Building societies have an image problem. A 2017 survey of 2,000 millennials revealed that 37% considered them old-fashioned and 29%: irrelevant. 22% believed building societies lack online banking tools, when in reality 90% of the UK’s top 20 building societies offer online functionality. In addition, 48% couldn’t name an advantage they provided and 33% saw no reason to use one. It seems unlikely that building societies would fare any better with Generation Z.
Meanwhile one in three millennials say their primary banking relationship is with a challenger bank, a figure which is only likely to rise. Clearly there is work to be done by the UK’s 43 building societies (42 if you discount Nationwide, whose size and new commitment to innovation probably puts it in a category of its own). But they all have qualities that should resonate with younger customers, if only they were aware of them. In an article for Mortgage Finance Gazette, Rich Wainwright, CEO of software company Mutual Vision talks about how building societies should appeal to a demographic comfortable with the sharing economy: ‘When I think about how building societies first came into existence – to pool resources to enable members to buy their own property, I cannot imagine a more disruptive business model being developed in the face of the dominance of traditional banks at that time’…societies were pooling funds for mutual benefit 150+ years before internet-based crowdfunding platforms such as Kickstarter and Crowdcube were even conceived!’
Building societies are also reassuringly steady, most of them originating in the mid-1800s, and because they’re cheaper to run than banks they offer competitive interest rates – good news for cash-strapped 20 and 30-somethings. A commitment to ethical business runs in the veins of building societies and there is no baggage from, for example, investing in fossil fuels unlike many of the high street banks. They also operate for the good of their members rather than shareholders or investors and have well-established corporate responsibility policies and programmes. These points should chime well with the ethical standpoint that is important to many of today’s under-40s.
Building societies can also offer more personalised, even niche services that banks can’t. Ian Keeling from Vernon Building Society says that ‘lending decisions are not made by computers but by a common-sense view of a person’s whole situation’ and mentions that they recognise that people’s lives ‘aren’t perfect’, which might, for instance, be good news to anyone working in the gig economy or carving an existence from several different part-time income streams. They also offer the reassurance of face-to-face service for those who want it, which is particularly relevant to big decisions like buying a first home.
The fact that building societies both offer good rates and share core values may be appealing to younger customers, but it won’t be enough on its own to turn their heads away from the digital and challenger banks. In order to do that, building societies need to work hard and fast to match, or outdo, the customer experience and innovative features they offer, from savings ‘vaults’ to Monzo’s ‘get paid early’ salary advance. No small task when businesses like Monzo are so well set up for innovation themselves, with their publicly-accessible Trello ideas boards and well-run community forum full of user suggestions.
An article on savethestudent.org proclaims ‘more and more people are turning to app-based banks because they give you greater control over your finances’. It mentions keeping a ‘normal current account’ for income and rent, but using an app-based one with ‘things you probably wouldn’t get at your typical bank’ for everyday spending and budgeting. Spending notifications, budgeting tools, fee-free overseas spending and auto-saving all get a mention, making banking ‘easier, more transparent and fun!’. Building societies need to match this appeal, not just harnessing the possibilities of open banking but shifting their mindsets internally. Though it might seem a huge task the rewards could be great; 83% of gen-Zs and 76% of millennials said they would try another provider if it gave them access to desirable features, with the ability to predict the likelihood of running out of cash before payday being particularly well-received.
Digital and challenger banks have had a few wobbles in the last year or so, with Revolut’s CFO resigning over compliance issues, Metro Bank admitting to a serious accounting error and even the saintly Monzo getting bad press from customers locked out of their accounts. Perhaps it’s the perfect time for building societies to sweep in to steal their thunder, both by broadcasting their existing values and by moving swiftly forward with the seamless digital services and fresh innovations that young customers get excited about.
The BIO Agency has wide-ranging expertise in reaching new audiences and transforming customer experience for financial services clients. Take a look at our work for Leeds Building Society here.