Whitecap Consulting, in partnership with the Building Societies Association (BSA), recently published a report analysing the competitive landscape for the building society sector. The Whitecap team is summarising the key findings in a series of blogs.

In this article, Richard Coates, Managing Director at Whitecap Consulting, explores the key role that regionality plays for building societies as well as the commitments to regionality that can be seen across the sector and how this often manifests itself through branch presence, community involvement and regionally focused products. He also highlights six key questions for building societies to ask themselves in respect of their regional activity.

The four key report findings are outlined below:

Regionality is important to all societies and the branch network is often seen as a key commitment to local communities

The sector makes a clear connection between regionality and branch networks, and there are numerous examples of significant investment and refurbishment within the branch estates which support this statement. In stark contrast to the evident trend of high street bank branch closures of which we have seen TSB close 91 branches, Barclays close 60 and HSBC close 28 just last year, building societies remain dedicated to maintaining (and in some cases extending) their high street presence, taking into account commercial and non-commercial considerations.

During our interviews, 27% of CEOs highlighted the potential opportunities to expand their branch network either through new or upgraded branches, mobile pop-ups or agencies. Results from our online survey echo this trend as 73% of respondents to our online survey identify the branch network as a reflection of regionality, second only to 87% of respondents suggesting an active role in the community is critical. The sentiment from the CEO interviews was that the sector feels a duty of responsibility to ensure that their members have an accessible branch within their local communities where they can undertake basic transactions but more importantly where they can engage with branch staff, especially during testing times.

The repurposing of branches towards a ‘community hub’ proposition is seen as a logical and desirable development by some societies

The role of branches is in the process of changing, with their purpose becoming less transactional and more value and engagement driven. One factor driving this change is the increase in online retail and the demise of the local high street which has caused a dramatic drop in footfall, further accelerated by the multiple lockdowns caused by Covid-19. In an effort to make branches a core part of the local high street which not only serves the needs of members but also the wider community, examples of future propositions include:

  • Making branches into community hubs which can be used for recreational activities or a collaborative working space
  • Creating an ecosystem environment which hosts other independent businesses
  • Incorporating digital into branches which could see virtual advisors and various technology interfaces.

To elaborate on the final point, also known as the “phygital concept”, by integrating digital into physical branches, building societies may also become more aligned with the needs and capabilities of both a younger demographic and wider society. Although the majority of the current member base are still very much making branch-based deposits, research shows that by the end of 2020, 76% of people in the UK were using online banking, a trend set to continue going forward. Therefore, as society is increasingly becoming more digitally demanding, in order to ensure future competitiveness and sustainability, the sector acknowledges that the role of branches will have to become less traditionally transactional, and more value driven whilst also fulfilling the digital needs of society.

A focus on regionality frequently manifests itself as local community involvement aligned to the specific needs of the region

As referenced earlier, 87% of our online survey respondents identified building societies being an active part in the community as a reflection of regionality, a sentiment strongly echoed by the CEO interviews. During the research, we found community involvement across the sector manifests itself in a number of ways. For instance, donations of financial support to local charities and causes, sponsorship of local sports teams and involvement in local schools are just a few examples of how building societies integrate into and support their local communities. In recent research conducted by the BSA, it was also confirmed that 72% of current customers do consider building societies to be a crucial part of their community, considerably more so than big banks (52%). Thus, reiterating the finding that building societies have successfully positioned themselves as key pillars of their local communities and the active role they play in supporting these communities contributes to the commitment they show to regionality.

Some building societies offer specific products or pricing options that are limited to their heartlands

During our research, we also found that regionality plays a role in product design and distribution. 42% of the CEOs we interviewed stated that they offer postcode restricted products and 65% of building societies who responded to the online survey agree that specific products for their local heartland in either mortgages or savings are a reflection of their commitment to regionality.

Interestingly, a large proportion of postcode restricted products are for first-time buyers which could be attributed to the alignment between the social purpose of the sector and supporting younger generations to buy their first homes. Additional examples of postcode restricted products include key worker and self-build mortgages as well as affinity saving accounts, all of which could be argued to support the social purpose of the sector.

In summary, and having completed the analysis through the report, and taking these four key findings into account, we believe that there are a number of key questions for societies to consider in respect of regionality, as outlined below:

Key questions for building societies in respect of regionality:
  1. Are you able to clearly articulate what role(s) your connection to a given location will play in the delivery of your purpose?
  2. Have you identified what responses (emotional, behavioural, transactional etc) you are looking to generate, from which audiences, in response to these evidenced connections?
  3. Have you identified all the ‘levers’ you can pull in order to establish and strengthen these connections?
  4. Do you have a feedback mechanism in place to enable you to understand their perspective on the most valuable role you could potentially play in your region?
  5. Do you have a clear vision on what you see as the future role of your branches, and how you will use the branch to engage with the local community?
  6. To what extent have you considered exploring and developing innovative and complementary regional partnerships with local organisations to support your purpose?
The related topics of strategy, mutuality and technology are covered in more detail in the report, which you can download the report via the link below.

Background to report:
Building Society Sector Analysis 2021 – A review of the strategic landscape for building societies

The research underpinning the report was conducted by Whitecap Consulting in partnership with the BSA, and involved a quantitative data analysis of all 43 building societies, interviews with 33 of the building society CEOs, and an online survey which received a total of 134 respondents.

This analysis and report was funded through sponsorship from a number of industry stakeholders including: Credera, DPR, EQ Credit Services, Mambu, Moneyhub, Mutual Vision, NivoSandstone Technology, Sopra Banking Software, Shoosmiths, and Phoebus Software.

The eight blogs in this series focus on key topics addressed in the research: FinTech, Strategy, Mutuality, Regionality, Technology, Mortgages, Savings, and Open Banking.

Useful links:
Building Society Sector Analysis 2021
Watch the report launch webinar