All highly connected to communities, says head
The chief executive of Britain’s eighth-largest building society says that the purpose-led culture that mutuals are well-known for in Australia is also evident in the UK.
Newcastle Building Society chief executive Andrew Haigh (pictured above left), who recently visited Australia as a guest of the Business Council of Co-operatives and Mutuals and spoke to MPA, said the traditional bank model in the UK had shifted away from local branches, particularly on the high street. But there continued to be customers that valued face-to-face interaction, and the challenge was to continue delivering that service cost-effectively, he said.
The product range across mutuals in Australia was more diversified than in the UK, and merger activity here was much more prevalent, the chief executive said.
Mergers
Haigh’s comments come as two mutual mergers in Australia are expected to be complete in 2023. In November, members of Newcastle Permanent and Greater Bank voted strongly in favour of the proposal to merge. Heritage Bank and People’s Choice Credit Union have also announced plans to merge, with provisional results showing that voting had cleared the 75% threshold required for the merger to proceed.
Haigh said culturally, mutuals across both countries were very similar. “Talking to executives from mutual businesses in Australia, it’s like a parallel universe,” he said.
While the numbers differ, both mutual sectors were grappling with similar challenges around inflation, skills shortages and finding the relevance of the mutual model in today’s market.
“There seems to be more merger activity happening in Australia right now than there is in the UK … there is some merger activity coming in the UK but not at the scale that we see here,” Haigh said.
He said a number of global players operated in the UK market, and similar to Australia, big banks played a significant part in the mortgage lending market. UK building societies tended to focus ono prime residential mortgage lending and retail savings as their core business.
“I think the mutual banks in Australia are probably more diversified in their product range than they are in the UK,” Haigh said.
Local branches, customers remain important
While an increasing number of bank branches had disappeared from high streets, Haigh said as a mutual, Newcastle Building Society valued face-to-face interaction with customers.
While the mutual invested heavily in its digital offering (including a mobile app and online capability), Haigh said its customers continued to place a high value on face-to-face communication.
In a number of instances, Newcastle Building Society had become the last bank in town, he said.
This was counter-cyclical to a standard bank operation, which would typically view going back into a location and opening a branch as expensive, with fewer transactions.
“We have been particularly keen to try and find ways to keep our branches open and present on the high street,” Haigh said.
Newcastle Building Society was looking at how the branch cost model could be changed, and how it could partner with other businesses also interested in maintaining a community presence, he said.
The ability to operate cost-effectively was important - and this could be achieved through a smaller footprint. Through partnerships with local authorities, Haigh said Newcastle Building Society had opened four branches in community centres.
“We are bringing footfall into that community space and we’re basically building a hub within the community – that’s been incredibly well received,” Haigh said.
The last branch the building society had opened was in Knaresborough. Haigh said this had been extremely well received and locals had expressed their thanks for bringing face-to-face financial services back to their town. It was an important addition to the community and a “tangible expression of mutuality”, he said.
“We [also] offer regulated financial advice through those branches, so things you can do in a big branch, you can do in one of these community branches,” Haigh said.
He disagreed with the belief that people don’t want face-to-face financial services. While face-to-face transactions may be fewer than before, there were times when customers wanted to come into a branch and “talk to a human being”. This may be driven by bigger decisions, or the need to discuss products or financial concepts customers are uncertain about.
“There is definitely an age group coming through now that are more digitally enabled, but they still tell us that they want face-to-face,” Haigh said.
Asked whether UK customers see a value in “profit for purpose” rather than “profit for shareholders”, Haigh acknowledged that the challenge for any mutual business was to do the right thing by its customers, ensuring its actions were both visible and tangible.
“An example of this is being present on a high street in a town in a region that had no financial services is a very visible, tangible expression of why we’re different and what we’re prepared to do,” Haigh said.
Given that the ownership model of each mutual organisation was diverse, as was the interests of the members of each business, it was up to each organisation to find its own way of expressing mutual value, he said.
“It is important that we don’t ever forget how important it is that we are following a purpose-led model that is all about delivering value back to members.”
Customer-owned banks in Australia
Michael Lawrence (pictured above right), CEO of the Customer Owned Banking Association (COBA), said in Australia, the sector (which included credit unions, building societies and mutual banks), operated over four branches per billion dollars in assets.
This compared to the major banks, which operated one branch per billion dollars in assets.
“With COBA members being intrinsically part of their communities, branch closures are significant events both for the bank and the community,” Lawrence said.
“As increasing numbers of members and transactions move online, and footfall declines in physical branches, banks must determine whether the use of the collective membership’s money to keep a branch open makes financial sense and is serving their members appropriately.”
Referring to current mutual merger activity in Australia, Lawrence said mergers were done with the aim of increasing value to members.
“There may be further mergers in the customer-owned space but equally, we know that our members are fiercely independent local organisations who remain committed to their customers,” Lawrence said.
Amid rising interest rates and cost-of-living increases, Lawrence said it continued to be important for people to choose a bank that “truly has their interests at heart”. There was a great opportunity for customer-owned banks to continue delivering on their purpose of putting people and communities first, he said.
“Member-owned banks are integral parts of their local area, so they know their customers personally, they know the economics of the local businesses, and as such they can provide support far beyond a traditional high street bank,” Lawrence said.
