EXCLUSIVE: “The future is calling!” – Jennifer Harris and Michelle Yu, Sandstone Technology in ‘The Fintech Magazine’

Building societies disrupted finance once before… now they need to get ahead of the curve by adopting mobile strategies, urge Sandstone Technology’s Jennifer Harris and Michelle Yu

Building societies were the most radical of movements – established to force social change by enabling ordinary people to own their own homes.However, in the 150 years or so since, they’ve come to be associated more with tradition than progress – with their focus on human-centred financial services, built on relatively binary business models, and a predominantly middle-aged, affluent customer base.

The explosion of digital is leading them to reignite their revolutionary spirit, recognising they must modernise to continue enabling the financial aspirations of future generations. That’s largely because those potential customers – members of the up-and-coming Generation Z – are demonstrating increasing impatience with anything analogue, living their lives via their mobile phones. They define tomorrow, but, of course, it’s not just the younger generations who favour digital today.

“When we look at some of the statistics in the UK, in particular, that over 90 per cent of UK residents log in to internet banking or mobile banking regularly, it isn’t a channel that can be ignored,” says Michelle Yu, chief product officer at Sandstone Technology, which provides digital banking solutions to a broad range of financial institutions.

Yet, many building societies are struggling to do what’s needed to transform, due to challenges like the current economic and market headwinds, an increasing regulatory burden and the cost-heavy structures on which their personal touch is predicated.Ironically, the mutual values and social purpose these worthy institutions espouse are precisely what the conscience-driven ‘Zoomers’ want.

But companies must find a way of capturing their imaginations amidst a myriad of other online noise, which depletes customers’ available attention for everything – including managing their personal finances.

Sandstone Technology understands that challenge and is enabling a number of building societies to offer mobile banking services via its plug-and-play solutions that use the functionality, speed and efficiency of modern technologies like artificial intelligence (AI) to deliver the hyper-personal approach building societies are know for, but digitally.

“49% of Gen Zs plan to get a digital-only bank account in the next five years in the UK – Redefining Banks With Mobile Apps: Acquiring And Retaining Gen Z”

That absolutely doesn’t mean that there has to be a trade off between digital and in-branch services, but in a paper co-authored by Sandstone Technology in December 2023, it’s clear it believes any financial institution that hasn’t seriously considered the trends being set by Gen Z, needs to. The company’s advice is informed by a detailed understanding of exactly what this key target audience of the future wants, from research it conducted through CedarIBSi.

The findings, published in a white paper entitled Redefining Banks With Mobile Apps: Acquiring And Retaining Gen Z, make the case for theredigitally-enabled, retail banking support as a route to ‘reset customer relationships to build trust and brand loyalty’. And it outlines compelling reasons why Gen Zs – currently aged 12-27 – should be a real focus when building societies and others are shaping their digital offerings.

Not least among those is because they make up 20 per cent of the UK’s population and their influence will only grow: by 2025 the 42.9 million Gen Z-ers globally will account for $360billion in disposable income.

This critical segment, it argues, is best reached via their phones: “The remarkable 98 per cent smartphone ownership rate among Gen Z is a key factor in shaping their expectations of the banking sector… four million Gen Z will establish new bank accounts each year until 2026 and mobile banking usage will double… 49 per cent of Gen Zs plan to get a digital-only bank account in the next five years in the UK.”

Crucially, for UK buildings societies, it adds: “According to the Office for National Statistics, in the UK, exceeding 80 per cent of household wealth is currently owned by individuals aged 45 and older. Over the next three decades, this substantial wealth is poised to transition between generations through inheritance or generous gifts – a major shoutout… to focus on mobile banking.”

The report suggests these customers want personalised experiences, have no patience for lengthy onboarding processes, are highly price-sensitive and prepared to move providers to secure better deals, feel vulnerable and reliant on their parents due to a lack financial knowledge, want everything super-fast and prize trust and security.

Phew… they’re nothing if not demanding!

At the same time, they are suckers for gamification, interactive user experiences and providers that take the time to help them manage their money well through budgeting features, educational tools, personalised financial insights, based on their spending habits, and virtual challenges like earning badges for reaching their savings goals. Conscience-driven, they especially like providers with good environmental, social and governance credentials and are particularly impressed by friction-reducing features like voice and AI-powered assistance.

Above all, they want to build a relationship with their providers, albeit mainly virtual ones, feel a strong sense of brand identity and belonging and are best won over by personalised experiences and information and products to suit their lifestyles, powered by data analytics and AI. Also important is intuitive and interactive user experience and user-centric design, such as the ability to customise their dashboards.

“To Gen Z, mobile banking apps, are limited to being mere utilities right now,” the report continues. “However, to make these apps their go-to productivity tool, [they] should represent the key to a realm of individually tailored financial experience. In an age where customisation reigns supreme, banks that grasp the pivotal significance of mobile apps in delivering bespoke, on-demand banking services, position themselves for enduring success.”

Of course, the way we all bank, carry out payments and acquire goods and services is becoming more and more of a lifestyle choice, so predicting short, medium and long term consumer trends and mirroring those in their products and services should be ongoing for financial providers. But, as business advisory firm Grant Thornton pointed out in a separate report, entitled The Challenges Facing UK Building Societies, in late 2023, it’s difficult for these organisations to keep up with that agenda.

It pointed out that mortgage activity – their main income source – was projected by trade body UK Finance to be down 28 per cent in 2023; they also face unique challenges stemming from their relatively high fixed cost bases – according to ONS data, building societies closed just 12 per cent of their branches between 2012 and 2022, while banks closed 44 per cent – and that’s on top of the increasing cost of maintaining regulatory compliance.

“Diverting funds away from member services for costly transformational projects such as IT infrastructure can sometimes be more challenging,” the report acknowledged. But one solution might be to partner with fintechs.“With building societies, the teams tend to be quite small, so they run a bit lean, and it is hard for them,” agrees Wu. “But a lot of that can be done by outsourcing to fintechs who can provide services in the cloud, and manage that service for them.

“We tell them ‘let us do the heavy lifting with the tech so that you can focus on what you’re good at’. It’s about organisations using the skill base of the whole fintech ecosystem to achieve their transformation goals“”

Jennifer Harris

“The digital channel actually doesn’t replace the in-branch channel,” she stresses. “It is important that financial institutions and building societies continue to offer both, and that they complement each other.”

STAYING RELEVANT

The need for building societies to evolve or risk becoming a footnote in financial services history, is starkly illustrated by the fact that, in 2008, before the global financial crisis, there were 59 building societies in the UK and now there are just 43. Only two of those building societies offer their customers current accounts – which are seen as a key customer relationship-building tool.

Owned by their members, these much-loved ‘mutuals’ add a diversity to UK financial services that is worth fighting for. According to trade body the Building Societies Association: “As of 30 September, 2023, societies served almost 26 million consumers across the UK and had total assets of over £507billion. Together with their subsidiaries, they have helped over 3.5 million families and individuals to buy a home with mortgages totalling over £375billion, representing 23 per cent of total mortgage balances outstanding in the UK.

“They are also helping over 23 million people build their financial resilience, holding over £370billion of retail savings, accounting for 19 per cent of all cash savings in the UK. As well as digital services, they operate approximately 1,300 branches, holding a 38 per cent share of branches across the UK.”

Jennifer Harris, chief customer officer Sandstone Technology, explains how digital channels like mobile and banking apps, combined with internet banking platforms, can help these people-centred organisations strengthen and expand their contribution.

“Lacking current accounts, building societies tend to back away from mobile app usage. Their internet banking platform is their number one digital way of reaching customers but we believe strongly in complementing that with a mobile app because there aren’t many people these days that don’t have a little ‘mini computer’ in their pocket, 24/7,” she says.

“Traditional channels like call centres and branches are still incredibly important but they’re typically only available during certain time periods. Consumers’ behaviours are changing, too. The retail industry has taken a whole level of friction away from transactions and consumers now expect that level of service from their banking. So, it’s about using the digital realm to improve their customer experience, service and support – making sure they’re using those high-cost call centre and branch channels only for high-complexity matters. That’s where that human element really comes into play.”

Adopting Cloud-enabled solutions like Sandstone’s BankFast and Mobile App offerings, ready-made to offer 24/7 omni-channel banking, can help overcome building societies’ legacy tech limitations. But it is a new way of approaching IT.

“A few in the UK are already currently using our mobile app,” reveals Harris. “It’s about putting it out there, measuring, reviewing, making minor changes, if necessary, and going out again. It’s about making sure the building society understands it is a living, breathing thing and they can’t just leave it to stagnate.

“They must keep regular updates going, they need to make sure it’s available – in the case of a mobile app – on all the latest mobile platforms; and, with internet banking, make sure all browsers are covered, to offer a good experience.”

Sandstone Technology draws on extensive experience of helping providers elsewhere embrace mobile services.

“Building societies can’t ignore the data in terms of the popularity of the digital channels and how they can complement in-person service“”

Michelle Yu

“We’ve had multiple customers whose mobile app ratings are now up near five, from being right down at one or two. And sometimes that’s been achieved just by looking at the configuration of the product. Sometimes, small changes in configuration, can make a massive difference to the customer experience.”

Harris acknowledges that ‘one of the toughest things can be integration with their core banking platform because a core upgrade requires significant investment in money and time’.

“But they don’t necessarily have to do that level of upgrade to reap the benefits of a digital channel. It’s about choosing the right partner to provide front-end capability that has an ease of integration to core,” says Harris. “Challenges around capacity and skillset, not just budgets, mean a lot of building societies are looking at outsourcing. They don’t necessarily have the size of IT teams required to achieve this level of transformation. We tell them ‘let us do the heavy lifting with the tech so that you can focus on what you’re good at’.

“It’s about organisations using the skill base of the whole fintech ecosystem to achieve their transformation goals.”

BEING YOUNG AT HEART

Many people’s first recalled interaction with a financial institution is with their building society, and that emotional connection is something the sector can still leverage, but using mobile apps, says Harris.

“Not having current accounts doesn’t mean they have to block younger customers out – they too have savings goals and want to get on the property ladder,” she explains.

“These organisations can still use their customer base to reach their children, and their children’s children. It’s about thinking how they can promote their offering to them. A lot of it also comes down to user interface and experience. A mobile app won’t save them if it’s difficult to use, isn’t intuitively designed and doesn’t offer the interactivity young people are used to.

“So, the question for building societies is how they can take advantage of things like hyper-personalisation around chatbots for instance, to achieve the most value for their customer base.”

Michelle Yu underlines the case for mobile app adoption: “Building societies can’t ignore the data in terms of the popularity of the digital channels and how they can complement in-person service.

“Younger users of financial institutions will absolutely be using mobile apps to access their bank. The idea of stepping into a branch to open an account just doesn’t come into their mind. They feel like they should be able to engage through mobile apps.

“So, if building societies aren’t there, they will lose today’s generation. It’s important to future plan for that customer market.”

This article was published in The Fintech Magazine Issue 31, Page 6-8