The popularity of building societies in the UK for two-and-a-half centuries has transformed local communities and how they manage their personal finances. The member-owned model of building societies prioritizes service before profit. The emphasis is on returning surpluses to members through better savings interest rates or community initiatives rather than going to external shareholders. The first building society in the UK began in 1755, when a Birmingham-based pub landlord placed a tankard on the bar to collect patrons’ money. The aim was for members to financially empower themselves by pooling their finances to purchase land and build homes.
This grassroots approach laid the foundation for today’s sector. Today, there are 43 active building societies in the UK, serving about 25 million members and collectively managing £525 billion in assets. In the six months to September 2024, building societies grew their mortgage balances by almost £12 billion, accounting for 72% of all UK mortgage growth in the period and helping 63,000 first-home buyers onto the property ladder, according to data from the Building Societies Association (BSA).
In contrast, the UK’s financial system, consisting of banks, building societies, insurance companies, fintechs, neobanks, and the Bank of England, among others – had assets totaling about £27 trillion in 2022, a white paper published by the House of Commons Library noted. Meanwhile, the financial and insurance services sector contributed £208.2 billion to the UK economy in 2023, or 8.8% of total economic output, the white paper added.
In our Banking is Local series, we explore how building societies have retained a personal touch amid the digital transformation of the UK’s financial sector.
Balancing digital tools with a human touch
Today consumers expect robust digital offerings from their financial providers. This is no different for building societies, many of which are upgrading their digital platforms with apps, core software updates, and cloud-based features. However, building societies are also committed to maintaining in-branch services for members who prefer face-to-face interactions.
According to the BSA, building societies prioritize investing in local communities and are more likely to retain their high-street branches. Their current share of UK high street branches is 30%, more than double the 14% they had in 2012. Newbury Building Society, for example, believes that digital tools should “complement, not replace” its personal, community-focused engagement. Founded in 1856, the mutual society partnered with SBS in 2024 to launch a fully integrated mobile app as part of its digital transformation.
“This collaboration allows us to offer our members a cutting-edge mobile app that provides ‘on-the-go’ secure access to a member’s savings and mortgage accounts with the society,” said Phillippa Cardno, chief executive at Newbury Building Society.
Coventry Building Society also launched a new app last year, aiming to engage with a new generation of members while retaining its physical branches.
Embracing hyper-personalization and AI
Building societies increasingly recognize that robust digital services mean more than just offering online accounts and mobile banking. While staying true to their member-first ethos, they are in the early stages of exploring the use of artificial intelligence-driven systems to gain deeper insights into members’ needs, anticipate challenges, and deliver tailored experiences.
At the same time, maintaining member trust is key for building societies as part of their “human touch” grassroots model. According to the 2022 State of Digital Trust Survey by Digicert, 84% of members would consider leaving a vendor if they did not effectively manage digital trust. A seamless digital identity experience reinforces trust, protects member privacy, and prevents cyberattacks, which are essential for building societies.
Tailoring services for younger generations
Hyper-personalization appeals to Generation Z, including tailored financial tools such as green mortgages, automated savings options, and ethical investment choices. This approach aligns with their values as socially conscious consumers.
However, a research report by Moneyhub found that building societies could be missing out on attracting a new generation of members – and retaining current ones – by failing to accelerate their digital offerings.
The Moneyhub research noted that almost half, or 47%, of building society members reported difficulties engaging with their services, and their digital experience is a frequent issue for many. The research also found that 31% of respondents would be more likely to join a building society if they had a mobile app, and 26% would be more open to them if they had a web-based portal.
According to Moneyhub, building societies command a 32% share of the banking services market in the UK, but their share among individuals aged 18 to 34 is only 24%. The research highlighted that younger generations primarily seek financial service providers that can facilitate easy and efficient money management through technology. As a result, younger consumers are increasingly choosing challenger and neobanks.
“The newer challenger and neobanks often position themselves as technology first, and without the legacy systems that more established banks and building societies have, are able to innovate and develop their technology at a quicker pace,” Moneyhub noted.
Challenges in a changing landscape
Building societies face growing pressures, including economic headwinds resulting from the changing and volatile interest rate environment, the increased cost of living in the UK, and operational costs linked to legacy systems. Increased compliance costs, including the Financial Conduct Authority’s Consumer Duty requirement, are also a concern. Introduced in 2023, it requires enhanced transparency and robust data strategies by all building societies. This includes providing suitable products and services, fair pricing and value, facilitating consumer understanding, and offering adequate consumer support.
“Stress-testing resilience in different scenarios by having appropriate planning and forecasting models in place can help provide greater clarity on areas that may lead to underperformance,” according to a report by Grant Thornton.
“Societies should be prepared to take proactive steps and make necessary operational changes to ensure that the firm is as resilient as possible to weather market forces. Members servicing models also need to be reviewed to assess if they’re fit for purpose,” it adds.
A bright future rooted in community
Despite the challenges, building societies remain a vital financial service because they balance community-centric values with modernization. Thanks to their higher savings rates and community initiatives, they can deliver ethical, member-focused services and position themselves as competitive alternatives to traditional banks and neobanks.
According to BSA data, building society savers received £2.1 billion more in interest in 2023 than the average rates offered by large banks. And in the six months to September 2024, building societies attracted £14.7 billion in cash savings, accounting for more than one-third of all growth in the UK’s savings balances.
Combining modern technology with a commitment to local communities means that the UK’s building societies embody the principle that “banking is local.” Meanwhile, their member-owned structures and innovative tools, such as AI, will help them stay competitive without losing that all-important personal touch.
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