It's about customer value. It is about how we earn our money, making fair profits to secure our businesses for the benefit of customers present and future. And how we make a contribution to the communities in which we live and operate.
Research by Professor Jim Devlin at Nottingham University Business School into trust and fairness in financial services highlights the gulf between banks and building societies on both measures. He explores fairness in three dimensions. Firstly, looking at the processes used to arrive at outcomes; secondly examining the balance of costs and benefits between the organisation and the customer; and thirdly, reviewing how customers are treated – old-fashioned ideas such as courtesy and genuine personal communication.
In a rather more formal way, Professor Devlin’s work reflects the sum of hundreds of individual customer experiences that, together, illustrate the outcome of running our businesses with a fundamentally different purpose. Because our customers are our members, we are here to serve them rather than external shareholders. We are here for consumers, for people, building society every day. And we should be proud of it.
Maximising member value rather than profits manifests itself in all sorts of different ways. In better than average mortgage and savings rates; in the way we treat mortgage borrowers as individuals, not statistics, providing mortgages to meet their personal circumstances, including for the self-employed, the self-builders and older borrowers. Helping people to fulfil their dreams of home ownership, putting a safe roof over their heads and providing a safe home for their savings. It is about how we earn our money, making fair profits to secure our businesses for the benefit of future generations of members. And about how we share those benefits with members present and future, how we make a deep contribution to the communities in which we live and operate.
According to Co-ops UK, we are already the UK’s largest membership network with over 21 million saving and borrowing members. Almost one in three of the UK’s population are building society members. The numbers are growing and we should actively seek to grow them further.
Our share of the mortgage market has been growing too, virtually every quarter since 2012, from 18% of mortgage balances just after the financial crisis to 22% today. It takes a lot to shift a market measured in trillions of pounds, and a lot of patience to take market share progressively, organically and sustainably in businesses that grow their own capital.
We now provide one in every three new mortgages approved in the UK, and one in three new building society mortgages is to a first time buyer. Since 2012, building societies have enabled over 400,000 people in the UK to buy their first home – fulfilling the purpose today that the movement was originally established for back in 1775.
Even in the current, difficult, low interest rate environment, savings data published by the BSA in March demonstrated that building societies give the UK’s hard pressed savers a better deal than other deposit takers. On average during 2016, savers with building societies earned 1.58% on fixed rate and notice accounts compared with only 1.30% across all deposit takers. For instant access accounts, savers with building societies earned 0.88% on average, compared with 0.65% across the market.
Better savings rates and better mortgage rates do not come at the expense of weaker capitalisation. The opposite is true. Building societies’ average unweighted CET1 ratio currently stands at around 19.2% compared with 12.2% for the major banks. And at a time when many major banks have been engaged in huge cost-cutting programmes, shedding staff in their thousands, building societies together have been contributing positively to both the UK economy and society by maintaining, and now growing their staff, today employing 43,000 people, largely outside London and the South-East.
So, we have a strong base from which to continue building in a competitive market currently characterised by the emergence of the new retail challenger banks and, from 2019 also potentially re-focused ring-fenced retail banks. We in the mutual sector cannot stand still. We must continue to stand out from the crowd for the right reasons - drawing our competitive advantage from who we are, who we are for, and how we serve our customer-members and our communities.
While our competitors are focusing on automation and self-service, treating customers as data files and statistics, I believe we should be investing in personalisation. We should be developing and innovating in ways that keep us close to our members, face-to-face or digitally; thinking about digital village squares rather than digital marketplaces; using continuous improvement and first time quality to deliver even more outstanding personal service. Most of us want to do routine transactions online and at times that suit us. Most of us (and this includes the so-called digital generation) also want to talk issues through individually, whether opening an account, taking on a mortgage or dealing with something that has gone wrong or is just beyond our experience. This is what building societies and credit unions are really good at.
I am strongly encouraged by the greater emphasis that many politicians are putting on the social purpose of business, on the sort of social capitalism that is at the heart of the building society and credit union model.
At last we are seeing glimmers of recognition that the UK needs to move its mind-set away from a fixation on shareholder owned businesses as the only game in town. Positive momentum has been building for some time, with now over 6,500 co-operative enterprises doing business in the UK.
We are about capitalism with and for a social purpose, generating profits for the benefit of members, a sector focused on the long term in an increasingly short-term world. In short, a 21st century movement.
I believe that now is the time for our movement to stake its ambition firmly and loudly as a force for good in financial services.