It’s come up a few times recently that the public don’t have any appreciation for the difference between banks and building societies, in particular this has come up a few times with Nationwide. I thought it was worth separating the debate out as I think it’s interesting…
I don’t hold the opinion that the public don’t know:
Traditionally towns/cities would have national banks and local building society(/ies) - here the separation was obvious, as one had the name of a local town/city and the others didn’t. This still holds true although has been muddied by demutualisation. There was a time when people would often not trust banks with their savings (or not feel eligible for their use) but would trust Building Societies; granted that generation is largely dead now but the culture of banking and saving separately is still very much a thing.
In the 90s when demutualisation was occurring people made loads out of “investing” in building societies. This was a cultural phenomenon written about in newspapers (back when people used to buy those things!). You can’t have partaken in that and not had some awareness of it.
After the global financial crash the remaining building societies capitalised on their ‘not a bank’ status to gain trust. Many rebranded to display their ‘Building Society’ status more clearly.
More recently, as stronger interest rates have returned, building societies have been able to offer stronger loyalty-incentivising rates as well as the notable (although not necessarily universally popular) Nationwide Fair Share.
I don’t really think there’s much debate that there’s knowledge of the difference, to be honest. What I do find interesting is the notion that people might care about that or not. Apathy is king in consumerism unfortunately so I think by and large the answer to that is no they don’t, but I think, within each society, there is a rump of members who do care:
Green/ethical consumers
Those who feel distrustful of banks
Those who value local business, and value the high street (#ShopLocal and all that)
Die hard carpetbaggers, determined to get their payout
Interested to know what other Fintech Forum members think.
Yes, if you asked me whether banks and building societies were exactly the same, I would tell you there was a difference.
But do I think there’s a difference to the customer? No, not really. I’m not bothered whether my current account, savings, or mortgage are from a bank or a building society. I consider all of these banking services, and I think you get the same result whether you bank with a bank, or bank with a building society.
Pretty much the same. I don’t mind whether a bank or a building society hold my cash, as long as I have decent rates, service, preferably both, in return.
I have accounts with multiple building societies atm, yet strangely, not one of them is local to me now (by name, not branch). Those accounts have been and gone
Nationwide offer bank accounts and banking services, which is all I use them for. So to me the disambiguation isn’t relevant nor changes how I perceive them. For all intents and purposes from my perspective, they’re just another bank with a little bit of a twist that I don’t particularly care about.
The green/ethical argument falls a little bit flat on me. Typically they tend to be slightly better than banks, but they’re by no means good for this. Not in a world where we have banks like Triodos, neobanks like Starling and Monzo (though these have lost the plot partnering with Blackrock), and fintechs like Algbra. If consumers generally care about that, they won’t choose a building society. They’ll choose something better.
For much of your other points I’d have thought those who genuinely care about those things would seek out their local credit unions instead. They still make sense where folks value local and don’t trust banks. Building societies haven’t been local things for some time now. I have accounts with building societies named after towns I’ve never so much as stepped foot in. And they’re too much bank behind that building society label that I don’t buy into the logic that if you’re distrustful of banks you’d be any more trustful of a building society. Credit Unions don’t offer the same breadth of financial products banks do, but they fit all of that criteria much much better than a building society does.
If you’re after a mortgage, the feeling might be different, but for a current and/or a savings account, the difference between bank & building society is lost.
I’m sure many people will be aware that at a high level there is a difference between building societies and banks, but since they’re both effectively offering the same products I doubt it factors in to the decision process of most ordinary people.
I myself don’t even think the difference in ownership structure is worthy of note - building societies today are typically too large for it to make any difference - yes as a member you get to vote in the AGM, but engagement in that process amongst members is very low so ultimately those votes just rubber stamp decisions that the exec have made. The exec have incentives to make decisions that make their KPIs look good, and those KPIs themselves have typically been chosen by either the current or a previous exec.
The model only really works when the building society is small, the community it serves is close-knit with a specific goal that isn’t served by mainstream offerings, and the members engage properly to direct the exec. Otherwise, it’s just a bank.
As @N26throwaway said, I think Credit Unions have pretty much filled that niche that building societies used to fill.
Appreciate everyone’s thoughts. For what it’s worth I’m more or less the same - my money goes wherever it works hardest for me; right now that means a lot of it sits with Building Societies but the biggest chunk (my LISA) was recently switched from The Nottingham to a bank.
I do like the notion of a building society tho, and I sort of wish there were other players in the Current Account market beside Nationwide (and Cumberland).
You can thank Yorkshire for closing down the Chelsea current account and Norwich & Peterborough. Coventry still have a sort of current account with DD/SO but only cash card now and it’s not available for new customers.
Worth considering that even if black rock dumped these assets you dislike, it would be on a company that isn’t on the stock exchange. There is an article about a guy who made a fortune buying oil assets from massive corporations like Shell, BP and Exxon that they dumped for ESG reasons
But because it’s a closely held company, he has no obligations to anyone. He just extracts as much profit as possible while staying in confine with the law
I personally would rather have polluting assets around as part of a larger portfolio where they reinvest the particularly polluting assets into better ones, than it going to a private company with total control under a specific individual who obviously doesn’t care
As they should, a total exodus of investment in energy and arms firms only screws everyone over. Some private tycoon will take it over for pence on its true value and then demolish any “ESG” goals that it would have had while public
See my article posted about the oil companies shifting assets to privately held companies with weak decarbonisation goals, lol
On top of that, arms companies are strategically important to countries. If BAE wasn’t a publicly traded company, it would be a state vehicle.
One big difference that rarely matters is that mutually owned organisations don’t have anyone other than the members behind them should something go wrong. Best exemplified by Equitable Life who basically ended up suing themselves before essentially folding up.
Clearly something quite the same is very unlikely to happen to, say, the Nationwide but, as we know, it did happen to the co-op through just one mistake (i.e. buying the Brittannia).
I don’t know if this is why many of the seemingly quite successful smaller building societies have been swallowed up, but I do wonder sometimes.
The Co-operative Bank was never a building society. It wasn’t even a mutual - it was a division of CFS which in turn was owned by a consumer co-operative, The Co-operative Group (formerly CWS, subsequently The Co-op Group).
It’s not just a difference on paper either AIUI - the Co-operative Bank was able to behave like a bank and did not have to be accountable to members in the same way a building society must, with an AGM etc. Unfortunately they also lacked any real leadership and that combined with the lack of oversight was fatal.
Britannia Building Society was a building society, obviously, and was also more or less insolvent and the Co-op somehow convinced themselves otherwise, even going to far as to install their leaders in senior positions with CFS. Utterly bonkers situation.
What I’m getting at though is that one mistake can finish off a mutual (or pseudo mutual like the co-op) whereas in an equivalent privately owned organisation there’d be shareholders who could (or might) put money in to sort the problem.
