Part 3 of 3 - Digital value creation in the Building Society marketplace: how do we marry technology with tradition?
Share:
Date:
September 2023
key fact
Despite the growth of digital banking, a significant portion of the British public remains hesitant to fully embrace digital-only banking options
For building societies, marrying future-proofed digital value with a traditional branch-based model is particularly tricky. Two questions are key to tackling these challenges. How do we integrate the personal, flexible service building society customers are accustomed to with the need to ‘do digital?’. And what does digital value really mean for customers? Understanding the answers is crucial if building societies are to strike the right commercial balance between new, innovative services and retaining customer loyalty, as Catherine Randles, Managing Consultant with Mason Advisory, explains.
This insight article is the third and final in our “Digital Transformation Tipping Points” series for financial services organisations. You can read the rest of the series here:
Insight 2: For meaningful digital transformation, Building Societies must change the supply chain dynamic
In today’s world, customer demand for digital banking services is more sophisticated than ever. 2021 saw global investment in Fintech soar to US$130 billion, reflecting the pandemic-driven boom in digital services. Admittedly, investment decreased by 30% in 2022 as the economic climate cooled. Interestingly, though, in the UK, investment held comparatively strong, falling by only 8% in the same year[1]. According to the same cited research:
- 93% of British adults were using an online bank account in 2022.
- Around 10% of British adults intend to get a digital-only bank account in 2023.
- 24% of British adults in 2023 already have a digital-only bank account (compared to 9% in 2019).
Here’s the interesting thing, though…the same research reports that:
- 1 in 4 (24%) traditional bank account holders do not trust digital-only banks.
- 1 in 3 (32%) Brits do not intend to get a digital-only bank account.
Source: https://www.finder.com/uk/digital-banking-statistics
Analysis conducted by finder.com
These figures suggest that, even though digital banking continues to grow, a significant proportion of the British public is not yet ready or willing to accept digital-only as a viable banking option. This bears out my own experience of working with Mason Advisory’s building society clients. Typically, they retain a loyal, regional, in-branch customer base. Mortgages and savings remain a core offering. Building societies currently hold 24% of the UK’s gross mortgage lending share, while savings balances increased by £8.4 billion in 2022, accounting for a 34% share of the UK savings market[2]. As discussed in my first insight article in this series, traditional banking still wins out on trust (66% of customers), against digital-only banking (37% of customers)[3]. So, although digital is an indisputable part of financial services moving forwards, it seems that the UK population has not fully bought into the digital-only narrative – or, at least, not yet.
Engineering digital value for both customer and organisation
In fact, this landscape offers a differentiated commercial strength for building societies. Their established model still plays well to the ‘trust’ theme. Yet, looking ahead, the greatest opportunities exist for organisations that have put in place the fundamental digital foundations for growth and profitability. Building societies are likely to face tough consolidation decisions to stay competitive. Right now, though, a seismic shift that eliminates bricks and mortar in favour of digital-only services seems a shift too far. In what is effectively a hybrid scenario, decisions around digital represent a tipping point for building societies. The key decisions lie in how to ensure that digital does, indeed, create genuine value for the customer as well as engineering commercial value for the organisation. For me, there are three headlines that must be understood to design the right digital value roadmap:
1: Creating digital value is not the same as ‘doing’ digital transformation
At its core, true digital value lies not in technical delivery, but in the skill and strategy of remaining relevant to the customer at every touchpoint. This means providing a trustworthy experience, a meaningful emotional engagement, and a solution to the customer’s problem, all at once. It is a deeply complex objective to achieve. Plus, certainly in the current account and savings markets, today’s customers have the freedom to switch financial services providers comparatively easily. Build in the brutal world of digital abandonment (in 2020, 63% of customers abandoned a digital banking onboarding process[4]) and it is easy to see how failing to create a genuine digital value experience can quickly and negatively impact on customer acquisition and retention.
2: Building a digitally capable ecosystem is key
If there is one stark lesson the past two years have taught us, it is that even the biggest businesses can’t predict the future. We cannot know with certainty what financial services will look like in a year – let alone five, or ten, years from now. But we can address the digital ecosystem so that, when the next big customer-led evolution comes along, the organisation is equipped to pivot and deliver. This requires work – now – to ensure that stackable, scalable digital infrastructure is in place and ready to adapt. For building societies, that work is extremely challenging, given cautious investment budgets, legacy supply chains, and a high level of risk-awareness. But, complex though the process is, investing in digital value capability is a growing commercial imperative. And it needs to be effectively led, which in turn leads me to…
3: The digital value strategy must be steered with confidence
To ensure building societies remain relevant, those leading the strategy need to ramp up the pace and nature of decision-making. Those decisions will almost certainly be all about change – whether the change is expected and welcome, or not. That, especially when the outlook includes unknowns, is a daunting prospect – even for the most seasoned executive. Nonetheless, decisions must be taken and cascaded effectively, to ensure that the business is ready to stay on the digital front foot, however the landscape pans out.
Fundamental to all this is a recognition that digital value creation is not about doing things faster, or cheaper, or even more efficiently. It is about recognising what a customer values (trust, experience, and relevance), translating that to the online experience and enhancing that value through digital capabilities. Building societies are uniquely positioned to travel that journey from their starting point of customer loyalty. That is not to say that the journey itself isn’t difficult. But, with the right understanding and insights into what it really means to create digital value, it is a journey with the potential to generate the next level of commercial success.
If you would like to speak to Catherine Randles regarding any of the insight articles in this series, email our Financial Services & Insurance team to discuss further or to find out about our services click here