6 challenges building societies face in the age of digital challengers
Backbase is a Business Reporter client
Discover the challenges building societies face in the digital age and strategies to successfully adapt.
Building societies have a long history of serving local communities, often dating back more than a century. The oldest dating back to 1848, Scottish Building Society, and only three societies younger than a century. Their mutual ownership model—serving members rather than external shareholders—has cemented them as trusted financial partners for generations.
However, the rise of digital challenger banks and fintech startups has introduced heightened competition in the financial sector. Building societies now must address the question: How do they preserve the values that have defined them for decades while embracing innovative, technology-driven transformation?
Backbase recently spoke with Simon Broadley (formerly CCO and now CEO of Furness Building Society), together with Jouk Pleiter (CEO and founder at Backbase) and Tim Rutten (CMO at Backbase) and captured the conversation in a Banking Reinvented podcast episode which is available here. From the podcast we've pulled together the 6 primary challenges building societies face in today's world of fast-moving, digital-native competitors.
1. Balancing heritage and modernization
For building societies, heritage is both an asset and a potential stumbling block. Their longstanding community presence instills loyalty and trust. Yet, there is a perception that being 'traditional' means being slow to adopt new tech. Meanwhile, digital challengers are cloud-native, app-first, and quick to iterate on new features.
Customer expectations: Customers of all ages, including older individuals, increasingly expect easy-to-use online and mobile banking experiences. This shift in customer behavior means that building societies can no longer rely solely on a branch-based model to meet customer needs. They must adapt to an omnichannel approach where journeys could begin on one channel and end on another.
Strategic modernization: To remain competitive, building societies need to invest in technology solutions, partner with technology providers, or adopt a hybrid approach. The goal is to create digital channels that are as good as those offered by newer, digital-native banks, while still maintaining their focus on personal relationships and customer service. Time-to-market is also an important metric to focus on.
2. Pressures of 'Buy vs. Build'
Historically, many building societies tried to build and maintain their own proprietary systems in-house. That approach is costly—both in terms of up-front development and long-term upkeep—and it diverts resources from core member services. With digital-native banks continuously launching updated features, building societies are finding it more practical to partner with external vendors to quickly implement advanced digital capabilities.
Competitive urgency: Challenger banks are known for their agility and speed in releasing new features and products. This rapid pace can put immense pressure on smaller and more traditional institutions like building societies, which may have smaller development teams. To remain competitive, building societies must find ways to accelerate their innovation cycles and respond to market demands more quickly. An omnichannel platform approach is key to agility.
Partnership opportunities: Building societies can leverage partnerships with innovative financial technology providers to quickly gain access to modern technologies and tools. This approach reduces the risk and cost associated with developing solutions in-house, allowing building societies to focus on their core strengths, such as member engagement and community impact.
However, finding the right mix of buying and building is important and depends on your choice of technology provider. Backbase offers a hybrid 'Buy and Build' approach that provides building societies the best of both.
3. Changing regulatory landscape
Building societies operate under stringent regulations designed to protect customers and maintain financial stability. As new products emerge—ranging from peer-to-peer lending to innovative mortgage structures—regulatory scrutiny only intensifies. Digital challengers that enter the lending or savings space must meet these same standards, yet they often have the budget and digital architecture to adapt more rapidly.
Resource allocation: Ensuring compliance requires a significant investment of both time and money. This can potentially divert resources away from technological advancements, hindering innovation. Effective resource management is essential to balance the demands of compliance with the need for innovation and maintain a competitive edge.
Future proofing: Building societies that prioritize compliance from the start and implement adaptable systems will be better equipped to handle future regulatory changes. This proactive approach will prevent the need for extensive and costly technology overhauls as regulations evolve, ensuring long-term sustainability and agility..
4. Physical footprint vs. digital channels
Branches have long been the heart of building societies, offering face-to-face advice and fostering a sense of belonging within local communities. But as digital challengers prove the viability of online-only models, traditional institutions risk being seen as outdated if they don't invest in convenient self-service and remote banking experiences.
Dual-channel expectations: Catering to the preferences of younger customers necessitates a hybrid approach. While these customers are comfortable with digital self-service platforms for routine banking tasks like checking balances or transferring funds, they still value the option of face-to-face interaction with bank representatives when it comes to significant financial decisions, such as securing a mortgage. This dual-channel approach allows banks to cater to both the tech-savvy and the relationship-oriented needs of their clientele.
Technology integration: The modernization of bank branches goes beyond mere aesthetic upgrades. It involves equipping staff with real-time digital tools that enable them to access customer information, provide personalized advice, and process transactions efficiently. And, seamless transition between online and in-person channels is essential to ensure a consistent and satisfactory customer experience.
5. Competing with large and digital-first banks
Although building societies enjoy high levels of trust, they have fewer resources than national or global banks—and far fewer technology specialists than many digital-native startups. They must differentiate themselves with what they do best: personalized service, community engagement, and the ability to take a long-term view on members' financial well-being.
Niche positioning: Building societies can distinguish themselves by prioritizing their members and community over profits. This focus sets them apart from traditional banks that prioritize profits and digital-only firms that lack a community focus or human-touch.
Digital leaps: Partnering with banking technology providers like Backbase, allows building societies to offer modern digital banking services without needing to develop the entire system from the ground up. These partnerships enable them to stay competitive and meet member needs in the digital age.
6. Driving frequent engagement
Mortgages and savings accounts are high-value but low-touch products—meaning that once an account is set up, interactions can become infrequent. Challenger banks, on the other hand, often offer daily-use services (like checking accounts, payments, and money management features) that encourage frequent user engagement. This low engagement and lack of mind-share is a significant challenge for building societies.
Product expansion: Building societies can expand their product offerings beyond traditional savings and mortgages to include insurance policies, investment opportunities, and personalized financial advice. This diversification not only boosts revenue but also strengthens customer relationships by becoming a one-stop shop for their financial needs.
Personalized digital journeys: Implementing user-friendly apps and online portals that offer tailored financial guidance can significantly enhance customer engagement. Features like automated savings reminders, budgeting tools, and regular financial health check-ins can foster a sense of proactive support and keep customers connected to the building society.
Carving out a digital-first, community-centric future
Building societies stand at a critical juncture. On one hand, they boast deep roots, strong reputations, and a mission-driven ethos that newer market entrants can only dream of. On the other hand, they face a rapidly evolving financial landscape where digital natives move swiftly and consumers expect convenience at their fingertips.
The most promising path forward involves blending tradition and modernity: preserving the personal touch and local presence that have defined building societies for decades while embracing innovative digital solutions. A key factor in achieving this balance lies in choosing the right banking technology provider. Backbase offers building societies a comprehensive platform that empowers them to deliver seamless, personalized digital experiences to their members.
Overcoming the challenges of digital transformation requires a partner that can provide the speed, flexibility, and member-centric focus necessary to thrive in the digital era. Ultimately, it's about staying true to mutual values while boldly adopting new ways of serving members. In doing so, building societies can not only remain relevant but also further differentiate themselves in an ever-crowded financial marketplace.
Jonathan Stallard is Regional Director, UK and Ireland, for Backbase, leading the UKI business for Backbase for both new and existing customers. He has 19 years of experience working in the Global Financial Services sector with senior management on digital transformation initiatives, and is currently working with financial institutions on their Digital Strategy to optimise their Digital Engagement Channels.
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