Anniversaries, Change and Performance - BSA Annual Conference 2019

Welcome

Good morning and welcome to the 2019 BSA annual conference.  It is fantastic to see so many of you here.

Thank you for taking time out of your busy schedules to join this year’s conference which I believe you will find both informative, challenging and enjoyable as you meet up with friends, colleagues and the many businesses that support our sector.

Thinking back in preparing my words for today, I realise that this must be about the 18th BSA Conference I have attended.

At these various conferences the themes have developed and changed but the consistent point is that each event has been a great source of information to help inform my thinking as to the future opportunities and threats that Cambridge Building Society will be facing in the future.

Indeed, much of what I have heard talked about at those many conferences has undoubtedly directly influenced the Society’s Corporate Plans. 

This year’s conference has been designed to help with the matters that are exercising Board’s up and down the country and I hope that by the time you leave the event on Friday afternoon the various speakers will have helped give you some clarity alongside a few clever quotations and facts to impress your colleagues with!    

External context

Based on where this year’s conference is located and that today our nation is taking part in an election that few of us thought would be required, it is impossible to avoid mentioning the B word.

It is not for me or the BSA to take a position on the merits or otherwise of leaving the European Union.  But what we can certainly comment on are the adverse effects of uncertainty. 

It is making business planning difficult, creating uncertainty across our membership base and our staff. Both individuals and businesses are delaying decisions until we have clarity – just look at the fall in housing transactions.  

The longer this position persists, the greater the damage our economy, UK business and ultimately the electorate will suffer.

As I say it is very clear that everything that is happening – and not happening - is starting to have a marked effect on consumer confidence. 

In our world we have been monitoring how confident consumers feel about committing to the biggest financial transaction most of us ever make - buying a home. 

For many the answer is – “not very”.

For the past 7 consecutive quarters more people have been more negative than positive when considering “is now a good time to buy a home.” 

In the last survey run in March, more than a third also felt that a lack of job security was a barrier.  This is despite all the statistics showing we have more people in work now than at any time since 1974.   

Perhaps today’s EU elections will be a turning point and the needs of the country will rise above the heart-felt ideology on all sides.  But then I thought that would be the case as we moved ever closer to the March 29th deadline.

Somehow the seemingly irreconcilable MUST be reconciled to allow our members to get back to a point where they make decisions on their personal needs as opposed to being overwhelmed by doubt and uncertainty about the future direction of our nation.  

Anniversaries, heritage and longevity

Now a subject much closer to home. This year marks the 150th anniversary of the formation of the BSA. Set up back in 1869, less than three miles away from here, just off Moorgate.

It was set up to act - and I quote - with “promptitude and efficiency in the general interests of these societies”. 

Then the Objects of the Association were: “To watch the proceedings in Parliament in reference to Building Societies, and to protect and extend their interests, privileges and advantages.”

Certainly this remains a useful guiding principle for the BSA Council but over time this statement has been developed and is now best summed up as:

“Championing our sector and supporting all our members”.

This year there are also a number of other important anniversaries featuring a zero on the end.  The Monmouthshire is also celebrating its 150th; the Chorley 160 and the Nottingham, West Brom, Ipswich and Saffron all turn 170.  Amongst our credit union members both Glasgow and Capital celebrate their 30th birthdays. 

Back in 1869 communication between BSA members was largely through the new and snappily titled Building Societies Gazette and Investment Advertiser for Provident, Friendly and Insurance Societies.. 

That name was quickly shortened to Building Societies Gazette and in 1991 renamed Mortgage Finance Gazette.  Happy birthday to you too. 

This also seems the right moment to welcome another credit union ScotWest as the newest BSA member.  The BSA now supports 5 of the biggest credit unions in the UK - which is great news.    

All these anniversaries help to emphasise the heritage and longevity of building societies as a constant part of the UK economic and consumer landscape.  

Through thick and thin; through war; many industrial revolutions and through numerous economic crises, our mutual owned businesses have not just survived but they have adapted and as you will be aware are now most definitely thriving.

Leading change

We are here because we have proved ourselves able to roll with the times, evolving in line with the changing needs of our members.  Frequently this has seen our sector lead change: 

An example:

• Our sector has shown this in the past few years as the first in the lender community to wake up to the demographic changes in society. Doing something sensible and practical to meet the needs of older borrowers.
• Ten years ago borrowers over 60 were a rarity.  Today, based a range of trends we are seeing a significant market shift.  By 2030 the value of mortgages amongst the over 65s will have doubled to nearly £40 billion. Undoubtedly a growing need for well-considered support.

There are many examples where this type of lending has opened up new horizons for families, because as we all know “There are a lot of people in the UK who are sitting on high levels of equity being asset rich but cash poor.”     

Sometimes the right strategic approach is to be a fast or selective follower. 

This has been particularly true in the selection and adoption of new digital technologies. 

Digital is a critical option for consumers.  But that does not mean jumping on every new development, nor does it mean abandoning high streets and humans.

It is far more important to have an in-depth understanding of what our customers want and need. 

One differentiator is how hard building societies and credit unions work to keep the humanity in personal finance. 

As part of the digital world, this human touch remains essential - caring for vulnerable customers and helping people know that their data and money are safe. 

Recently, listening into the calls to the Cambridge’s telephone team it was interesting to hear how many calls were from people wanting - either help and support on the detailed operation of their mobile device or simple reassurance on the steps they needed to take to ensure their cyber security.

It’s critical that we get the balance right between the functional appeal of our products, rates and service.  And the emotional appeal that can then be generated. 

Strong performance

Looking at the financial performance of building societies over recent years, I was struck by a couple of things.

First, how strong the results across our sector have been given the challenging economic and competitive headwinds affecting financial services.

Just one figure for you to ponder: Our sector has seen mortgage assets grow by 20% over the last 3 years while the rest of the market has grown by just 6%.

This is translating into more employment across the sector as a whole with staff numbers up from 38,000 in 2011 to 43,000 in 2018.

Profitability across the sector remains strong, alongside an increasing commitment to invest in change. Virtually without exception Boards are supporting investment in three key areas:

• Digital transition whilst maintaining a face to face option
• Supporting interest rates for savers
• Supporting the career and skill development of our most important resource – our staff 

Technology

On the technology front there is a phenomenal amount happening across the sector:

• Improving efficiency and reduce cost in the operations behind the scenes
• Better serving mortgage brokers and intermediaries – essential given that circa 80% of all mortgage business comes through this channel, and
• Directly serving savers and borrowers
   

Many societies are actively working on updating their systems and processes, from putting them into the cloud, deploying machine learning and AI and connecting with third parties via APIs. 

Tomorrow we have an additional stream entitled The Digital Mutual running throughout the day – we mean business.

The face to face option

For nearly all of the years I have attended the BSA Conference the death of the branch network has been a regular point of discussion. But remembering the famous quote by Mark Twain “…reports of my death have been greatly exaggerated”

Clearly, the way customers want to do business continues to change.  What happens in branches is changing along with it.  

But – and it is a big BUT – humans do still want to talk to humans face to face - particularly for advice, guidance, security and when they are making more complex decisions. 

We know from Ipsos MORI data that more than 90% of consumers want a branch to be available to them as part of the distribution mix when they are taking out a mortgage.  

Our sector has been investing millions in making branches and the associated technology fit to meet customer needs today.  Providing different services and including community hubs and meeting areas. 

They remain a core part of High Streets and town centres across the country, but the adage of “use it or lose it” is relevant.

Since 2010, the number of bank branches has plummeted 37 per cent and many of those which remain are substantially automated.

The building society branch foot print has fallen, but by a far more modest 12 per cent.

But it’s a story of continuous adaptation as we all come to terms with understanding the changing role of our high streets.  A change I do not foresee slowing any time soon.

Savers

In the low interest rate environment that has prevailed since 2009, it has been tough for savers, particularly those who rely on their savings to pay the bills. 

We can’t buck the economic environment BUT over the last three years, building society savers have received £2.3 billion more in interest than they would have earned in an equivalent savings account at a High Street Bank.

As we have announced today  savings balances at building societies increased  by £3.8 billion in the first quarter of this year – 18% more than over the same time last year.  Clearly some people are saving.    

But there are an alarmingly large proportion of people across the country who are in work but are saving nothing at all. 

Have the people of the UK lost the savings habit? And if they have does it matter?  I argue that it does, partly for us because savers fund borrowers but more because personal financial resilience promotes productivity and wellbeing. 

 I look forward to hearing from our Savings for Life panel this afternoon.

Housing and mortgages

In October, November and December last year growth in the mortgage market – net lending- for the whole mortgage market stood at £11.4 billion.  Of this building societies accounted for 46%. 

In the first three months of this year total growth in the market was a more subdued £8.6 billion but of this societies took 57%.

Helping 120,626 individuals and families into a new home of their own.

The market has been muted for a while and that is not likely to change until the political conditions improve and supply-side issues are addressed.

But the vast majority of customers – even those with some pretty complex needs – will find what they need somewhere in our sector.

Culture and the building society difference

The culture and characteristics of building societies are not only about rates and

Products - critical though they are.

It’s also about local communities; and our place in them as organisations that are local and customer-owned.  

It’s about the thousands of hours our people spend volunteering to support local causes and bringing financial education into local schools.

• The weird and wonderful ways our people raise money for local charities.

• The new branch which saved the local library.

• And the pop up shop in the branch where football kits were sold when the local football team’s shop got flooded.

Tomorrow we will be launching a report about community.

Let’s never forget that building societies and credit unions are a constant in the lives of more than 25 million consumers – over a third of the UK population – and 2 million more than two years ago

Whatever is happening in the wider world, people continue to rely on us to safeguard and grow their savings and help them secure a home of their own.

The birth of our sector was ground-breaking and revolutionary.

This characteristic remains strong today in a changing world. 

The founding fathers of the BSA would, I am sure, be delighted to hear that building societies continue to thrive and are not just part of history but are well placed for a vibrant and successful FUTURE.