Thought Leadership

Re-aligning building societies for today’s consumers through open banking

19 June 2024
Sam Seaton, Moneyhub CEO

Guest article by Sam Seaton, Moneyhub CEO.
Sam explains how open banking and open finance can help some of the UK’s building societies catch up in the innovation race, attract younger audiences, and simplify customers’ financial lives.

Building societies, with their deep-rooted community ties and commitment to member benefits, stand at a critical juncture. Historically, building societies have achieved the levels of customer-centricity that wider financial services have fallen short of. However, the digitisation of financial services, driven by an acceleration in data accessibility and regulatory changes like the Payments Services Directive II (PSDII) and Consumer Duty, mandates action.

With new access to current account, investment and lending data without having to offer these products, building societies have the opportunity to carve out a new niche in a digital world where consumers focus on long-term goals and turn to those that can help them.

As wider financial services embrace the opportunities presented by open banking and open finance, the disparity between those digital offerings versus those of building societies becomes more apparent, and more risky.

We recently sat down with industry leaders from the likes of Nationwide, Skipton, Yorkshire, Coventry, the Building Societies Association, Open Banking Limited and many others to find out about the sector’s digital-readiness as part of our recent report: Digitise or Die: a call to arms for building societies.

Understanding consumer needs

We also surveyed 2,000 British adults, as part of the report, to find out about how they perceive building societies’ offerings against other industries, and other financial sectors, and what people look for when choosing new providers or products. Here’s what we found:

  • 80% of consumers believe that a good online platform is important when choosing a new financial provider.
  • Nearly 1 in 2 building society members report difficulties in engaging with their services – with digital experience being the top pain point.

And what’s important to the next wave of building society members?

  • 73% of 18-34 year olds said they look for an easy-to-use app when choosing financial products.
  • 66% of 18-34 year olds would like more convenient access to products and services without the need to visit physical bank branches.

Consumer expectations and the digital shift

In a world where technology dictates pace and convenience, consumer behaviour in financial services is rapidly evolving. Even Apple® has hopped aboard the payments train with the introduction of Apple Pay®. Younger consumers, in particular, are looking for interactions that are not just digital-first but are also seamlessly integrated into their daily digital lives. For building societies, this marks a critical and urgent call to adapt or risk extinction.

The risks of inaction

Should the sector remain static, there is a real risk of some building societies losing out, as tech-savvy competitors offer slicker services and more customised products. As sector leaders interviewed told us: “I think we’ve fallen behind over the years. We haven’t moved forward quickly enough. But now we’re at a tipping point where we have to move. We need to digitise or die. I would be that strong about it.”

Open banking and open finance represent a transformative opportunity for building societies. This innovation isn’t just about technology; it’s about prioritising the consumer’s right to choose and enabling a higher degree of financial empowerment, which aligns perfectly with the ethos of building societies.

Building societies are championed by members because of the focus on service, mutuality, integrity, and community. However, due to limited resources and budget, some societies may not be best poised to deliver these services through technology as members are coming to expect. It is here that partnership and collaboration is key.

Businesses are having to adapt to the new normal, and open banking and open finance are key to this. The ability to rapidly deploy services driven by customer consent, leverage ecosystems and improve cost efficiencies can all be achieved through platforms outside of core IT, and while preserving scarce IT resources. Moneyhub’s digital mutual solution delivers what building societies have always stood for, but with light-touch software as a service (SaaS) implementation.

Practical applications of open banking for building societies

Improved decision processes

Open banking facilitates access to a wealth of financial data, allowing building societies to make quicker and more accurate lending decisions. This enriched data environment can lead to superior credit risk assessments and more precisely tailored financial products, aligning product offerings more closely with individual member needs.

Expanding product offerings

The insight gained from open banking data may enable building societies to innovate responsibly and at scale. From budgeting tools and personalised investment advice to integrated insurance services, building societies could expand beyond traditional savings and loans, offering products that genuinely match the modern consumer’s lifestyle.

Open finance platforms, in which consumers can connect all their accounts, investments, loans and other financial products, also mean building societies needn’t offer expensive current account products, and could focus on a digital offering that instead aggregates and displays accounts across different providers.

Customer engagement and satisfaction

Thanks to data aggregation and analytics technology offered by open banking and open finance, consumers can see and manage their entire financial world in one place and on one device, with automation and nudges to drive better outcomes. This drives customer engagement, as they needn’t flit between apps or websites to manage their money.

Open finance offers building societies the opportunity to take their member-focus even further.  If you can simplify your customers’ financial lives, bringing everything into one place – and if you can make engaging with you and understanding your products in the context of their wider finances, and putting money away for the future, as easy as it is to book an Uber – you can help foster a happier, healthier, wealthier future for all.

The time is now

The need to embrace open banking is clear. It represents a fundamental shift toward greater transparency, enhanced customer empowerment, and a significant opportunity for technological advancement.

As we look to the future, the challenge for some building societies will be to balance the preservation of traditional values with the integration of innovative practices. By embracing open banking and open finance, building societies can reinforce their commitment to serving their communities while securing a vital role in the financial lives of today’s and tomorrow’s consumers.

Download ‘Digitise or Die: a call to arms for building societies’ here