Looking further ahead - BSA Annual Conference 2019

Check against deliver

Thank you Mike for your kind introduction – and more especially for agreeing to be the BSA’s Chair for the next two years.

Let me tell you a little story about Mike.

Last year when I was looking to organise the BSA’s second member study tour to Boston, Massachusetts to meet up with our American mutual and community banking friends and colleagues, I phoned Mike to ask if he would like to join the trip.

His immediate response was:

“That sounds like fun, count me in.”

They say what happens on tour…..

But I couldn’t resist reminding Mike about the visit we made to his namesake’s bakery in the North End of Boston.

Mike, I am looking forward to lots more fun over the next couple of years.

And a few more cannoli’s too.

I also want to give huge thanks to Stephen Mitcham for his leadership of the BSA’s Council for the last year.

Stephen has been another great BSA Chair, providing that valuable mix of wise counsel and good humour.

Including the occasional whisper in my ear of “deep breath” during some of our more challenging meetings.

I want to echo two of the things that Stephen said yesterday in opening our Conference.

First, that the longer the uncertainty of Brexit persists, the greater the damage that will be done to the economy, to businesses and to consumers.  The European Elections have now happened.  It is time to move on and find a resolution.

Secondly, there is lots of evidence that societies are adapting, rolling with the times and delivering for their own members.

Nationwide’s results this week highlighting £705 million benefit to members through better rates, and the sector’s 57% share of the net mortgage market in the first quarter of this year, referred to by Stephen yesterday, underpin the continuing quiet success story that is today’s building society sector.

So when we are contemplating the pile of sand in front of us with shovel in hand, it’s worth taking a look behind to see the mountain we have already dealt with.


I wonder what the founding members of the BSA back in 1869 would make of the world today?

And of the role the BSA plays in championing the sector and supporting all our mutual members?

Writing a first history of the BSA in 1915, Ezra Naylor (then Chairman of the BSA’s Executive Committee) described the Association as being the “centre of earnest work for the improvement and protection of Building Societies”[1]

“Had it not been for the struggles of the Association”, he said, “there is little doubt that Building Societies as we know them would not now be in existence, but would have been merged in some kind of Joint Stock Company Scheme”.

Sound familiar?

He also wrote of the friendships made at the BSA’s Annual Meetings and the advantages of BSA membership in sharing experiences when facing up to the challenges and difficulties of the day.

Over 100 years later, we continue to celebrate the friendships, the camaraderie and the generosity of BSA members towards each other, and to the BSA itself.

And the Annual Conference still has some of the atmosphere of a reunion while addressing the issues of the day and looking towards the horizon of what is coming down the line.

It is looking at some of those challenges and opportunities on the horizon that I want to focus on today.

Looking further ahead

At one of our NED dinners a couple of years ago, we had a fascinating discussion about how you reconcile the inter-generational nature of building societies (and UK credit unions too as they pass significant milestones since their foundations) with the standard corporate horizon of a three to five year business plan.

When we developed the BSA’s current strategy back in 2014, we set our ambitions with the focus on what we wanted the UK’s financial services sector to look like in twenty years’ time, and what we needed to do in the shorter term to have the best chance of creating that version of the future.

That ambition is the basis for our continuing campaign to put building societies, credit unions and other financial mutuals firmly at the heart of the future of UK financial services.

That ambition also underpins our role in supporting the sector by continually scanning the horizon to anticipate and help members prepare positively for what we think is coming.

At last year’s BSA Conference I reflected on seven themes that boards should have on their agenda.  Today I want to develop that agenda a little further under three headings:

The future of customer:member relationships

  • Sustainable finance and climate change
  • Emerging technologies : emerging risks and opportunities

Customer: Member relationships

How often do we hear and use the phrase, “because we are a mutual, we have our members at the heart of everything we do?”

And in the same breath acknowledge that many of our customers have no idea that they are members of their building societies or do not have a clear understanding of what that means in terms of the relationship?

Turning that on its head and returning to one of the questions I posed last year:

How do we create a sense of membership and belonging among today’s customers of building societies and credit unions?

How do we answer the question from both existing and potential customers: “As a customer, why is it in my interests to be part of this?”

What can we learn from those challengers and start-ups that have what can best be described as fan clubs among their customer bases?

Why do I keep coming back to this topic?

Quite simply because we live in a society that in statistical and economic terms has been described by the European Central Bank[2] as being over-banked.

And we are rapidly moving towards a world where technology could well make commercial relationships with customers ever more remote.

Whether you like the word “disintermediation” or not, I see one of the biggest challenges going forward for all providers being how you stand out for anything other than rate.

As I have said many times before, we have a structural competitive advantage in our business model that the shareholder-owned sector cannot copy.

We have no customer-owner conflict.

For me, how we continue to evolve and develop that advantage over the short, medium and long term so that the mutual sector continues to grow and flourish is central to our positive futures.

How do we renew and grow our member fan clubs?

In a survey of our chief executives at the start of the year we asked what they thought a building society would look like in 2030.

Unsurprisingly, technology and automation featured highly.

As did a strong commitment to members and communities.

There was a huge sense of pride and privilege in leading their organisations.

There was some understandable wariness about the world over the horizon.

And a strong sense of the opportunities alongside the challenges to come.

Let me share three of the responses with you:

From one of our smaller societies:

“For a building society to operate successfully in 2030 and beyond, the need to adapt and respond to the needs of its customers is paramount.

Staying true to its original purpose and its heritage will be what the successful society does…

…and will prove a continued differentiator, especially to the younger end of the market.”

Another said that we will “primarily be a business delivering solutions to help support people’s basic need, probably via a technology we haven’t yet thought of.”

And a third summarised the future as:

“More focused on community.  More member participation.  A celebration of authentic, lasting customer relationships.”

Moving on to:

Sustainable finance and climate change

It doesn’t really matter whether you are a climate change campaigner or a sceptic.

The fact is that our world is going through a period of quite rapid global warming, and we are seeing the natural consequences in shrinking ice-caps, retreating glaciers, rising sea levels and changing weather patterns. 

In France linking international trade with environmental protection is now accepted.

As businesses, we are typically making twenty-five to forty year lending decisions.

The current pace of climate change is such that it could be a material factor in the risk assessments on at least some of those.

I would suggest, though, that we should take our thinking way beyond that.

If we accept that there is at least some human contribution to climate change, there are real opportunities for us as lenders to influence both the environmental standards of new build properties, and improvements for the much larger stock of existing homes.

Both are arguably in the interests of our borrowing members, not least, in reducing the ongoing running costs of their homes.

We should expect our members, regulators and external commentators to become increasingly interested in our individual and collective approaches to sustainability.

At the end of last year the United Nations Environment Programme Finance Initiative published a consultation on Principles for Responsible Banking[3] established with input from 28 leading banks from five continents.

The Principles seek to align banks with society’s goals as expressed in the UN’s Sustainable Development Goals and the Paris Climate Agreement.

They set out the global benchmark for what it means to be a responsible bank.

And provide actionable guidance for how to achieve this.

The six principles provide a good framework for boards to assess their own approach to sustainable finance and climate change.

Emerging technologies : emerging risks AND OPPORTUNITIES

According to Ipsos MORI, “the biggest voices in 2018 were Alexa, Siri, Cortana and Google Assistant, as they rapidly made their way into millions of homes”[4].

However, social media, data scandals and some bad publicity have increased audiences’ concerns about privacy and being overheard by their device.

Consumers know their devices are listening for instructions.

But what else are they hearing and who are they sharing those conversations with?”

Amid all the hype, noise and clatter of the fintech world, we are seeing some important developments coming through for our sector.

Many of these are being explored in today’s parallel Digital Mutual stream.

Last year we talked about the likelihood of algorithm driven investment and artificial intelligence coming into the cash savings and mortgage markets, and for me those remain very real probabilities over the near to mid-term.

Commercially, one of the key questions is the extent to which auto-switching further commoditises the instant access cash savings market.

Will tireless gadgets seeking out the best deal lead to greater volatility in short term retail funding and put an increased focus and premium on term deposits and other forms of sticky money?

At least one of our CEOs sees a future where “day-to-day business is almost exclusively carried out online and technology like AI will increasingly play a role.

Mortgage payments will be varied automatically depending on predicted outgoings that month and each month’s savings will also be determined automatically.”

Much building society investment in recent years has been in developing new broker portals, new member portals and websites, and increasingly in more efficient back-office compliance processes.

Robotics, artificial intelligence and machine learning are features of these developments. 

This opens up whole new areas of risk management and compliance.

As the consultancy, Oliver Wyman puts it[5]:

“Are we ready to clear up the mess if robots go rogue?”

Applied well, all these technologies can deliver significant benefits both to our businesses and to our members.

They can enable better customer : member insights, support and solutions; and greater speed, accuracy and efficiency in regulatory reporting.

But all this comes with a health warning:

Before giving artificial intelligence and machine learning free-rein, we must ensure that the decisions these programmes make do not result in new risks and expensive regulatory breaches.

AI is not fool-proof.

Machine-learning is subject to bias in both programming and in the data on which its decision making is based

And that is before you start considering the criminal fraternity.

So we will all be assessing and controlling the bias and behavioural risks that emerge through the greater adoption of robotics, artificial intelligence and machine learning.

Key to all of this will be the balance between automation (in its widest sense) and human oversight and intervention.

Another dimension to our BSA theme of having humanity at the heart of our digital programmes.

Getting it right will lead to a whole lot of new and exceptional customer experiences.

As one of our CEOs put it, we will be running:

“A data intelligent business providing individual solutions that exactly match the customer need, priced based on individual customer risk not product type and that can be offered remotely, quickly and easily accessed.

Whilst data will be the key driver, the customer experience remains personal in its delivery.”

In 1915 Ezra Naylor was anticipating Building Societies having many problems to solve in adjusting to the conditions which would be materially changed as the result of the world-wide financial tension caused by the Great War.

He expected the BSA to take a prominent part in advancing and protecting the sector in that brave new world.

I would like to think that our founding fathers would approve of today’s BSA and of how we continue to champion the sector and support all our mutual members.

And as we are looking further ahead, beyond the next three to five year business plan, we can take inspiration from another of our CEOs:

“The member stays truly at the heart of the business model.

The society is embedded in the local community making a real difference to the lives of local people

Whilst providing a complete range of tailored financial services products designed to meet the unique needs of each individual at every stage of their life

Through their preferred distribution channels

And delivered instantly via the sophisticated use of new technologies”.

Thank you


[1] A History of the Association 1869-1914, Mr E Naylor, Building Societies Association, London 1915

[3] Principles for Responsible Banking: Shaping Our Future, UNEP Finance Initiative, November 2018

[4] The Future of Voice Technology in The Ipsos MORI Almanac 2018

[5] Digitizing Risk: Don’t Give the Robots Free Rein Yet, Subas Roy, Jayant Raman and Michael Heaney of Oliver Wyman, Global Risk Regulator, 5 April 2019