Over half of building society chief executives – 55% – believe an opportunity lies in pursuing open banking, says a report, adding that the mutuality and regional aspect of building societies should be leveraged further.

At the same time, 67% of both chief executives and building society industry stakeholders say that digital transformation is the main challenge facing it over the next five years.

The figures come from a survey conducted by Whitecap on behalf of the Building Societies Association, in which it interviewed over 130 people involved in the sector, including 33 chief executives.

The opportunities in open banking, according to the chief executives who gave this answer, lie in improving the underwriting process (which 79% of those asked flagged), customer connectivity (for which 76% answered), operational efficiencies (according to 71% of those respondents), and customer engagement, which 52% of respondents flagged.

Moneyhub chief executive Samantha Seaton says that the majority of building societies don’t have the funding of the large banks to “keep up with the rate of digital transformation within the sector.

“Legacy systems and budget restraints have both been pointed to as the primary obstacles between building societies and true digital transformation. However, not adapting could risk falling behind amongst peers and the wider industry.

She also warns: “The reality is that building societies’ competitors are no longer just other building societies and banks, there are now other intermediaries with capabilities, through open banking, that can better serve their customers. For building societies, embracing open banking and open finance, will help them to both survive and thrive in this new environment.”

This something brought up in Whitecap’s report, which also suggests that investment in developing more efficient mortgage broker interfaces will help the building society sector remain competitive.

Another theme the survey highlights is the advantage the structure and place in society building societies have provides.

The mutuality of the sector is one of these – and in a somewhat confused manner: while 93% of survey participants say it affects decision making, 70% say that mutuality is “acknowledged by members but not understood.”

Meanwhile, 66% of respondents say that mutuality is about “culture, values and social purpose” – something 33% of chief executives believe can resonate with a younger demographic.

And regionality is another key theme. This is something 71% of those asked believes a branch network is a critical part of, 64% say the very identity of the sector, and 90% say community involvement feeds into.

Strengthening and communicating these aspects of building societies, the report says, is key to future prosperity for the sector.

BSA chief executive Robin Fieth says: “Society is rapidly transitioning from an era of big hard-wired mainframes and decades of different programmes to one of cloud-based services connected via APIs, data science and intelligent automation.

“Building societies are already making use of robotics, chatbots, cloud-based solutions, API connectivity, mobile apps, digital IDs and open banking. At the same time, they are remaining present in their communities reimagining the purpose of the branch using design and technology to turn them into spaces for engagement and support within their communities.

“Where building societies go next, as this report makes abundantly clear, will give a range of answers based on individual strategies, but will be fundamentally driven by mutuality, or social purpose as it is more commonly called today.”

And Whitecap Consulting managing director Richard Coates comments: “Change has been a familiar and constant challenge for building societies, and the sector has successfully navigated many dramatic economic and social events, most recently the global pandemic.

“The sector has performed strongly through Covid, but building societies today face new competitive challenges fuelled by a combination of changes in consumer behaviour and the advances of technology in the financial services sector. We are delighted to publish this report, which highlights the strategic opportunities available to building societies, and how they can capitalise on them.”