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Building societies and open finance may at first seem at opposite ends of the modernization spectrum. At the one end is a 200-year-old cooperative savings and loan model in which the organization—of which there are 43 in the UK—is owned not by shareholders but by members. On the other is an emerging banking model embraced by neo banks that breaks down barriers to sharing financial data.

And, indeed, with their simple, often non-digital products and a prudent, regional focus, many building societies struggle to embrace change. In our recent study “The open finance paradox,” building society respondents, in fact, were less convinced than their counterparts in the financial services industry that open finance can provide any real benefit to their current customer base (see sidebar for details on the study).

At the same time, building societies are no stranger to modernization. In our study, digital transformation ranks among their top business priorities—both currently and in terms of their two- to three-year investment plans. The question is whether they are pointing their modernization strategies in the right direction by resisting the call of open finance.

The fact is, the next generation of customers—Generation Z—will expect access to more innovative services enabled by open finance. Open finance can provide this new experience while also simplifying processes, reducing costs and enabling organizations to offer better products at improved rates. Therefore, to protect their future and remain relevant, building societies will need to plan strategically by ensuring their products and services evolve at the same rate as their changing customer needs.

The past six months have seen a surge in dialog surrounding the purported value of “open finance” and whether or not its potential has been realized in the UK. We see open finance as the natural evolution of finance—a collection of standards, technologies and organizations that enables consumers to access reimagined credit, asset management, insurance and pension products with greater ease and transparency from a range of bank and non-bank suppliers.

While the debate has stoked critical thinking around what financial institutions can hope to achieve through open finance, large questions remain around the potential benefits still on the table.

To better understand how financial institutions are approaching open finance, between April and July 2022, we surveyed over 200 decision makers with responsibility for open finance within their organizations. Respondents were drawn from a representative cross-section of leaders from within the CMA9, building societies and incumbent, challenger and neo banks.

Through our research, we discovered a paradox in financial institutions’ approach to open finance. The paradox is two-pronged: First, there’s a marked inconsistency in the models that different financial organizations are using to align with the concept; second, business and investment priorities are frequently misaligned in areas where open finance could help institutions achieve their goals.

In this series, we explore the differing priorities, strategies and opinions among financial institutions to investigate the current state of play and the likely direction of travel—whether they’re confidently embracing open finance or reluctantly doing the bare minimum to comply with regulation.


Serving both old and new customers

In our study, only 33% of building societies provide open finance services or have plans to do so. Given their older, more traditional customer base, they don’t view neo banks as a threat, and only 34% believe banks that embrace open finance will flourish.

Their customers value the human touch, and building societies take care to provide continuity of this personal level of service. To maintain customer loyalty, they prioritize improving the customer experience by investing in the quality of their branch services and contact centers.

Our customers enjoy the social, human interaction of being regular branch users. They come in weekly, withdraw some money and have a conversation—they really value the full branch experience. Knowing somebody down the high street with whom, should they have a problem, they can walk in and have a conversation [is important to our] customers.– Digital Branch Manager, UK Building Society


Building societies’ lack of interest in open finance is also likely shaped by the nature of their business. Most offer only limited banking services through savings and mortgages and with a limited ability to invest in innovation. This perspective is more or less ubiquitous, with only 14% viewing open finance as either essential or very important to their organization’s future success, compared with 56% who viewed it as not that important or not at all important (see Figure 1).


Figure 1

Source: Cognizant

This can put digital decision makers within building societies in a bind. On the one hand, a sense of anxiety prevails that they’re not doing enough to keep pace with digital transformation initiatives. On the other, their customer base—who largely patronize building societies to save money or buy large-ticket items—tend to be considerably older than the average bank customer and more resistant to change.

Furthermore, digital decision makers face a cultural battle. Over three-quarters (76%) admit their organizations only partially understand the benefits of open finance, and only a small proportion—20%— say they fully understand the benefits (see Figure 2).


Figure 2

Source: Cognizant

Opening the aperture of modernization

While building societies are investing in modernization, these efforts are mainly aimed at cost reduction and improving the customer and employee experience vs. top-to-bottom innovation.

But by reallocating their digital transformation investments toward key aspects of open finance, building societies can position themselves for success with not just customers of today but also emerging customers of the near future.

This is because open finance extends further than its originally narrow definition of connecting all of a customer’s bank accounts in a single platform to give an overall view of their finances—and maybe to make payments. The concept has greatly expanded and now encompasses scenarios that could benefit building societies and their mortgage and savings customers.

These scenarios include simplifying processes (e.g., the upfront document gathering process, arrears and collections), reducing costs and enabling organizations to offer better products at improved rates.

The question building societies need to ask is what the next generation of customers will want: Will a 25-year-old member of Gen Z care about being able to visit a local branch when applying for a mortgage just a few years from now? Or will they prioritize technology and the convenience of open finance?

Young people are engaging with banking in a fundamentally different way. I think there's an opportunity: Gen Z, etc., are looking for digital community and ‘fairer finance,’ and I think building societies have an opportunity to play in that space. – Digital Branch Manager, UK Building Society


The way forward

Building societies are clearly willing to invest in tech, but to survive in the open finance world, they need to redirect that investment. They should also take a close look at their operational processes and underlying infrastructure.

  1. Build an open finance business case that creates a sense of urgency, and develop a few provocative scenarios to encourage buy-in. Addressing the longer term sensitively will help to build understanding within the business and accelerate executive education. There will likely be both naysayers and advocates, and this approach will allow everyone in the space to lean into the debate.

  2. Develop and roll out new organizational KPIs that encourage open finance. Establish open finance as a critical success factor on which individuals and functions are reviewed. Establishing metrics like the number of open finance partnerships or customer journeys that could benefit from open finance can also contribute to the business case. Explore how open finance would be useful to the business and how it could benefit the organization’s customers and colleagues, drive revenue and grow the customer base.

  3. Identify and resolve operating model hurdles. One can have all the organizational KPIs in the world, but if the business isn't set up in the right way and doesn't have the right people, they’ll never be achieved. Ensure you've got the right business building blocks in place and the right incentives and measures to encourage open finance adoption.

  4. Accelerate delivery of infrastructure and application enablers. As a rule, building societies have constrained resources when it comes to investment budgets and technology delivery capabilities. As such, they should resist the allure of customization and partner early in the transformation process to benefit from the investment that technology providers have made in creating white-label products. Doing so can result in faster delivery and more impressive investment cases.

  5. Assess underlying infrastructure and applications for open finance readiness and develop plans to resolve. Partner with other types of businesses to launch new products. Work out how, as a business, the organization needs to configure itself to achieve this. Have you hired the right people? Do you have the right processes in place? Do you have the right executive sponsorship?

If building societies don't act, they risk obsolescence. They should look to embrace open finance in different ways. But they have to do something. Doing nothing is not an option.– Chris Allen, Director, Banking & Financial Services Consulting, Cognizant


To learn more, read our full report on “The open finance paradox” or
contact us.