As we start the new year, we can reflect on how the financial services industry has seen tremendous change in the past few years, somewhat accelerated by the Covid-19 Pandemic, Brexit, and Ukraine War [collectively known as the CUB affect], and this has consequently reshaped, and to some extent, evolved the industry by digital disruption.

Big banks and building societies have seen FinTechs, or challenger banks as competitors—eager to disrupt the financial services industry’s business models, particularly when it came to sharing technologies such as cloud, artificial intelligence (AI), machine learning (ML) and big data. However, FinTechs are no longer seen as a threat to banks, but as collaborators.  How the incumbent building societies and banks have responded and continue to respond to these changes may determine their future success.

The building society sector plays a key role in the financial services ecosystem, because the sector neatly counterbalances to the big banks. However, how can building societies be successful when it comes to digital transformation? And what’s needed for them to compete in an increasingly competitive world?

As building societies digitize to meet customer expectations, they must keep sight of what’s core to their identity of a loyal member base and what sets them apart from the competition. That single view of the customer [SVC] requires a full-on 720-degree view of what the customer is asking for and the ultimate test for any financial services institute is how they respond to exceed the customer’s expectations. 

Nevertheless, that’s easier said than done. Some of the world’s largest companies have tried to become successful with digital transformation for years; however, have not quite got the secret recipe for success. Even some of the banks, with large budgets, are struggling to keep pace, with challenger banks deploying updates much more frequently and quicker than the incumbents.

Andy Haigh, DXC’s Head of Banking & Capital Markets, had a conversation about digital transformation with Rob Howse, the chief operating officer of Leeds Building Society.

Haigh talked about digital transformation in the context of working with building societies, which he saw as consisting of two dimensions – the first part looking at essential elements and the second part focused on evolution.

“Transformation in the context of financial services, we see as two dimensions. One is essential and one is around evolution. The essential piece of transformation is around laying the foundations around the core and the enterprise around it, whether that’s the ability to transact or the ability to conform, whether it is the ability to process risk, and the fourth leg is ability to continually optimize that environment.”, said Andy. 

He went on to say: “The evolutionary phase, we see as building upon and expanding out the single view of the customer (SVC). 

“That SVC then allows AI and analytics to sit on top to help product formation to allow products to go quicker to market. However, if you don’t update the core platform, it will slow that process down. It’s not just about the monetization of the SVC, it is also about evolving the customer journey, self-serve, and helping and building up the support of vulnerable customers,” he added.

Slightly outside of that is where financial services link with other industries, [which] is to strengthen their view of the SVC to empower that process. Those two things are not sequential in terms of essential and evolution because they happen together, and they have dependencies across both. It’s a balancing act of both pieces. One is helping to improve the operations of the business as usual. If you do not do that, you will get distracted by that so you cannot evolve the evolutionary side of the transformation.” 

Understanding customers

Building societies have differentiated based on their risk profile, and the associated ability to lend to that risk. With the majority of building societies providing an in-branch member service alongside being a key part of the local communities they serve, building societies play an integral part in UK financial services.

However, many areas of technology in financial services are reaching such a critical mass and progressively this convergence is driving greater and more rapid impact in this industry. Big data and cloud are key elements due to the rapidly changing customer behaviours escalated by the explosion of access to information. 

The rate of growth in new trends that are building on each other is significant, and interfaces that were easy to use are becoming more intuitive. Customer engagement is crucial, and therefore having a customer-centric perspective in digital banking is important.

• The digital financial services landscape is constantly evolving [FAST!],
• The emergence of new trends and disruption is increasing,
• And building societies that don’t evolve risk falling behind.

Transformation in practice

As Rob Howse mentions a best practice in his interview, “You [financial services] must invest as much effort into people and supplier relationships as you do in the technology. 

For example, Leeds Building Society recruited an extra 100 people to help with its digital transformation journey and cautioned that takes time and effort to find the right people. 

“We’ve got suppliers that we rely on – you’ve got to work to make sure that relationship is working, and those people are really delivering for you. As you go on this digital transformation journey, you do have to adapt, learn, and adjust because the world changes. But you also must keep really focused on moving forward and delivering on the vision while the world around you is buffeting,” He concluded.

It is true to say in this dynamic market, a ‘one size fits all’ does not represent any given a building society’s need. Instead, a clear and progressive strategy for delivering product, customer onboarding and business origination innovation through the modernisation of the core and surrounding ecosystem is required.

About DXC
DXC has learnt from decades of experience working with the building society market that each transformation journey is unique and requires tailored solutions, delivered by a partner with deep industry knowledge. DXC can provide end-to-end support for societies looking evolve transformation journeys without sacrificing their essential contribution to the unique part of the financial services market they serve. You can find out more here