Building societies rank highest for customer satisfaction but struggle to convert younger customers

Building societies are failing to convert their high customer satisfaction rates into a broader customer base, particularly among younger demographics, according to a new report from Moneyhub. Despite being seen as highly customer-centric, building societies are losing market share to neobanks, which offer superior digital services.

The report, titled “Digitise or die: a call to arms for building societies”, highlights the critical need for building societies to embrace Open Banking and Open Finance to align with the digital preferences of younger generations. Currently, building societies have just 32% of the overall market share, which drops to 24% among 18-34 year olds. In contrast, neobanks hold over a quarter of the market share in this age group compared to 16% overall.

Moneyhub’s research found that building societies, alongside supermarkets, are perceived as the most likely to act in customers’ best interests, scoring 41%. Energy providers, social media firms, and insurers scored the lowest, with 20%, 22%, and 22% respectively. Despite this positive perception, building societies are not converting this into growth among younger customers.

The data shows a clear preference among younger generations for digital interactions: 68% of 18-34 year olds favour using digital apps to manage their money, compared to 48% of the overall population. Additionally, 66% of this age group prefer access to financial products and services without visiting a physical branch. This digital inclination underscores the need for building societies to enhance their digital offerings to remain competitive.

Key findings include that 80% of respondents consider a good online platform and an easy application process important when choosing financial products. Additionally, 67% value an easy-to-use digital app, and 68% cite brand recognition as influential in their decisions.

However, 19% of respondents stated they didn’t know enough about building societies to choose one, and 12% said they hadn’t seen them advertised.

Mark Horwood-James, MD of personal finance technology at Moneyhub, said: “It’s clear that building societies have a strong group of core customers and have developed a well-deserved reputation for acting with the customer’s interests at heart. As well-regarded financial institutions, they are currently selling short their best attributes and failing to appeal to younger demographics by failing to evolve their digital offerings.

“Part of the solution to this problem is embracing the digital capabilities at their disposal and showing that their product offerings can match the neo and challenger banks with their services. The FCA recently said that the building society sector must embrace technology and continue to evolve without losing their community-centred credentials.

“In addition, speaking at the Building Societies Annual Conference, chief executive of the Building Societies Association (BSA), Robin Fieth, unveiled his ambition to double the membership of UK building societies over the next decade. At Moneyhub, we believe that this ambition is possible if there is an effort to adopt Open Finance across building societies.”