Firms across the financial sector are under increasing pressure to innovate, but for building societies, these pressures bring unique challenges. Unlike banks, building societies are member-owned and driven by purpose rather than shareholder returns. Their commitment to mutuality, local presence, and long-term customer value defines their identity – but it can also make the path to innovation more complex. Building societies must find ways to modernise and compete in a fast-moving market, while preserving the trust, community focus, and customer-first ethos that set them apart.
The rapid evolution of financial software is reshaping the landscape for building societies. Digital advancements offer new ways to improve efficiency, security, and member engagement, but they must strike a careful balance between leveraging innovation without losing the personalised service that defines them.
With digital expectations higher than ever, members increasingly demand intuitive, seamless interactions. Mobile banking apps, automated services, and self-service portals have become essential but digital transformation should be purposeful, ensuring it supports long-term strategic objectives rather than short-term gains.
Success in this new landscape depends on integrating technology in a way that enhances trust and personal service rather than replacing it.
Rather than adopting technology for technology’s sake, building societies should focus on solutions that enhance both operational efficiency and customer experience.
AI-driven automation can streamline routine processes, freeing up teams to focus on complex, relationship-based interactions. Cloud-based platforms enable seamless, scalable operations, while digital identity verification and secure transaction technologies improve accessibility and security. Additionally, future blockchain developments could transform processes such as mortgage applications by improving transaction security and enabling smoother property purchases.
A hybrid approach, where digital tools support human expertise, will help building societies evolve while staying true to their core values. They should also assess the resilience of their IT infrastructure, ensuring it’s adaptable to evolving business needs while minimising the risks posed by legacy systems.
Using data to drive ‘hyper-personalisation’ is at the heart of the modern financial services customer proposition, enabling deeper insights into customer behaviour, improving risk management, and optimising experiences. However, many building societies still rely on outdated systems, limiting their ability to harness data effectively and make informed, real-time decisions. Good use of automation and AI can support effective risk management, including preventing financial crime, identifying potential fraud, and supporting ongoing regulatory compliance.
To unlock data’s full potential, building societies need to invest in integrated systems that allow real-time data analysis, to identify any issues early and prevent them from escalating. Predictive analytics can help identify potential financial difficulties among members, allowing proactive support.
Investing in data governance frameworks will also ensure that information is used ethically, securely, and in a way that builds trust with both customers and regulators. Compliance with GDPR and other data regulations remains essential, ensuring transparency and trust while leveraging insights to refine products and services.
Building societies have traditionally been customer-focused, with mutuality and community at their heart. This strong foundation must continue to evolve in line with shifting member expectations. Employees play a key role in bridging tradition with transformation, so fostering an adaptable, forward-thinking culture will be essential to maintaining relevance.Large-scale transformations, such as digitalisation or regulatory shifts, require strong, regular internal communication, a shared set of values and a desire to move forward to a common goal, while aligned to ensure smooth adoption.
Leadership must set the tone for cultural change by clearly communicating the purpose and benefits of transformation. Embedding an agile mindset, where continuous improvement is encouraged, will help employees adapt. Training and development should be prioritised to ensure staff are equipped with the skills needed for a modern, technology-driven environment, while continuing to reflect the values that members expect.
Fostering cross-functional collaboration between technology, operations, and customer service teams can also ensure that changes are implemented holistically. A structured change management approach will help firms drive innovation without disrupting their core identity.
The final elements of the UK’s operational resilience framework come into force in April 2025, requiring building societies to demonstrate their ability to withstand disruptions without causing financial harm to consumers or the wider economy. The financial sector must now progress from the implementation phase and into business as usual. The ability to recover quickly from disruptions isn’t just a regulatory requirement but a crucial component of maintaining customer trust and business continuity.
A comprehensive operational resilience strategy is essential, in line with regulatory requirements, including mapping all critical functions, reviewing exit clauses and managing all third-party relationships. Building societies must conduct regular stress testing, scenario planning, and risk assessments to identify vulnerabilities and promptly restore critical business functions.
While collaboration with fintech partners can enhance resilience, it’s crucial to ensure effective third-party oversight with appropriate arrangements in place to cover essential services in the event of an outage, and to reduce concentration risk. Clear communication strategies will also reassure all stakeholders in times of uncertainty.
Environmental, Social, and Governance (ESG) considerations are an integral element of the modern business landscape. With increasing regulatory scrutiny and higher member expectations, building societies must ensure greater clarity over their ESG strategies, including meeting all disclosure requirements under SS3/19, and maintaining compliance with the anti-greenwashing rule as part of the Sustainability Disclosure Requirements (SDR).
It’s also important to consider the firm’s own environmental footprint. Consumers are paying closer attention to how financial institutions support sustainable development, and building societies have an opportunity to lead by example.
Sustainability should be embedded into both operations and product offerings. Eco-mortgages and green loans can support members in making environmentally-conscious choices, but transparency and accurate language are essential to limit the potential for greenwashing. Internally, reducing carbon footprints and setting measurable sustainability targets will demonstrate commitment.
Beyond environmental factors, diversity, equity, and inclusion (DEI) initiatives should be prioritised, ensuring leadership and workforce representation aligns with the communities they serve. Diverse teams promote different types of thinking, which brings new perspectives to drive innovation and improve risk management.
Embedding ESG principles into governance structures will also ensure that sustainability isn’t just a temporary initiative but a long-term commitment. Social initiatives should extend beyond DEI to encompass broader community engagements – such as financial education, supporting vulnerable members, and contributing to local economic resilience. These efforts help build trust and demonstrate that the building society is truly invested in the wellbeing of its members and the communities it serves.
The regulatory environment continues to evolve and building societies need to maintain cost-effective and synergistic approaches to implement new rules as they emerge. The Consumer Duty continues to drive a new culture across the financial services landscape, with requirements around fair-value assessments, prevention of consumer harm, a greater focus on consumer understanding and a broader oversight of the wider supply chain.
The sector should also be mindful of the FCA’s desire to make it easier for customers to re-mortgage with a May 2025 consultation planned, together with a wider discussion on the future of the mortgage market starting in the following month.
Basel 3.1 also remains a consideration, though its final form in the UK is unclear as regulators look to the US’s approach to ensure continued regulatory alignment. Many building societies may fall under the small domestic deposit takers (SDDTs), with a lot of firms preparing to implement the Interim Capital Regime (ICR).
Compliance isn’t just about avoiding penalties but about fostering trust and long-term sustainability. As regulatory expectations grow more complex, building societies must ensure that it remains an integrated part of their business strategy, rather than a tick-box exercise.
A proactive approach is essential. Regtech solutions can support real-time monitoring and automated reporting, reducing the administrative burden while ensuring adherence to evolving regulations. These programmes can map business processes back to the regulatory driver, helping to embed compliance processes and protect them through future transformations.
Embedding a compliance-first mindset across all levels of the organisation will help building societies stay ahead of regulatory shifts while maintaining a strong reputation.
For more insight and guidance on how building societies can navigate current regulatory and market challenges, get in touch with Paul Willis.
