The combination of rapidly increasing inflation, expectations of additional growth in the Bank of England base rate and fears of a damaging recession are causing concern across the financial world. Mutual banks, building societies and credit unions are far from immune to the complex pressures facing all businesses, including financial firms.

Perhaps the most impactful issue that mutual banks need to prepare for is the unprecedented increase of the cost-of-living and its knock on effects. Recent research from the Office for National Statistics finds that 83% of adults in the UK have reported to seeing an increase in their cost of living in March this year and 29% saying they could not afford a necessary but unexpected expense of £850.

Buildings societies can expect to see relatively lower levels of savings, potentially higher default rates and non-payment issues. Targeted support for the most at-risk customers who can be expected to face financial problems may be a positive step to ensure any devastating financial crises can be averted before they become major problems.

Rising competition

Many building societies have been working on digital transformation programmes and initiatives in recent years. But up-start rivals in the Fintech space have both a head-start and benefit from being digitally-native, leaving even forward-thinking building societies on the back-foot.

As customers now expect a wide range of financial services to be delivered seamlessly through digital platforms, those in the mutual banking sector who do not offer this will be at a marked disadvantage. However, building societies possess something that digital start-ups have faced difficultly achieving – a strong relationship with customers.

If building societies are able to leverage the technological advantages of cloud platforms, while at the same time as maintaining first-rate customer service, these firms will be able to compete with even the most innovative fintech firms. The physical branch networks that buildings societies offer to their members are a clear point of difference that will only become more vital as the number of customers who want in-person support is likely to grow.

Partnerships with other organisations and charities on both in-branch and digital products can help building societies quickly fill in gaps in their provision. For example, partnering with debt charities to run digital classes for members could be a powerful way to improve the financial health of members,

Post-Covid consumer attitudes

There’s no question the COVID pandemic has had a major impact on virtually every part of life and business. A range of consumer attitudes have changed over the past three years, with research from Kantar finding that close to two-thirds of adults believe that both banks and building societies should “do more to provide financial flexibility to people affected by the pandemic.”

The pre-COVID customer is markedly different in key ways from the post-COVID consumer and buildings societies need to make sure their plans and strategies for the next decade take into consideration this unprecedented shift.

Written by Finbarr Toesland, Editorial Contributor, VC Innovations
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The conversation continues at FTT Building Societies, on the 14th – 15th November 2022 and The Brewery, London.