FinTech’s relevance to UK building societies and how they can respond

Event reflections from the Local & Regional Building Societies Conference 2017.

On 1-2 November Whitecap attended and presented at the annual Local & Regional Building Societies Conference, hosted by the Building Societies Association and delivered by the team from the Marsden Building Society.

It was an insightful and forward-looking event, with a theme of ‘Deciphering digital in a customer’s world’ – looking at FinTech, digital and customer experience. We joined a range of speakers and contributors including the BSA, FCA, Mutual Vision, KPMG, Yorkshire Building Society, IMC, BDO, KPMG Nunwood, and applied futurist Tom Cheesewright. Each looked at digital innovation through their own particular lens, which made for a very thought-provoking agenda and some excellent content.

Our presentation, which was delivered by Julian Wells, discussed how shifts in consumer behaviour and technology are driving changes, and the increasingly supportive role the regulator is playing in fostering innovation within UK financial services. On day two, the FCA’s Bob Ferguson discussed the role that Innovate (formerly Project Innovate) is playing on a regional, national and international basis, with particular focus on the regulatory sandbox, which has now helped over 50 firms and recently issued a ‘lessons learned’ report.

In our session, we outlined some of the current FinTech developments we have encountered in our client work, including several case studies from within and outside the mutual sector. During our session we outlined how established financial organisations can consider how best to work with FinTech innovation as part of their strategic planning process, highlighting the increasing amount of collaboration taking place between existing players and FinTech innovators.

Whitecap’s research insights into regional building societies

In advance of the conference, Whitecap conducted a piece of research amongst the delegates, and based on approximately 60 respondents, we were able to report back on our observations.

We found that whilst 98% of respondents produce a corporate plan which is reviewed annually, a far smaller proportion formally assess external factors such as customer needs and trends (54%), competitor activity and threats (56%), and technology developments and innovation (54%). Given that 67% of those surveyed said that technology and digital is a significant area of investment, the survey findings suggest that it would be prudent for building societies to evaluate the external market landscape with more rigour.

We also asked survey respondents about their views on FinTech, finding that 62% were personally aware of what FinTech is, but only 16% are fully aware of the FinTech innovations that are relevant to their organisation. Interestingly, a recent KPMG survey of financial organisations globally found that 97% see FinTech as an area of positive opportunity and that 57% see FinTech as a source of major disruption over the next 3-5 years.

Key themes

Over the course of the conference three themes came through several presentations and the discussions we had with the delegates:

1. Open Banking is currently seen as a regulatory issue

Whilst it is generally accepted that the Open Banking movement (i.e. the push for innovation, competition and tech-driven connectivity) will stretch beyond the current account and will encompass all areas of consumer financial services, the building society sector’s primary consideration at present is viewing Open Banking from a regulatory and compliance perspective.

In our session, we discussed the future of Open Banking, and whether in the longer term it will be driven primarily by regulation, consumer expectation or technology innovation, or a combination of these factors; irrespective, the landscape is changing and organisations are working out how to respond.

2. Building society boards recognise customer needs are changing

From discussions, the primary board agenda within small and medium sized building societies is mainly, and understandably, focused on risk, governance and regulation, including GDPR etc..

However, many building society boards are also recognising they need to dedicate time and resource to understand and address growth challenges, differentiation, relevance and changing consumer needs. Central to this is how to balance the needs of both traditional and typically older customers, whilst at the same time as investing in newer, younger customers and their different channel preferences.

3. Going beyond the FinTech headline

Many executives in building societies and mutuals are aware of FinTech and its potential to impact organisations, although many have not gone beyond the ‘’FinTech’ headline. We see this across Financial Services, and we recommend that they need to spend time analyzing (1) who is in the FinTech space and (2) which of these could add value to the organisation through collaboration and / or outsourcing.

To do this effectively, the boards and executive teams would benefit from identifying where and how they add most value, and potentially recognition that they don’t need to do everything, or most things in-house, as many have traditionally done.

In reflecting on the conference and the conversations we had, we consider that all building societies should consider their overall vision and strategy for next 3-5 years and where FinTech and Digital may be relevant.

KPMG’s research found that 50% of firms don’t have a well-defined strategy on FinTech, and 70% don’t have a well-defined framework to assess FinTech opportunities. This needs to be an area of focus for all FS organisations who see digital and FinTech playing a significant role in their future.

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