FINANCIAL SERVICES
Personal
perspectives –
opportunities
for the building
society sector
May 2013
kpmg.co.uk
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ABI INVESTMENT CONFERENCE 2013
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FOREWORD
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SECTOR TO POLARISE WHEN IT
COMES TO CUSTOMER
PROPOSITION?
TOM BRADY
BUILDING SOCIETIES FAIL TO
FLAUNT BEST ASSET
JON MEASURES
7
CAN BUILDING SOCIETIES GIVE
CUSTOMERS WHAT THEY WANT?
MICHAEL ATACK
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PERSONAL PERSPECTIVES –
OPPORTUNITIES FOR THE BUILDING
SOCIETY SECTOR
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FOREWORD
KPMG is well known in the building
society sector and the technical
expertise of our subject matter
experts is well documented through
our regular publications on topics as
wide ranging as cyber security and
financial reporting.
However, we wanted to move
outside our normal comfort zone and
express some more personal
opinions.
To that end three of our Management
Consultants have been brave enough
to put their heads above the parapet
and set out some of their views and
personal perspectives on recent and
developing challenges for the building
society sector.
With personal perspectives there is
no right or wrong, simply differences
of opinion. I sincerely hope that you
will find the following short articles to
be thought provoking, constructive in
their challenge and that if you feel
strongly about them, whether in
agreement or not, you will engage
with us in a productive debate.
RICHARD GABBERTAS
PARTNER
+44 (0)113 231 3123
[email protected]
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TOM BRADY
DIRECTOR
+44 (0)20 7311 6230
[email protected]
As news of the banking crisis broke, the
major banks, and to a certain extent all
financial institutions, were vilified by the
press, politicians and public alike. Banks
were accused of dirty dealings, being too
highly leveraged and being unaccountable to
their customers. To some extent the
assumption was that all financial institutions
were equally guilty of such activities so it is
perhaps understandable that many building
societies kept their heads down and carried
on quietly with their day to day business of
serving their customers.
Many came through the crisis in good
shape, however I believe a major
opportunity was missed. Societies had the
perfect opportunity to highlight just how
they could provide people with a safe
alternative to the main high street banks:
free from the risks associated with
borrowing from the open market and
certainly no multi-million pound bonuses! If
societies had spoken up, they could have
boosted their own reputation and maybe
even engendered greater trust in the
financial services sector as a whole.
However, I don’t believe societies are great
at ‘blowing their own trumpet’ or at times
maximising their marketing potential. Many
can provide an entirely credible and
differentiated alternative to the mainstream
banks especially for savings and mortgages,
yet failed to make a serious bid to highlight
this.
Societies are rightly proud of their traditional
roots and history but are perhaps not always
seen as ‘modern’ or ‘relevant’ in the eyes of
generation X and Y and so are not attracting
the next generation of consumers.
Traditionally, societies only needed a
physical presence on the High Street to be
relevant, but today, where branch networks
seldom exist outside the heartlands, digital
transactions reign and online capabilities are
rising, I would suggest that many need to
look differently at aspects that have served
them well in the past.
SECTOR TO POLARISE WHEN IT COMES
TO CUSTOMER PROPOSITION?
This is not to say that there is no longer a
role for branches – I do think that they still
provide a valuable and personal service to
local communities – but failure to act on
competitive market developments and
consumer trends reflects an inability, or lack
of desire, to adapt to a new environment. To
appeal to younger customers it is essential
to understand their needs and motivations
and adapt accordingly. Who would have
thought ten years ago that 18-35 year olds
would prefer to use cash or debit card rather
than a credit card? The last few years have
inevitably had a profound effect on people’s
attitude to debt and maybe re-opened the
door for building societies to reposition
themselves to their future generation of
customers.
I believe that societies must be clear about
their focus, their differentiators, now and in
the future. Societies who are unable to
define and communicate this are in danger
of being caught in No Man’s Land in terms
of consumer appeal and hence will struggle.
By contrast, societies that can clearly define
and target their customer base have a
chance to be competitive and distinguish
themselves from ordinary high street banks
that mostly still provide much of a
muchness up and down the country and
often fall down on customer service and are
driven by their own and shareholder needs
for profit.
Unfortunately, history has shown that most
customers are not particularly loyal to any
institution (be it building society or bank) and
will change their provider if they feel that
somewhere else can offer more or
something better. This is especially true of
cards, savings and mortgages where
switching to better deals on a regular basis
has become the norm.
Most recently, we have seen this with
mortgage lending: traditionally a service
dominated by the building society sector but
which, over the latter half of the 20th
century, experienced a number of new
entrants who significantly thwarted their
market share. However, since the beginning
of this year, mutuals are again dominating in
this area because they are now offering
more competitive rates than the banks.
So where does all this supposition lead us?
Well, I believe that the sector’s strongest
market players will polarise in terms of their
customer proposition.
Some will seek to compete on price and
offer greatest value or best buys (which will
put them at the top of price comparison
websites). To do this they will need to be
lean, low cost operations with efficient but
perhaps more vanilla service offerings.
The other end of the spectrum in my view is
to position the society to appeal to those
who will pay a premium for a demonstrably
better service or product proposition. We
now have new entrants in the market who
are neither constrained by the past nor
tainted by the banking crisis and there is an
increasing need for societies to respond to
this. We may see more building societies
offering current accounts to bridge the gap
between their services and those of the
main banks, but it will also be about the
broader customer experience and the level
and quality of service provided. Whether this
is around sofas and coffees in-branch or
being able to transact seamlessly via your
smartphone is probably still up for debate
but new names on the High Street will be,
and are, forces to be reckoned with.
Whichever way a society chooses to move
it will be about shifting the brand perception
so that it is aligned with one or the other
and the positive associations people then
make with that brand. Taking the middle
ground and trying to retain one’s traditional
customer base only may prove to be an
uncomfortable, non-distinct and highly
competitive and difficult space in which to
operate and sustain a business.
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JON MEASURES
SENIOR MANAGER
+44 (0)113 231 3037
[email protected]
In the aftermath of the financial crisis, the liborfixing scandal, payment protection mis-selling,
and all the rest, the Building Societies
Association reports, perhaps unsurprisingly, an
increase in customers seeking to move money
into building societies.
Usually based in local communities, commonly
bearing the same name, the building society
business model is uncomplicated. They take
savings in, and lend a percentage out as
mortgage borrowings. Mutuals focus on the
customer, not the shareholder and they know
their communities. There is solidity, simplicity
and ethicality about them which, I think,
consumers struggle to recognise in high street
banks.
However, building society customers are not
just customers. They are members. They own a
share. They have a say in how the society is
run. They formally vote on mergers and have
the power to elect directors and determine how
much they get paid. Many might not get
dividends in the traditional sense, as bank
shareholders do, but they get other benefits
that may include lower mortgage rates, higher
savings rates, a local branch presence or a
commitment to support certain charities.
So, as I see it, the most distinctive thing about
building societies is that they are owned and run
for the ben efit of members. But I think they are
missing a trick by failing to fully articulate what
those benefits are.
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BUILDING SOCIETIES FAIL TO
FLAUNT BEST ASSET
Existing or potential members are either not
aware of the perks or are flummoxed by terms
such as Net Interest Margin. And, if they don't
watch out, I predict that some building societies
will lose out to new market entrants which are
much clearer and focused about the benefits
they offer.
Supermarket chains that have an affinity with
their customer base; ethical banking groups and
newer brands focused on service availability and
speed, have spotted that customers are losing
faith. They are plugging the gap, promising
customers better service, faster processing,
more convenient opening hours, additional
loyalty rewards, ethical investments, etc.
to take responsibility for how they engage with
them. Frankly, I foresee a backlash from a new
generation of members who, as custodial
owners of building societies, recognise that
they can kick back on mergers, veto increases
to director remuneration and generally complain.
And these days, of course, the unhappy
individual member has a much bigger platform
than the AGM on which to vent frustration.
Negative views, expressed real-time via new
media tools like Twitter, instant messaging and
social networking, have the potential to gather
momentum rapidly, be wider-reaching and, in
turn, more damaging to reputations and to
balance sheets.
Admittedly, some mutuals have diversified from
traditional savings products into current
accounts, and are increasingly vocal about
membership benefits. In the medium term, I
believe that these first movers into "social
banking", with clarity on member benefits, will
reap the greatest rewards. In my opinion,
however, most are slow on the uptake.
But if building societies engage with and
encourage participation by their members, I
believe they can create successful symbiotic
relationships. Most societies take their member
panels and feedback sessions extremely
seriously and it is here that real-time
technologies can be deployed to enable greater
and more immediate member participation.
There is a caveat. If building societies better
articulate their benefits, attracting in turn a new
demographic of member, then they need
They can, for instance, be used to solicit almost
instantaneous responses on product and
channel choices; to enquire about branch
service; to consult on organisational change and
future strategy. This participation not only
deepens members' understanding of the
economics and rationale for societies' decisions,
but means management is better able to
forecast outcomes based on the opinions
expressed.
Building societies can also target a new
demographic of customer with appropriate
products, services and community initiatives.
And ultimately, of course, the engaged member
is on side and far more likely to recommend the
building society to friends and family.
In time, I believe that members will become
even more active in voicing what they want
from their building society. They will dictate the
rewards they want – and vote with their feet or
blog if they don’t get them – and will demand
input into how their society is run.
Meanwhile, as they seek to achieve a more
ethical and sustainable model that distances
them from the financial scandals of the recent
past, mutuals will have to work harder at
anticipating members' needs and determining
how they deliver and articulate that value. Or, I
fear, they risk losing out to more nimble and
savvy non-traditional bank competitors.
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MICHAEL ATACK
DIRECTOR
+44 (0)113 231 3647
[email protected]
CAN BUILDING SOCIEITIES GIVE
CUSTOMERS WHAT THEY WANT?
Having fallen out of love with banks, the British public has
identified a new financial suitor in building societies. Be
warned, however, today's customers will call the shots. Less
tolerant in the aftermath of financial scandals, they now
demand service, delivery mechanisms and product ranges
that work for them.
Given growing customer apathy with existing providers, I
believe that building societies have a significant opportunity
to play an enhanced role in the provision of financial services.
However, the emergence of "challenger" banks, as well as
large-scale investment in customer initiatives by the main
banking groups, means the building society sector has
serious rivals.
To deliver an enhanced customer proposition, building
societies will have to fundamentally reshape their sales and
service models. Not only have they got to do better at all the
regulatory aspects, like transparency, fairness and simplicity,
but they must enable customers to engage and transact in
ways and at times that suit them. For many, the first hurdle is
to tackle mis-alignment in long-established operational and
channel structures before embarking on more strategic
change.
The digital route has been explored to varying degrees by
building societies. Digital will, I believe, become an important
element in the delivery mix and the channel of choice for
information provision, non-complex, transactional purchases
or for servicing simple products. Undoubtedly a cost effective
option for building societies, the key rationale for
implementing digital must be to enhance customer autonomy
while meeting the emerging and demanding expectations of
both today’s and tomorrow's target customer.
This does not mean that other channels should be neglected.
On the contrary, digital should be part of a coordinated and
integrated channel strategy, enabling customers to choose
and use different channels for different purposes. So a
mortgage applicant might initiate an enquiry online, phone the
contact centre to take the application further and, ultimately,
conclude with a face-to-face meeting in branch that might
even be arranged via a mobile branch-booking app.
In making investment decisions, building societies must
factor in this customer predilection for flitting between
channels. I fear that exceptional service in one channel might
be compromised by poor service in another, potentially
colouring the entire customer experience. Additionally, of
course, in today's "always connected" society, there is
significant risk that customers will share bad experiences
more widely than ever before.
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The branch, I believe, will remain integral. Traditionally, after
all, building societies are rooted deeply within regions, with
branches very much part of relationship-building in local
communities. Looking ahead, however, I perceive that the
role of branch staff will become almost exclusively focused
on face-to-face, value-add advice for more complex products,
while digital takes care of more straightforward needs. The
braver societies might even emulate the US model of video
conferencing and video booths to virtually transport product
experts into the local branch environment efficiently. All, of
course, will be anchored around the concept of delivering an
enhanced customer proposition.
While I foresee significant changes to future distribution
strategies, some societies will have opportunities to expand
their financial relationships with customers by entering into
new product categories and moving towards full-service
banking provision.
The changing shift in channel preferences and usage is not
without problems. Right now, one of the major hurdles is
channel conflict. If service is delivered in silos and the big
customer-centric picture is not entrenched across the entire
business, I cannot blame branch staff for baulking at digital
for fear it will erode their walk-in customer base.
Done properly, however, the business can orchestrate the
convergence and integration of delivery channels into a
seamless customer experience. Branch staff, for instance,
might combine face-to-face advice on complex products with
branch tutorials on digital capabilities that will support
customers’ awareness of and transition to digital channels.
Contact centres will increasingly be utilised for problems and
issues requiring timely resolution as well as supporting
broader integration across channels.
In turn, customers will engage how they want to engage,
hopefully growing more confident with technology for
everyday transactions (but for those that don't there is still
the branch) and, unconsciously, experiencing blended service
delivery right across the society's branch, contact centre and
digital channels.
Before they move to this next evolutionary phase, building
societies need a firmer grip on where long-term value will
come from. To engage members more effectively, digital has
massive lure, but without a better understanding of
performance and profitability across channels and confident
expectations of return on investment and associated
customer impacts, the sector cannot sacrifice spend in one
area to benefit another. That, in my opinion, is the big
challenge that building societies are grappling with right now.
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