Thank you, Jonathan for your kind introduction, and good afternoon.
Before I begin today, I would like to also pay my respects to the twenty-two people who tragically lost their lives a year and a day ago. And it is tremendous testament to the resilience of this great city that people have responded in the way that they have.
It was kind of you to invite me last year, and even kinder to invite me back! It’s also very fitting that the association meeting is in Manchester, given this city’s strong links to the co-operative movement, and with which we share so much.
So, why are we here?
Not so much at the philosophical level, but at the professional level. Next year, the BSA will be one-hundred and fifty years old. And with such an impressive milestone approaching, it seemed like a good moment to be thinking about why we do exist. About what drives our movement. And about the future.
Many people think the purpose of a business is to make money. But as Henry Ford once said, ‘a business that makes nothing but money is a poor business’. Ford’s purpose was to make cars affordable for ordinary Americans. The success – and yes, the money – followed, but purpose drove his success.
Purpose is an incredible motivating force. As individuals, it’s not the financial incentives, nor the fear of punishment that motivates us.
It’s the idea that we are improving people’s lives, bettering ourselves.
Purpose is what motivates over three hundred thousand people the length and breadth of the UK to work as school governors. It’s what motivates over two-hundred thousand volunteers to run our Scouting and Girl guiding movement or many more charitable causes.
How much work is done by the unpaid army of carers on whom millions depend every day?
It’s making a difference that motivates us.
By contrast, the landmark study decades ago found that when blood donors were paid money to donate blood, donation rates actually fell.
The spirit of altruism, the sense of contributing to the greater good, was lost.
So, purpose is motivating. It motivates our employees. It motivates our members. And it motivates society more generally. Its purpose that enables us to ‘put our heart’ into it.
And for businesses today, purpose can also play an important part in renewing the unwritten contract between business and society.
Given the decline in trust in big business and other institutions this has never been more important or relevant. We all understand the role of the building society movement in the UK, but how confident are we that the general public really understand that purpose, and how we’re different from PLC banks?
I’m not confident that there is a clear separation in people’s minds between us and banks, and this is why, when I joined Nationwide, I felt the first thing we needed to do was reassert our purpose, strategy and our direction. To find a simple way to help our colleagues answer this fundamental question.
But I’d like to start by looking back at what WAS the historic purpose of the building society movement, and then track forward into the future.
The starting point as you know was in 18th and 19th centuries, but our founders were innovators. They were innovators responding to an urgent social need for better housing. Their aim was to harness the power of the collective to improve living conditions for what our founders termed the industrious classes.
As I think you heard Robin talk about earlier, it started in a pub in Birmingham where the landlord encouraging his drinkers to put money in a pint pot, so they could save to build their own homes.
Gradually, as permanent societies began to open, which provided smaller savers with a safe place to keep their savings, it meant that borrowers no longer had to wait their turn for a house.
This was a radical innovation in the business model – from building to lending.
In the 1850s, the building societies were formed with the intention of enfranchising their members, as only property owners could vote.
And after the great world war, which Lloyd George won the general election under the slogan ‘Homes for Heroes’, building societies responded to the housing shortage by opening up new branch networks across the country and bringing in more accessible and flexible products. In the 12 years after the end of the great war, Nationwide’s membership grew more than 10-fold.
So, the sector started by pooling savings to build houses. But then we started pooling savings to lend money to buy a house.
That is a fundamental change in the business model, how we made a financial return changed, in response to the changing environment.
We reinvented the movement.
But what didn’t change was our purpose. To improve living conditions for the industrious classes.
So, when at Nationwide we started looking for a way to describe our purpose in a way that people could easily connect with, we didn’t have to look too far.
By reordering our name, we can clearly describe our purpose, as ‘building society, nationwide’.
So now, let’s turn to the present day.
And as a movement we still help hardworking people achieve financial goals that give them security: saving for the future, a house to call home, and the ability to manage their finances effectively.
Since the financial crisis, the building societies sector has supported ninety-eight billion in net lending to mortgage borrowers, equivalent to around forty-four percent of the total – and substantially above our par-share.
Our sector accounts for more than one in five of all mortgages, and a third of new mortgage advances made by building societies are to first time buyers.
As you know savers are better off with building societies – and at Nationwide we pay around fifty percent more interest to our savers than the market average.
For our part, we’ve announced yesterday that we helped a record seventy-six thousand first time buyers in the past year, and almost four-hundred thousand homeowners into homes of their own.
But with home ownership at thirty-year lows, and the average first time buyer having to wait until their thirties for their first home, we believe there is more we can and should do to fulfil our purpose.
Arthur Webb was one of the co-founders of the Co-operative Permanent Building Society, which was Nationwide’s founding Society. And this is a quote he made on housing, almost one-hundred years ago, here in Manchester.
If we are really true to our purpose, we need to think more broadly about how we meet housing need.
This is why we’ve put housing at the heart of our new social investment programme. At Nationwide we’ve established Community Boards across the country, which have the power to invest up to twenty million pounds over the next five years in local housing initiatives. And the Boards include local members of the community, and it’s voted on by members in terms of which projects that they support.
It’s also why Nationwide is financing the building of a new community of 250 homes in Swindon where we are the largest employer. It’s a bit like what we did in 1908 in Letchworth. In Swindon we are working with the borough council in the community, and it will be co-designed by local people and we hope that the project may serve as something of a blueprint for other community-led housing schemes by others.
And we are also looking at housing more broadly, and using our influence to try to improve living conditions for the growing number of families and individuals who rent in Britain. We’ve established a cross-industry partnership board, and we’re working with charities for the homeless and landlord agencies to name a few.
We are adapting to the changing needs of our membership.
Interesting though that may be, we are about to live through the biggest transformation in financial services in the last one hundred and fifty years. And what will that mean for our purpose?
Helping improve the lives of the industrious classes, by enabling them to build better, more secure lives has been a golden thread through our collective history, and one that I see continuing into the future.
Our purpose will not change. But how we fulfil it will. We all know that the world is changing at an incredibly fast pace, with technology the stand-out challenge. Last year, at Nationwide we had two hundred million more logins on our mobile app than the year before. Two hundred million more log ins. We’ve now got two million active members on our mobile app. That’s more than we have on our internet bank, and double than we had two years ago.
Members are adapting the way they do business with us.
We’ve seen technology disrupt numerous industries – media, travel, hotels – and now it's coming to finance. And we can’t know what the Uber or AirBnb of financial services will be, but we do know we are in a period of disruption – the next revolution. And this is going to be both invigorating and exciting.
But also a challenge to which we need to respond to urgently. I predict that in the next couple of years, some financial services firms will have their Amazon moment. Others will have their Kodak moment.
At this moment in time, our actions are defining which category we’ll be in.
I’d like to try and get a bit more specific, and talk about what I see as the three biggest potential impacts of technology for us, and frame some of the questions that we may want to ask ourselves.
First, the impact of technology on savings…. liabilities and funding.
The advent of Open Banking and open APIs means that third parties will be able to get visibility on savings rates, balances and sweep deposits to the best paying accounts in real time.
We’ve see this idea before, but technology changes mean that it’s becoming frictionless for the customer, so this time it is going to happen.
There’s a lot of anxiety around how Open Banking will play out. Incumbents are worried about losing their deposits to challengers. Consumers are worried about their data falling into the wrong hands...
Just like there was when motor cars were first invented.
And just like in that example, what is briefly strange and new becomes rapidly commonplace.
Threat or opportunity?
Well, as I see it, building societies generally pay better rates than the average, and we have much higher trust than PLC banks, and as a collective we have scale.
So, this should be an opportunity for our movement. The question is, how do we capitalise on that opportunity?
Should we be building our own open banking solutions? Opening up APIs?
Partnering with those that do?
Second, transactional banking – current accounts and relationships.
In the past, the cost of launching a current account was prohibitively expensive, and that’s why the big banks have had a stranglehold on current accounts for so long. Even through Nationwide has been number one for new current accounts for over a year, it’s taken us thirty years to get to this position.
Technology, combined with policy and regulatory interventions, are changing the dynamic...
Start-ups like Monzo and Starling have shown that you can now enter this market relatively inexpensively, with the former believed to have built a substantial base of around half a million customers.
Current accounts are a very important service – the bedrock of customer relationships as well as a valuable source of funding.
So, while the building societies sector doesn’t have a very broad record of successful entry into current accounts, I believe this is a moment of real opportunity for smaller building societies to take a look at this market again.
Now i’m not advocating that any firm should move up the credit risk curve or enter some exotic business. Rather, take this unprecedented moment in time to ask the question ‘how can I use technology to advance our core purpose in new and innovative ways?’.
And if you haven’t got the capital, there are plenty of people and FinTech’s that do.
And what is it that we the building societies have that everyone else is after?
So, if you can take that trust, connect it with purpose, and inject innovation to challenge the status quo, we could have a very exciting future ahead.
So why not come down to Hoxton, or elsewhere in TechUK, eat some quinoa, sit on a bean bag and talk to the FinTech’s, explore the opportunities? Learn a new language and think about some unusual partnerships.
The third impact that I’ll touch on is mortgage lending.
For the last hundred years, taking out a mortgage has been a process of trial and error for borrowers. Walk down the high street and see who will lend money to you. The power has been in the hands of lenders.
Even the intermediary market of today aggregates that trial and error process of matching borrower to lender.
In the digital world, all that changes.
It will be possible for lenders to open up and show their criteria to borrowers. Borrowers will have much more power because they will know whose criteria they fit and be able to shop around for the best deal for them much more easily than today. Or just be matched in real time in a market with perfect knowledge.
We could even see the likes of an Amazon or others package up a bundle of low risk customers, and then approach a lender to provide a leading rate in bulk in an open auction?
What that means for us is that we won’t be able to just sit and wait for people to come to us. We need to be in the mix.
How can building societies insert themselves into this process?
Should we try to compete digitally? I’d encourage you all to explore this question. How can we use digital channels to reach new members.
The price of entry has been decimated. What you discounted five years ago may now have become possible. We just need to look at how teenagers around us operate in a digital space.
I also think that there is an equal and opposite alternative. That is potentially if you’re a small local society, to double down on your local roots, the fact that you’re on first name terms with your members, and really work those relationships and community presence. At Nationwide we passionately believe that there will always be a role for personal service.
We have an element of relative scale, we are focussed on using technology to enhance that human experience. But it is important to choose a strategy and decide where you want to position yourself… and don’t get caught in the middle.
The biggest risk any of us could take, is to attempt to take no risk at all.
Or in other words, to do nothing.
That would be a recipe for a genteel decline, like the telegraph or some other Victorian institution obsoleted by technology. And please don’t think that you can leave this challenge for your successor.
So, what’s my message? It’s that we’re at a watershed moment, where the movement needs to evolve again, as we have done in the past.
We need to embrace Jeff Bezos’ ‘Day 1’ mentality…
He even named his offices ‘Day 1’ as a constant reminder of the need to keep innovating, challenging and building something new.
So, now we need to find our inner Huffington Post or Autocar, both businesses in traditional industries that have reinvented themselves in a digital world, and we need to forge our own way forward.
And we need to do this with a clear sense of our purpose, because that’s what motivates our employees, our members and our communities. It also guides us on how to use technology to best effect.
But people are hungry for businesses that are purposeful.
Three quarters of people say they are more likely to buy or engage in a business with a purpose beyond profit.
When the Co-op reported its results in April, it was heartening to read an article in the Evening Standard extolling the virtues of mutuality, including the role of mutuals as a check on what they said was the ‘rapacious part of the corporate world’.
Purpose is not enough on its own succeed. But if we can take our purpose, of helping people to build better lives for themselves, and apply it to today’s challenges and opportunities, I believe as a movement we can grow and evolve together.
The housing crisis is as acute now as it was when we were founded. The resolution foundation think tank found that millennium families are half as likely to own their home by thirty as baby boomers were by the same age. We’re ideally placed to meet this need but we some profound changes to navigate as well.
The challenge for our movement is to combine the trust we have earned with a restless energy to change and innovate to help our members rise to today’s challenges. Then our purpose will be as powerful as when our movement began.
Whether your Society has one branch, no branches or many, I’m interested in how you’re re-framing your business in the context of the changing world, and I’d like to pose a few questions to leave you with.
How do you think we can further the purpose of our movement?
What could we do together?
Or even, what would our founders have been able to achieve if they had had the technology that is available today?
So let’s start that conversation now, for the people we were founded to support from the very start.
But before we do, I would just like to leave you with our next advertisement – which for me serves as a really clear reminder not only of where we’ve come from, but the relevance to our future, and today.
Thank you very much.