where those in-person human interactions will purely be focused on in the future. 

Caroline Béguin: I was wondering if you have any examples of the changes that you brought to a building society. 

Ben Verdin: Yeah. So we’ve touched on a little bit of them already around the digital engagement stuff, the product switch piece. I think the biggest investment that we’re making is into our new branch teller solution. So this is gonna revolutionise and change the game for how building societies have in-branch experiences. So like I said, if we look at the two examples I gave around Scottish Building Society and Nottingham Building Society, where they’re moving to customer service centres and advice-driven experiences within branches. One of the big things holding them back from going full-blown optimisation of real advice spaces is the technology that they use. They do have older technology and it really promotes sort of behind-the-desk interactions with consumers, ’cause actually it’s not really something you wanna show to your customer and how dated the technology is and the interface. So I think the investment that we’re making into that space is gonna allow our building societies to enhance the sort of the experiences for customers within the branch. It’s gonna optimize their current processes within the branch. They’re not having to swivel chairs between multiple systems anymore. They can purely focus on the engagement with their customer. And also, if we go back to the conversation we’re having around how banks have gone through an optimisation process with their branches. So closing physical footprints, but then obviously opening up more pop-up branches. I think the industry from a building society perspective needs to go on that journey as well. Not close physical branches, but actually increase the number of pop-up branches in local communities, and that could be through customer service centers or the examples that I had from Barclays. It’s like, look, pop up in your local garden center or even go out into the individual homes. So just get advisors on their tablets, going into individuals’ homes, the ones that need more level of advice and want that really focused one-on-one interaction with the advisor. Again, today, technology is just holding them back. They can’t do that. So, the investment into our new digital banking solution is gonna enable them to really transition into that new model. And like we’ve said throughout sort of the whole conversation is, getting that balance between digital and human is gonna be extremely important in the future. Especially as I said, like I think the next five years, we’re gonna shift too far away from in-person relationships and then start to come back again. So the solution that we’re developing allows them to make that transition very, very quick. So as soon as we’ve noticed a trend in the market or noticed a new additional product or a new customer base that we want to service, then we can just build that and just release it straight within the products, and our customers can consume it on the fly. So that’s really our biggest investment over the next 18 months, is going into that and helping our customers transition into the future space of going digital but staying human. 

Caroline Béguin: Okay. Thank you, Ben, for joining us and sharing your insights. 

Ben Verdin: I appreciated it. It was a good conversation. Thank you.