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.
I fear the mutual branch network sits in the same space as complimentary in-flight peanuts. Mutuals won’t be able to afford massive tech investment programmes while supporting an increasingly irrelevant branch network.
That investment also means building societies will have to get bigger. Without branches, it will all be about scale. Size is only going to become more important.
Societies will have to develop a much greater understanding of customer and property profiles. Data will have to become more granular. It’s how building societies will create the right products and appeal to the customers of tomorrow. And the detail will be brought to bear much earlier in various savings and loans processes.
But not everything will change. Building societies will continue to be owned by their customers. They will continue not to be profit-obsessed and will continue to have a strong sense of social purpose.
That means they will keep doing business in a different way, providing an alternative to the larger high street banks. They will (and indeed, they must) still make a profit, while sharing their profits less narrowly than just with shareholders – and thereby offering customers better value and service. But if they don’t make commercial decisions – developing the products they offer and the criteria they will lend against – they will not thrive.
Building societies face a pivotal decade. Embracing change is essential if they are to survive. By prioritising operational efficiencies through AI, digital modernisation, and streamlined processing, they can compete with agile fintechs. Scaling up, leveraging granular data for better customer and property insights, and reducing reliance on costly branch networks will be critical to remain competitive.
Yet, their mutual model—owned by customers, socially purposed, and focused on long-term value—will remain a cornerstone. By balancing innovation with their unique ethos, building societies can evolve to offer superior service and value, ensuring they thrive in a rapidly changing financial landscape.
Mel Spencer is the sales and growth lead at Target Group
