Britain's building societies are key to getting decent financial services
Members of the Kent Reliance are being asked today to vote to turn it into a bank. But we must fight for mutuality, says Simon Read
Saturday 23 October 2010
More than 150,000 members of a building society that can trace its history back to the world of Charles Dickens will today receive a pack explaining how it is to be changed into a new banking organisation which will be known as OneSavings plc. The Kent Reliance – which dates back to 1847 and incorporates such Dickensian names as the Chatham Reliance, Dover District, Herne Bay and the Kent and Canterbury – will stop being a building society from next February. Instead, it will be a bank, mainly owned by American financiers JC Flowers.
The deal requires rubber stamping from members, but it looks unlikely to be rejected. In fact, without the £50m cash injection from Flowers, the soon-to-be-former building society would face an uncertain future. Like many other societies, it has struggled in the past few years.
As with the banks, building societies were hit hard by the credit crunch. Some societies have had to be bailed out through mergers with rivals. Nine societies have been gobbled up by rivals since 2008, with the Coventry's takeover of Stroud & Swindon last month just the latest. We've also seen Skipton take over Chesham and Scarborough, Yorkshire swallow Chelsea and Barnsley, and Nationwide rescue Dunfermline, Cheshire and Derbyshire. At the same time, few societies have been competing for custom with great savings or lending rates. In short, the hope that building societies would grab the opportunity to attract customers disillusioned by the actions of the big banks hasn't materialised. But that is a good thing.
The problems that hit many financial institutions in the latter part of the last decade were partly caused by their keenness to build business quickly, which many did through increasingly risky lending. But in the past couple of years, the situation has been reversed and building societies have had to concentrate on rebuilding their financial strength. That means they have cut back on risky lending or, in many cases, on any lending at all. So taking a snapshot today of the building society movement sees a much stronger collection of institutions which can look forward more positively than they have been able to in a long while. The question, however, is whether there is a place for mutuals in 2010.
"What is the point of local building societies? It's a question that answers itself," says Nigel Quinton, chief executive of the Mansfield, which has four branches in the East Midlands. "Local societies put local communities at the heart of what they do. National and multinational institutions can rarely afford to commit the time and resource that is needed to view things from a local level."
He backs that up by pointing out that the society has distributed more than 120 awards to local people and organisations totalling £30,000 since introducing a Community Support Scheme in 2007.
The story is the same at other local and regional building societies. While giving money to worthwhile causes is something that many businesses are involved in, at building societies the process generally involves more than simply handing over a cheque. "Our work in the community is one of those areas that we do because it is part of what we are, and often we do not shout enough about it," says Chris Martin, chief executive of the four-branch Tipton & Coseley. "While many banks and institutions do good work, it is usually of the high-profile, headline-catching variety. We focus on our locality and try and spread our help among lower-profile but no less worthy causes."
With members often forming the backbone of a local community, staff are encouraged to get involved in community activities. The 67-branch Leeds, for instance, has a charitable foundation which encourages all members of staff to get out into the community and support worthy causes in their area. The foundation has handed over £935,000 to 1,500 causes which wouldn't have been possible without the involvement of the building society's staff.
The three-branch Loughborough has given £50,000 to local groups and charities since 2005, with each member of staff allowed a half day each year to help out on the society's charity of the year. "Building societies have an opportunity to play an important role in their communities and fill the gap left by the departure of some of the so-called goliaths of the financial services industry," says Gary Brebner, chief executive at Loughborough. "Being able to pick up the phone and speak to the same person about their mortgage or investment is important to our members and is something that gives us a real competitive edge over bigger institutions," he says.
That attention to customer service is something that has given the new London bank Metro Bank acres of publicity in some newspapers. Yet a number of building societies have quietly got on with opening new branches and offering improved customer service without needing to hire stilt-walkers and clowns to publicise their activities. The Loughborough, for instance, has just opened a new branch agency in Calverton in Nottinghamshire and is opening another in Southwell on Tuesday.
Meanwhile, the Hanley is opening its sixth branch at the end of the month in Biddulph. "The opening demonstrates our commitment to the local community of North Staffordshire," says David Webster, chief executive of The Hanley. "The decision to extend our network is a strong signal of our strength in this difficult economic climate."
Last month saw Saffron open its 12th branch, taking over a former Barclays' Woolwich branch in Brentwood, Essex while Harpenden took over a former Nationwide agency in Wendover, Buckinghamshire. The Newbury is another which is opening a new branch on a former bank site. "We like our branches to be central to the communities they serve," says Geoff Knappett, director at the nine-branch Newbury.
"We do not forget that we are owned by our members. People who use local traditional building societies tend to be risk-averse and value service, fairness and openness. So we focus on simple mortgage and savings products and add value by giving members a loyalty card which gives them discounts at a range of local retailers." The loyalty card is a perfect example of how building societies can work as part of their local community. "It's a virtuous circle," says Knappett. "Local businesses work together to provide discounts for members who then support the local businesses, which sustain our local communities."
The same story can be found across the country. Gerry Kay is chief executive of the Scottish Building Society, which has six branches north of the border. "We see local community involvement as being a core element of mutuality," he says. "Our traditional approach is well received the length and breadth of Scotland."
The Principality has 51 branches across Wales, with plans to open its 52nd branch in the spring. "We strongly believe that mutuals offer choice, diversity, customer experience, efficiency and democracy, and that it is in the best interests of consumers' financial well-being to have a vibrant mutual sector, with fair choice and competition in the market," a spokesman says.
All this community involvement is fine, but, unless building societies can offer decent products, they're not going to attract a mass customer base. On the other hand, there are plenty of people who appreciate and want what building societies offer.
"Societies beat the banks on all aspects of customer service, from treating customers fairly to value for money and being trusted to give good advice," says Adrian Coles, director general of the Building Societies Association. "They also bring diversity and competition, which is good for the consumer.
"Societies take pride in supporting local causes and organisations in their communities – after all, the local community is where they began and where they draw their members from. They are based all over the country, and provide employment in many regions of economic stress. Building societies' knowledge of local markets means they offer something different in the marketplace, which many of their members value highly."
I am a fan of building societies and the mutual sector, so seeing another society disappear, which is what will happen when Kent Reliance becomes OneSavings plc next year, saddens me. That's not to suggest that Kent Reliance members should vote against the deal at a special general meeting in Tonbridge on 19 November. The move is necessary to get the business back on its feet and lending again.
But members should realise what they are giving up. There's no alternative local building society in Kent, but there are other building society branches in the area. The key attraction about mutuals is that they work on behalf of their members, not to increase profits for shareholders. In other words, they put you as a customer at the heart of their business – which is clearly something to be cherished.
'We didn't lend out more than we had in deposits'
Co-operative Financial Services is not a building society, although it is a mutual organisation and did take over the Britannia and its 245 branches last year. As such, it is the second-largest financial mutual in the country and values being owned by its 6.5 million members, according to chief executive Neville Richardson. "We manage our business in the interests of our members and customers," he says. "It defines our business and shape the decisions we make. We place customer advocacy – including all aspects of their experience with our products and services – and colleague engagement alongside financial performance as measures of our business success."
The business owns online bank Smile as well as the Co-op Bank and insurance. It has an ethical stance and states its aim as offering "sustainable financial services" as well as "to be the UK's most admired financial services business". Its ethical stance is driven by customers and the organisation has raised more than £3m for 80 charities and organisations through is Customers Who Care campaign since 1994.
"We were not immune to the impact of the banking crisis but CFS has continued to deliver strong profitability and growth," says Richardson. "While other banks received government bail-outs, we operated a sustainable model that didn't lend out more than we had in customer deposits." He believes that has strengthened trust in the Co-op brand which has allowed it to attract more customers.
'We place a strong emphasis on good service and fairness'
Britain's biggest building society is the Nationwide, which has an incredible 15 million members. In other words, almost one in four people is a member of the massive mutual. As such, the society has a crucial role to play in promoting mutuality in the UK. Yet in the past couple of years, critics have accused the Nationwide of forsaking its mutual roots. Most recently, it came in for criticism after it announced plans to close 130 agency branches at the end of the year. The move will hit 750,000 customers, many of whom feel let down by the mutual.
Yet the society will still have around 800 full branches, and the Nationwide's boss, Graham Beale, says it remains fully committed to mutuality. "We have a strong track record for fighting for fairness for consumers," he says. "For example, we were the first to publish a summary box on all our credit card information, while more recently, we campaigned for a positive order of payments on credit cards."
He points to the fact that the society has recently pumped £3m into the MoneyActive programme in conjunction with the Citizens Advice Bureau. It is designed to improve the financial education of 100,000 people, and the building society's cash will increase the number of trained volunteers from 100 to 1,400. The Nationwide has also joined forces with the charity Shelter to help the homeless.
Such moves are a far cry from the activities of the local and regional societies, but Beale believes that all financial mutuals will continue to have a central role to play in the future.
"Building societies have weathered the financial crisis relatively well and continue to play an important role in the future development of retail financial services," he says.
"Building societies have a track record of providing good value for UK consumers. As they are member-owned, most also place a strong emphasis on fairness and on providing good service. This ethos makes societies and their products and services the preferred choice for many, and I believe modern mutuals will continue to have an important role to play in meeting the financial needs of people across the country."
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