society no. 33 autumn 2014 matters - bsa - home | the ...the housing crisis roger harding, director...

SOCIETY matters

The leverage ratio: too blunt a tool?Patrick Jenkins, Financial Editor, Financial Times

page 5

Trapped in the rental market Alex Hilton, Director, Generation Rent

page 8

No. 33 | Autumn 2014

Opportunity to solve the housing crisisRoger Harding, Director of Communications, Policy and Campaigns, Shelter

page 9

Bricks and clicks: the future of branchesStephen Williams, Northern Financial Services Partner, Deloitte

page 10

FORSALE

HELPTO BUY

HOUSINGBUBBLE

RENTTRAP

PRICED

OUT

Housing:solving the current crisiswith Housing Minister, Brandon Lewis MP and Labour's Shadow Minister Emma Reynolds MP

%

72%Nearly three-quartersof consumers still goto the high street to access banking and

financial services

of locations,

Bank and building

society branches per million

people in England and Wales

Micro-market segmentsto describe customer needs

180

56%telephone and onlinechannels are more

likely to be indemand

of locations, branchesare more likely to bein demand

In

Retirement Areas

Booming Towns and Villages

Declining Rural Communities

Struggling Blue-Collar Districts

Traditional Urban Centres

Super Conurbations

where new ‘silver surfers’ appreciate convenient locations and the support

of sta� as they shift to using direct channels

where footfall is currently low but employment and retirement is

bringing new customers to the area

where the population is falling and growing older, and businesses

are struggling

where competitively priced products, and timely access to relevant services

and guidance is needed

where students, job seekers and house hunters need a blend of convenience and no-nonsense guidance to help them take their first steps towards financial independence

where a new type of young, affluent customer is seeking a mix of contemporary formats, convenience and personal service to guide them through new product purchases

Communter Zones

where wealthy workers and their families need branch flexibility and an efficient, tailored service to suit their busy schedules

On a personal level, I have a firm interest in all matters housing-related, and not just because I work in financial services. Growing up, I lived in Preston, Lancashire and Salford, Greater

Manchester before settling in central London. 'Up north' my weekly rent varied from £45 a week to a whopping £63 in 2010, however in London the majority of people I know - most of whom are unmarried, mid-twenties and just starting out in their chosen careers - face rents that amount to much more than half of their monthly wage. Even with a 90 or 95% loan to value mortgage, saving just 5% to put towards a property in the capital is exceptionally difficult, putting home owning aspirations on the backburner for now.

In this edition of Society Matters, we have given both the Government and the Opposition an opportunity to elaborate on what their party has done, or will do, to help solve the UK's housing crisis. We also welcome contributions from Deloitte on the future of the branch, Patrick Jenkins, Banking Editor of the Financial Times on the Leverage Ratio and My Bnk on financial education and the changing school curriculum.

Enjoy.

The housing market is still a hot topic. Despite being pulled to pieces every which way, it is still going strong in the national press and on social media. You can understand why. There are a lot of different elements that contribute to the UK's housing situation and if I were to build a word cloud of the most often used phrases in our office alone, I am fairly sure Help to Buy, house price bubbles, interest rate rises and house building would feature prominently.

Hello and welcome to the Autumn edition of Society Matters

Society Matters is a publication of the Building Societies Association – ISSN 1756-5928.

The views expressed by authors in this magazine are not necessarily those of the BSA.

Chief Executive Robin Fieth [email protected]

Editor Victoria Bamber [email protected]

BSA, 6th Floor, York House, 23 Kingsway, London, WC2B 6UJ www.bsa.org.uk

Designed by Whatever Design Ltd, www.whateverdesign.co.uk

Printed by Trident Printing, www.tridentprinting.co.uk

opinion 3Competition and diversity: why one is part of the other

education 4MyBnk: hands-on money management

comment 5The Leverage Ratio: too blunt a tool?

policy special 6Housing: solving the current crisis

Trapped in the rental market

Politicians must grasp the opportunity to solve our housing crisis

analysis 10Bricks and Clicks

information 11Women: key to a commercial future?

overview 12Improving access to payments

insight 13All In for a better future

new associates 14Vermilian

Allied Surveyors and Valuers Ltd

Huntswood

diary 16BSA events 2014

contents

VICTORIA BAMBERSociety Matters Editor

This was exactly the role played by building societies in the residential mortgage market during the post

financial crisis period. For a number of years, building societies were responsible for all net new mortgage lending, while other lenders deleveraged their balance sheets and rebuilt their capital.

If building societies had been dependant on wholesale markets in the same way as the banks this could not have happened, as we would all have been affected by the crunch in the same way. The point is not that one structure is superior to the other, but that they are different. I am a big supporter of driving a competitive financial services market. The ingredients of a properly functioning market include multiple providers competing to supply goods and services into a chosen market. However there is another important

element – diversity: a wide range of competitors with different business models, ownership structures, sizes, locations and objectives. Overall, competition should achieve better prices and terms for consumers. Diversity introduces wider choice and greater resilience in times of stress.

There is still some way to go to get diversity in financial services properly valued as an integral part of a competitive market. One big question is “what is financial services being regulated towards?” If I were to be cynical, I might say multiple providers that all look very much like each other.

On this note, the Financial Policy Committee's (FPC) review of the

leverage ratio in June contained some disturbing views on the impact of some aspects of the proposed leverage framework on building societies. They recognised that some societies might need to move up the risk curve and diversify into other asset classes. This seems perverse for capital framework proposals primarily geared to reduce risk. Coupled with the fact that the PRA generally, and often quite rightly, constrains such diversification, it starts to sound a little impractical.

The FPC also concluded that “reduced business activity by those building societies bound by the leverage ratio could affect their mortgage lending volume. The macroeconomic impact

would depend on the extent to which other firms – banks and building societies – replace the affected societies’ market share.” Verging on anti-competitive?

We continue to support the thoughtful approach proposed by the European Parliament and reflected in the CRD4 package – differentiation, with several different leverage ratios set for business models of varying riskiness.

The FPC text begs the question where the Bank/PRA/FPC stands on diversity? It is one of the reasons why in advance of the General Election, the BSA will be campaigning for regulators to be given a statutory diversity objective to sit alongside their existing competition objectives.

Next steps

Robin Fieth is now on Twitter. You can find and follow him at

@bsaceo

Competition and diversity: why one is part of the otherIn one of its news releases back in May, the Bank of England commented that “lending to businesses is highly concentrated, with the four largest banks holding an SME banking market share of around 80%. Had the market been more diverse other lenders may have been able to fill the void left by the large banks when they decreased their lending.”

" For a number of years, building societies were responsible for all net new mortgage lending, while other lenders deleveraged their balance sheets and rebuilt their capital."

By ROBIN FIETH, BSA Chief Executive

2 SOCIETY matters | AUTUMN 2014

SOCIETY matters SOCIETY matters

3AUTUMN 2014 | SOCIETY matters

welcome opinion

A traditional view is still held by many that it is the job of parents or peers to teach these lessons and instil

prudent values and that young people should learn the hard way, like I did. However, with UK personal debt standing at £1.4 trillion and a tight job market, the margins are just too thin to muddle through as we may have done so in the past.

And the Department for Education agrees. This September, for the very first time, 11-16 year olds in English secondary schools will learn how to budget and borrow responsibly and understand taxes and products like pensions. Much of this will sit in

Citizenship and Personal Social and Health

Education, or sex, drugs and APR as it is now sometimes referred to. Calculations of things like loans, will be taught in Maths. While it is no magic bullet, this is a huge achievement which also ends one of the biggest no brainers in how we set young people up for real life. Or does it?

There is no extra funding for teacher training in this niche area, those over 16 will miss out on these lessons and academies and free schools can opt out of the National Curriculum. What class time there is will be limited. This need for expertise, to maximise the impact, was picked up by the think tank Centre for Social Justice’s ‘Restoring the Balance’ report which strongly recommended the Government fund and instruct schools to bring in experts from the third sector to deliver money lessons.

MyBnk started in 2007 with a youth-led bank offering saving

and lending facilities at Bethnal Green Technology College.

We backed them up with hands-on money management and student

finance

programmes and enterprise challenges. I brought in experts from financial services, education, even neuroscientists and clowns to create workshops that mine youth culture and bring money to life.

This model of design and direct delivery has seen us work with over 500 schools and youth groups, reaching 100,000 young people. Today we have joint ventures and franchise partners across the UK and a consulting arm that allows us to support and train organisations from Brunei to Uganda. We also deliver the face-to-face element of The Money Advice Service and financial literacy for the National Citizen Service.

It takes just six days and over £4,300 to train one of our

Education Officers to deliver on average 500 hours of money lessons to around 3,500 young

people in 300 schools a year. Trained and observed for weeks and tested regularly, trainers were rated excellent by 82% of young people and 74% of teachers.

This opportunity is too important to take the chance, and we want to work with more teachers and financial services to give young people the knowledge they don’t get in everyday lessons and the life skills they need to stay out of unmanageable debt, save regularly, understand how banks work and make the big sustainable move into independence.

Next steps

For more information about MyBnk, email [email protected] or call 020 7377 8770

By LILY LAPENNA, Chief Executive, MyBnk

education

MyBnk: hands-on money management

This year, buried away beneath the tarring of Blackadder’s history lessons and overshadowed by the discarding of American classics, a new shiny National Curriculum contained a potently game-changing element for young people’s attainment and aspirations: Financial Education.

The five years since the financial crisis have been dominated by the sometimes arcane, always painful process of regulatory change.

The UK, bruised more than most by the collapse of so many banks, has gone further than most. The question now is whether we are seeing an overreaction that will cause a whole new set of problems – and do particular damage to building societies.

Despite the severity of the crisis, there were remarkably few disasters in the building society sector. Even the failure and rescue of Dunfermline Building Society in 2009 was smooth. The deal was a success, mixing a private-sector solution, through a transfer of assets to the Nationwide, with a chunk of Government bail-out money.

But it was also an example of the kind of solution policymakers want to see the back of. They have a dual goal now – to make the system safer but at the same time to keep taxpayers off the hook in any future collapses.

The first flush of the regulatory crack-down has been directed at the big banks. Last summer the Prudential Regulation Authority (PRA) bounced Barclays into a £5.8bn rights issue following a stress test.

But there was fallout. The way in which the PRA test was conceived – using a simplistic leverage ratio to compare equity to overall assets – not only exposed a capital shortfall at Barclays. It also suggested that Britain’s biggest building society needed to find as much as £2 billion pounds. Nationwide criticised the regulator’s 'crude' measure.

Like it or not, regulators are focusing more sharply on leverage ratios and paying relatively less attention to more easily manipulable capital measures based on risk-weightings of assets. For building societies, whose core business is traditionally low-risk, low-capital mortgage lending, this could represent a big problem.

Not only will capital requirements grow, as the PRA rolls out its leverage ratio approach beyond the biggest lenders. It also imposes the requirements on a sector that by its very nature

will find it harder and slower to raise capital, given the absence of outside shareholders.

And yet, the push for extra capital could well be timely, given the focus of building societies on the UK housing market – and the focus of so much debate these days on a house price bubble.

The ratio comparing UK house prices to what people earn – and therefore presumably to what people can afford – has accelerated out of all connection with historic precedent. The statistics for London, where evidence of a bubble is the most difficult to deny, show a 1980s multiple of less than 4 times leaping to a record high of 8 times today, according to the Nationwide first time buyer index.

When interest rates rise, the bubble, at least in the south-east, risks deflating at best, and at

worst bursting in a sticky mess.

For building societies, a leverage ratio may be too blunt a tool. Maybe floors on mortgage risk-weightings, as implemented in Scandinavia, would be better. But whatever the measure, the truth is that bigger buffers on capital are prudent.

Next steps

You can find and follow Patrick Jenkins on Twitter @patrickjenkins_

“ For building societies, a leverage ratio may be too blunt a tool. Maybe floors on mortgage risk-weightings, as implemented in Scandinavia, would be better.”

As the Prudential Regulation Authority rolls out its Leverage Ratio approach beyond the biggest lenders, the requirements highlight the challenges faced by the building society sector in raising capital without external shareholders.

By PATRICK JENKINS, Financial Editor, Financial Times

The Leverage Ratio: too blunt a tool?




comment

By BRANDON LEWIS, Minister of State for Housing and Planning and MP for Great Yarmouth

Sometimes you can only make things better by pulling them apart and starting all over again. It

is a daunting prospect, but this is the decision we had to take when we inherited a housing quagmire in 2010.

House building had plummeted to levels on par with the 1920s and the social housing stock-pile had shrunk as the queue for them only got longer; five million people deep, to be precise. House building is a priority for the wellbeing and happiness of British families, and it is quite clear that Labour shirked this responsibility.

Something had to change. Unlike the previous Government, we have shown that it is deeds, not words that get the crucial things done. We tore down the regional spatial strategies and banished brownfield bureaucracy. We detangled the planning system, and ended the stalemate between banks, builders and buyers.

We’ve also introduced the Help to Buy schemes to get more families on the first rung of the housing ladder, and embraced new and innovative forms of house building to diversify the industry.

This approach is working. We’ve built over 480,000 homes since July 2010, including 200,000 affordable homes. House building is at its highest level since 2007, up 22% on last year alone, while the construction sector has been growing for the past 15 months, and is now taking on new recruits at the fastest rate for 17 years.

Right to Buy sales are up 31%, meaning more council tenants now have the freedom of home ownership. House builders are lining up to heap praise on the Scheme which has boosted output by a third since it was introduced. Most importantly though, the scheme is matching families with new properties that suit their needs.

We are supporting all corners of the housing market to deliver the number of homes we require. Opening up 5,000 serviced plots means more areas can embrace innovative offsite construction methods. A development in Walsall saw two family homes erected in a single day, an achievement never before witnessed in the UK and an example prime to be matched around the country.

The Build to Rent programme will take care of the needs of private rental tenants through increased choice and affordability. Councils are already building new homes at the fastest rate for 23 years, and £300 million in extra borrowing power will enable councils to continue this success.

With planning permission for major housing developments up 23% last year, we are turning a corner. The real test however, comes in the answer to this question: would you rather be lending, building, or buying today, or five years ago? I am confident that the answer to all three is ‘today.’

These vital components to a healthy market have been given a new lease of life. House building under this Government is delivering jobs and giving hard-working people the homes they want.

The opposition’s triple threat of housing tax increases, rent control and legal action against new developments is not the right answer.

Housing: an issue high up on everyone's agenda and one that doesn't look to be leaving the headlines any time soon. With the General Election just around the corner and waves of different schemes and initiatives being implemented or in the pipeline, we gave the current Government and the Opposition the opportunity to discuss what they have done, or plan to do, to solve the UK's housing crisis.

" The real test however, comes in the answer to this question: would you rather be lending, building, or buying today, or five years ago? I am confident that the answer to all three is ‘today.’ "

policy special

Next steps

You can find Brandon Lewis on Twitter @BrandonLewis or visit his

website at www.brandonlewis.co

policy special

By EMMA REYNOLDS, Shadow Minister for Housing and MP for Wolverhampton North East

There is a simple cause for this and that is that for too long we haven’t been building enough homes as a country.

This problem did not begin with the current Government, but, under David Cameron, it is getting far worse. Housebuilding in the past four years is lower than at any time in peacetime since the 1920s. We’re not even building half the number of homes we need.

This failure to build also has much wider economic costs. The increasing lack of affordable homes is having an impact on the ability of businesses to recruit and retain staff. The Governor of the Bank of England, Mark Carney, has said that the housing market is the single biggest threat to economic recovery.

Labour is determined to tackle the root causes of this crisis. We don't release enough land to build homes on. In some cases that's because it's constrained by the planning system and in other cases it's because we don’t build fast enough on the land that is released. We have a house building industry that has become too reliant on volume house builders and lacks competition. Thirty years ago smaller housebuilders built two thirds of our homes but last year, that had dropped to less than a third. We have also seen a dramatic fall in homes built by local authorities and the wider public sector.

That's why Labour has made housing a priority for the next Labour Government. Both Ed Miliband and Ed Balls have made clear that building more homes is key to building a balanced recovery and fairer economy.

Labour has committed to getting 200,000 homes built a year by 2020 and our Housing Commission, chaired by Sir Michael Lyons, has spent the past year drawing up a roadmap for how we can deliver on that commitment in Government.

We have also set out plans to release more land. We’ve been clear that we will keep the National Planning Policy Framework but we will improve it by ensuring that local authorities that want to expand but do not have the land can do so through a right to grow.

Alongside this, Labour is determined to reform the land market. We will bring an end to land-banking by giving local authorities the power to levy fines and use proper compulsory purchase powers on those who sit on land with planning permission, so that they have to 'use it or lose it.'

We have also set out plans to reform and increase competitiveness in the house building industry. Earlier this year, Chris Leslie, Labour's Shadow Chief Secretary and myself announced the details of Labour's Help to Build policy specifically designed to help SME builders.

In the Federation of Master Builders' 2013 House Builder

Survey, 60 per cent of members cited access to finance as a major barrier to their ability to increase their output of new homes, more than any other factor.

So the next Labour Government will provide Government guarantees for banks lending to SME construction firms in a similar way to how the current Help to Buy scheme underwrites mortgages.

However these steps alone will not be enough. Given the severity of the shortage, we will also need some big scale solutions. Which is why the next Labour Government will forge ahead with the next generation of New Towns and Garden Cities.

By contrast the Tories and Lib Dems can only offer more of the same. Their initiatives to boost house building have consistently failed to deliver. Their biggest initiative, Help to Buy, is, it is true, helping to boost demand, but here the Government hasn’t understood basic economics. Boosting demand without boosting supply will simply see prices pushed out of reach of aspiring buyers.

The next Labour Government will succeed where this Government has failed. Nobody should be in any doubt about our determination to deliver the reforms we need to double house-building, restore the dream of home ownership and to give families the security of a home they can afford.

Next steps

You can find Emma Reynolds on Twitter @EmmaReynoldsMP or visit her website at www.emmareynolds.org.uk

"For more and more people, the dream of owning a home of their own is further out of reach than ever

before. Increasing numbers of young people and families are finding themselves renting privately

and for longer, in a sector that provides little security and all too often is sub-standard. If you're

waiting in the queue for a social home, then there are 1.6 million families ahead of you."

" This problem did not begin with the current Government, but, under David Cameron, it is getting far worse."

Housing: solving the current crisis

7AUTUMN 2014 | SOCIETY matters6 SOCIETY matters | AUTUMN 2014


The UK housing market has transformed in the past decade, with the number of private renters doubling

as home ownership has started to decline. Mainstream commentators have assumed that this shift began with the credit crunch and the disappearance of high loan-to-value mortgages, but the uncomfortable truth is that first-time buyers have been getting rarer for much longer. Between 2002 and 2003 the number of first mortgages fell from 532,000 to 367,000, just as house prices passed five times the median income.

For more than a decade, house prices have simply been too high and private renters have got stuck. A majority of them would prefer to own a house – 67%, according to polling we commissioned in March this year.

The policy response to this trend has been feeble: the only thing offered to renters is a ticket out of the sector in the form of Help to Buy, which has so far assisted barely 1% of the country’s renters. It doesn’t help that premium interest rates on the state-guaranteed 95% mortgages make monthly repayments more costly than equivalent rents.

There is nothing for the 99% who remain stuck in a second class tenure that offers them high costs and no security. The desire for home ownership is as much

desperation as aspiration, so politicians should be making private renting a better place to live.

At the root of many problems is the culture of short tenancies. Secure tenure lasts six months to a year. At the end of the year, the landlord might raise the rent by more than the tenant can

afford. This uncertainty means tenants can’t truly settle

in and call their house and their wider

neighbourhood home. Two

million

children now face moving home several times during their childhood, with all the educational disruption that will entail. Longer tenancies would give renters peace of mind and start to close the gap between private renting and home ownership.

Landlords tell us they are obliged to offer short tenancies by mortgage lenders who require quick repossession in the event of default. Some lenders are now giving landlords terms that allow longer tenancies, and rent receivers allow them to avoid turfing tenants out, so this should no longer be a valid excuse.

The major blockage instead is the letting agents who insist on annual renewal because it suits their business model. That’s why we believe tenants need a statutory right to a longer tenancy. Until that happens, we urge more mortgage lenders to start accommodating longer tenancies.

Next steps

Generation Rent is the first campaign to represent all private renters in the UK – we launched in March 2014 with funding from the Nationwide Foundation. In June we published our manifesto which proposed reforms to make the private rented sector fit to live in the 21st century, including five-year tenancies. Find out more at www.generationrent.org

By ALEX HILTON, Director, Generation Rent

Trapped in the rental market

“ Longer tenancies would give renters peace of mind and start to close the gap between private renting and home ownership.”

Whilst the building society sector has helped many first time buyers get on the property ladder, obtaining a mortgage is still a challenge for some. With interest rate rises on the horizon for 2015 and the market still volatile, the private rented sector can sometimes be the only option, but there are problems... I

n part, sadly, this is because things have got considerably worse. England’s housing crisis is now affecting many more people, on all kinds of incomes in all kinds of places across

the country.

Failures of successive governments to build enough homes mean rents are high and house prices have significantly outstripped wages over the past ten years. An entire generation of young people are working and saving only to find the dream of a home of their own slipping out of reach – worrying not just them but their parents too. Many more are stuck in unstable or poor quality private rented accommodation, with the prospect of remaining there for years to come.

At the same time, our housing safety net – which should prevent people being trapped in a downward spiral towards homelessness, just because they’ve lost their job – is being eroded. At Shelter, we see the consequences of this every day through the millions of people who come to us for help.

We desperately need politicians of all parties to show leadership, and to do so with a level of ambition that matches the scale of both the problem and public concern about it. Piecemeal measures and lip service are not sufficient, and will not fool those affected.

At the root of the housing crisis is the urgent need to build more affordable homes – we are currently not building even half of what we need. Shelter recently collaborated with KPMG to produce a programme for housing for the next Government – showing that this can be done. We need a combination of increased investment in affordable housing and reform of a market which just isn’t delivering. Getting cheaper land and finance into the hands of those who want to build is central to this.

In the short and medium term, more can also be done to improve the private rented sector, which has expanded significantly in recent years. The instability and expense of private

renting simply isn’t suitable for the people who now live there, including over one million families with children. We want to see improved stability and affordability, as well as significantly improved conditions. Right now we have a real opportunity to improve the lives of millions of private renters by securing a change in the law to stop people being evicted from their home just for complaining about poor conditions.

None of this is easy – it requires commitment and boldness. But it’s clear that there is growing public demand for the housing crisis to be solved once and for all, and people are demanding leadership. The worst option, after all, is doing nothing. If no action is taken, house prices will double in the next ten years, and half of people aged 20-34 will be stuck living with their parents. More people will end up facing eviction, repossession and ultimately homelessness.

That gives you a sense of what’s at stake in May. It’s time politicians of all parties stepped up to the challenge.

Next steps

For more information about Shelter and the work that they do, follow them on Twitter

@Shelter or find them on Facebook

By ROGER HARDING, Director of Communications, Policy and Campaigns

Politicians must grasp the opportunity to solve our housing crisis

“ If no action is taken, house prices will double in the next ten years, and half of people aged 20-34 will be stuck living with their parents. More people will end up facing eviction, repossession and ultimately homelessness.”

With the general election just nine months away, it’s hard to think of a time in recent decades when housing has been higher up the public or political agenda. As voters start to think seriously about who they’re going to vote for, polls now show housing is consistently a top five issue for them – beating the likes of education, crime and Europe.

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8 SOCIETY matters | AUTUMN 2014 9AUTUMN 2014 | SOCIETY matters


policy special policy special

After more than a decade of rationalisation, branch networks are still ill-placed and ill-equipped to meet the needs of their customers in the digital age. Conventional

wisdom suggests that the increasing use of direct channels by a growing online and mobile population makes the branch nothing more than a costly relic of an analogue era.

Our view at Deloitte is that branches remain key to the success of retail banking institutions. Our consumer surveys conducted over the last twelve years suggested that branches were the only practical focal point for banks and building societies to deliver the right mix of convenience, service and value to customers. This was reinforced in our 2013 Consumer Review: Reinventing the role of the high street which showed consumers were seeking an integrated shopping experience delivered across all channels both digital and physical.

Approached in the right way the high street represents a new opportunity for Britain’s banks and building societies to create the integrated multi-channel environment they aspire to.

At Deloitte, we analysed over 10,400 branch locations in England and Wales, along with 56 variables across current and forecast changes in consumer behaviour, age structures, personal wealth, economics and business demography. With the results we have written a report Bricks and Clicks: Mapping the future of branches which investigates the forces of change on today’s retail bank and building society branch networks.

Our findings suggest that branches are indeed poised for a renaissance – but perhaps not in their current numbers or formats. At one end of the spectrum, the branch needs to become a simple, convenient gateway to more direct channels so customers can self-serve; in other formats, branches need to shift their focus from routine over-the-counter cash transactions to providing a tailored, informed and personal service for new and existing customers on the hunt for competitively priced financial products.

The research shows that bank locations can now be placed into seven key micro-markets. These are retirement areas, ‘booming’ towns and villages, declining rural communities, struggling

‘blue-collar’ areas, ‘super’ conurbations, commuter zones, and young urban centres.

Understanding these branch micro-economics is the essential first step towards creating the ideal network footprint and significantly reducing cost-to-income ratios. Demand varies from one micro-market to the next and if banks and building societies are going to keep pace with consumers’ needs, careful consideration will need to be given to where, when and how products and services are provided. And only those that build their branch proposition on the most appropriate balance between ‘bricks and clicks’ will be the winners with customers.

Next steps

For a copy of Bricks and Clicks: Mapping the future of branches please visit: www.deloitte.co.uk/bricksandclicks Alternatively contact Stephen Williams, Northern Financial Services Partner on [email protected] | 0113 292 1231, or Harvey Lewis, Director of Analytics Research on [email protected] or 0207 303 6805

By STEPHEN WILLIAMS, Northern Financial Services Partner at Deloitte

Recent news stories continue to batter Britain’s once-thriving branch networks. Some branches continue to face the risk of closure as banks, and some building societies, manage rising operating costs and face new market and political uncertainty.


financial services

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Communter Zones



financial services

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Communter Zones



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Communter Zones

where wealthy workers and their families need branch flexibility and an efficient, tailored service to suit their busy schedulesBricks and Clicks

The future of business is bright, but only for those visionary leaders who embrace new work styles

and encourage diversity.

The old guard has done well, establishing and running successful organisations. Why would they want to change the status quo? Those coming up behind have a different life experience and seek new ways to work and live. Innovation now will benefit the customer, the organisation and, attract and retain employees as diverse as the customers, with all the related benefits, for example, increased innovation and improved bottom line. Women may be the first to benefit, but men will enjoy new ways of working too.

Simple steps to future proof your organisation:

• Measure outputs not hours spent in the building. People think they use modern theories of motivation – Maslow’s hierarchy and the like, but are actually often stuck unconsciously in McGregor’s Theory X – you need to stand behind people with a big stick to ensure they work. Beliefs take a long time to relinquish despite proof to the contrary. Women are frustrated by institutionalised presenteeism and low productivity. Measuring what people achieve, irrespective of when and where they are, gives women control over their entire lives. Younger men want to work this way too as they seek to align all aspects of their lives – when they work, family, sport, friends. Women flourish in more Theory Y cultures where leaders motivate, build effective teams, foster trust and see people in their entire life context.

• Learn to trust people. Old fashioned Command and Control leadership just doesn’t work long term. It turns grown ups into recalcitrant children. Good leadership, like good parenting, allows people to grow and develop. It is based on clarity of requirements and trust in your ability to hire and empower good people, not your need to know where they are at all times. Allow people to function as fully autonomous adults who can manage their own schedule and have an innate desire to do their best.

• Embrace agile working as the style of the future. Recent changes to the law ‘allows’

people to ask for flexible working but many people do not want to work less or easier. Men and women want to work hard and full time but in ways that allow work-life integration that previous generations sacrificed. Habits handed down from the Victorian era will not attract top talent or inspire loyalty.

• Fish from the entire talent pool. Firms which adopt new ways of working, will be able to attract and keep the best candidates of both genders throughout their career, giving significant commercial advantage.

ConclusionsNew leadership styles require a considerable shift in values

and beliefs by incumbents who developed their skills when life was slightly different. Increasingly, men and women will seek the opportunity to live the full life, including taking family responsibility – caring for an aging population or the citizens of tomorrow. If these are the type of motivated people you want to employ, then modern leadership is everything.

Next steps

For more information contact [email protected] or call 0207 036 8899.You can visit the White Water Group website at www.whitewatergroup.eu

By AVERIL LEIMON, Chief Executive, White Water Group

Women: key to a commercial future?

" Men and women want to work hard and full time but in ways that allow work-life integration that previous generations sacrificed."

In a recent Society Matters article, building society Chief Executives talked about their vision for the future of the sector. But what about the future of the people working within it? We have adapted to changes in technology, yet we cling to the old ways of doing business, despite dramatically changing demographics.


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The UK is fortunate to benefit from world class payment systems. Whether taking money out from a cash machine, sending an online banking payment or writing a

cheque, our payments system is the invisible network that consumers, financial institutions and businesses rely on to pay others and to get paid.

Customers access these services via their bank or building society, so it’s vital that access is available to new ‘challenger’ institutions, such as building societies which have had a local focus in the past but are now looking to expand their geographical base.

HM Treasury and the Office for Fair Trading both published papers on access to payments in 2013 highlighting the importance of fair and reasonable access to payments for all payments and financial service providers in promoting competition in the UK banking industry. The new Payment Systems Regulator (PSR) becomes fully operational in April 2015 with responsibility to promote effective competition in the markets for payment systems. Challenger institutions can help promote competition in the financial services industry and in turn, offer more choice to customers. However, in order for them to compete on a level playing field, they have to consider their options for securing access to the payments systems and how these options best meets their need in developing compelling propositions for their customers.

Payments Systems

There are several payment systems that challengers need to consider

• Faster Payments: near real-time phone, internet and mobile payments 24 hours a day, seven days a week.

• Bacs: processes all Direct Debits and Direct Credits

• Cheques: core to a cheque-based current account proposition

• CHAPS: same-day high-value payments for financial institution, corporates customers, and some retail transactions

• LINK: connects virtually all the UK’s 67,693 ATMs to enable cash withdrawals

In addition, earlier this year the Payments Council launched Paym, a way to make direct account-to-account payments using a mobile number, without the need for sort codes or account numbers. This is a compelling payments proposition for banks to offer their customers, with money transferred using Faster Payments or LINK.

Considering access to all or some of these payment systems has resource, cost and operational implications and challengers need to decide which of these systems they would like to access and how they would like to access them.

Options for access

There are two broad ways that a challenger can secure access to these payment systems. There are advantages and challenges related to both.

• Direct access or full membership Challengers can apply for full membership of the payment schemes listed above and arrange direct access into the payments infrastructure. There are specific criteria for becoming a full member which seek to ensure the robustness, resilience and secure nature of this crucial infrastructure. Some of these criteria require resources and arrangements which the challenger may not be in a position to deploy or make. The requirement of a settlement account, full membership commitments and adhering to regular security and operational assessments are some examples of requirements that some challengers might not be able to meet or may choose not to meet.

• Agency Banking The alternative option is for challengers to enter an arrangement with some of the larger banks who provide access on their behalf. In this arrangement, the larger banks act as sponsors for challengers

and provide them with indirect access. Sponsors and the challengers agree on the technical requirements, the levels of service and commercial arrangements. By becoming agencies, challengers avoid the requirements associated with full membership and some sponsors can offer agency access to several payment systems. Of course, an organisation does not have to be a challenger to choose agency banking and many smaller financial organisations find it a convenient option.

With the emphasis on competition, innovation and payment users, how challengers and other entities access payment systems will be one of the areas of focus for the PSR. Resilience and stability will always have a cost attached – the question becomes how they can be preserved whilst simultaneously ensuring competition is vibrant and the barriers to entry are as low as possible.

Next steps

For more information about the Payments Council and the work that they do visit www.payments council.org.uk

By ABBAS RANA, Strategy Manager, Payments Council

to payments A market that has a diverse range of financial services providers results in a wider choice for consumers. However for the challengers, it is vital that options for securing access to payments systems need to be fair in order for them to compete on a level playing field.

Improving access

Involving everyone is the objective of Ipswich Building Society’s new take on the mutual membership model.

Use your core, is the advice of a Pilates instructor I know; it’s the source of inner strength. And looking

to the core is vital for success in business too. To have a robust and successful brand, it’s important to be true to the ideas and principles that lie at its heart.

At the core of Ipswich Building Society are our members. Always have been – they own the Society, after all. Yet despite consistently outperforming banks on service, the connection between members and the building society has drifted towards the transactional. They rate us highly, with satisfaction scores regularly over 90%, but it’s not enough to differentiate.

The future is member-shaped

It is a distinction of fundamental importance that as a building society we are owned by our members, act in their interests and in those of the wider community – we all help each other, that’s the whole point. But a passive membership that does not participate in the operation of the Society, in its decision-making or governance, that doesn’t contribute to its vision or support its ideas, is no membership at all. Worse yet, it erodes any real difference between building societies and the rest.

That is why we’re developing our ideas of what membership

might mean, to involve our members, putting them back at the centre of our thinking. It’s a tipping point, if you like, but we now see more clearly that the members secure the Society, not the other way about.

It’s a win-win-win

When everyone’s involved, great things happen. Greater focus on the interests, the ideas, the views, and the needs of members can bring benefits for all. The aims of All In, as our membership programme is branded, are shared between those that benefit members directly, those that support our communities, and those that secure the future of the society.

We’ve developed a branded package that seeks to achieve those aims and deliberately reflects our beliefs in the central importance of membership in our mutual building society.

The components of membership

Firstly, All In invites members to enjoy being members. We began a soft launch with a calendar of member events. Not tickets for Beyoncé, but more intimate social events – chiefly cultural – providing an opportunity for members to share a membership experience. Our events programme also supports local organisations who rely on corporate (continued overleaf)

By MICHELLE MONCK, General Manager Marketing, Ipswich Building Society

" ...despite consistently outperforming banks on service, the connection between members and the building society has drifted towards the transactional."

for a better futureAll In




overview insight

A new way to get access to cost-efficient digital marketing and business support. You’ve seen the reports. You’ve read the statistics. They all seem to agree on one truth in the financial industry – digital matters.

Nowadays, it seems like you’re falling behind if you don’t offer a smartphone app, tablet app, and an engaging mobile responsive website. On top of that, you have to keep up with compliance obligations, corporate governance, cost reduction initiatives and other related pressures that are growing every day.

And if you’re like many Societies, you may be saying: “that’s great, but we don’t have the resources or the budget to build all of this on our own. How can we possibly keep up?” The secret to balancing these competing demands is in the digital collaboration to deliver cost and innovation efficiencies.

Vermilian’s focus is to help you compete with the innovation of competitors with bigger budgets. We are a secure digital agency specialising in banking technology and marketing.

Through our experience as an online channels partner for over 70 of Australia’s building societies, credit unions, mutual banks and superannuation funds, we’ve built an integrated product suite that we believe is truly innovative and effective, including:

• intranet systems

• board corporate governance extranets

• website, minisite and mobile website design

• smartphone and tablet app development

• digital marketing and online channel management

• eBusiness strategy, transformation planning and implementation

Our considerable experience in the financial sector has taught us that innovation is not the sole domain of those who have big budgets. No matter what your current situation, we can help you overcome the digital technological wall.

Vermilian

Further information:

Can we help? Let’s get together and discuss how you can bring your organisation further into the digital realm. Contact us today through our London office www.vermilian.com/contact-us.html or visit our project portfolio at www.vermilian.com/about-project-portfolio.html

sponsorship to survive, publicising their work and introducing a new audience. Other direct benefits that make All In appealing include local discounts.

We also aim to create stronger ties by developing the idea of ownership. It is a pity that so few members exercise their rights to vote on important issues, yet they own the Society and can influence its direction. We’re finding new ways to encourage more direct and democratic involvement with the Society, not least because the more

representative we are, the stronger we shall be.

And there’s a big difference between having a vote and having a voice. Most of us encourage feedback or monitor customer satisfaction and promotion, but what are we really hearing? To listen and respond to our members’ opinions and ideas, we’re creating more direct channels that enable members to rate and review events and products. We’re publishing the comments left on our feedback surveys along with our responses

and actions and we’ll publish our satisfaction scores.

Finally, we believe there is a genuine desire among members to find ways to benefit others. We have long given up staff time to support local causes, it’s part of our responsible business ethos. But we now want to go further and help bring together local voluntary groups with our members to share information about their services and needs and encourage our members to take part in volunteering.

An active and engaged membership is the key to a successful and secure future for mutuals of all types. It ensures transparency in our operations, creates loyalty among our members, and earns us an important place in the financial and landscape of the country.

Next steps

All In has launched this September – you can find out more at www.ibs.co.uk/members-lounge

" It is a pity that so few members exercise their rights to vote on important issues, yet they own the Society and can influence its direction."

Allied Surveyors and Valuers Ltd is essentially a cooperative, owned by its 43 shareholding Chartered Surveyors, covering England and Wales. The company is quality assured by Lloyds Register with a rigorous internal auditing regime run by Chris Rispin, the company’s director of technical services.

Allied is well established within the arena of mortgage valuations but has a particular specialisation in the field of residential investment property from BTLs to complex HMOs. The company also has a commercial property valuation department. All surveyors are specialists in their field and the vast majority have worked for many years in their geographical areas to live up to the firm’s mantra of offering ‘national coverage with local knowledge’.

The business uses Quest Associates and Valuation Exchange (Xit2) connectivity software and is innovative in the use of valuation data and on-site equipment but resists such initiatives as “doorstep sign-off” as the surveyors believe that further research and contemplation are part of the process of diligent analysis and reporting. With an established private client business, the surveyors are proficient in carrying out RICS HomeBuyer Reports and Building Surveys.

Allied’s CEO is Robert Bryant-Pearson who has worked in property and surveying throughout his 40 year career. He is also managing director of Appraisers UK a surveyor panel management business which is owned and run entirely separately from Allied by Simon Jago and Jackie Turrell each of whom has more than 10 years’ experience

in panel management. Appraisers UK procures independent mortgage valuation advice and specialist services advice for mortgage lenders and other businesses such as two ‘challenger banks’, a peer-to-peer lender and a specialist supplier of data to the housebuilding industry. All residential property valuations are health checked against AVM data and commercial property valuations are audited including valuation checking.

Huntswood, as the leading specialists in retail conduct risk, are ideally positioned to partner fellow BSA members through the ever changing regulatory agenda. From the provision of industry insight to helping our clients resolve complex issues in highly challenging markets, we actively seek to build relationships that last the distance. Through our specialisms in advisory services, managed resource, business improvement, learning and development, and recruitment, we are well positioned to support you in your response to the challenges faced within the regulated, dynamic environment in which we operate.

As FCA appointed skilled persons with a wealth of experience within the sector, Huntswood can be seen as the partner of choice in the provision of assurance to senior management, however it is the manner of our delivery that

makes us the preferred partner for so many of our clients. Our size and focus means that by partnering with us you work with our directors and decision makers which ensures the right decisions are made at the right level and at the right time with your stakeholders.

In addressing the specific challenges of the conduct risk agenda, we understand that for BSA members, the desire to deliver fair outcomes for customers is not a regulatory dictate, but an embedded core of firms DNA. Working with Huntswood you can be assured that we share your vision and through our expertise in areas such as behavioural economics and cultural enhancement, we not only provide assurance, but a platform for enhancing the customer proposition. Within the sector we have been working to support member firms in their preparation, implementation and validation of approaches to challenges such as RDR and more

recently MMR. Such challenges go beyond the rule book, affecting the very heart of your organisation. At each stage of every engagement, we seek to understand your business, the challenges faced and the end state in mind and we tailor our advice and support in these regards.

For us our clients, people and knowledge are at the centre of everything we do.

Allied Surveyors and Valuers Ltd

Huntswood


Visit www.huntswood.com or contact Neville Cotton at [email protected]


www.alliedsurveyors.com. www.apppraisersuk.com or telephone 03336667777


SOCIETY matters


insight new associatesSOCIETY matters

Audit and accounting update

Leicester, 2 October 2014

In a highly specialist and regulated sector it is important for societies and auditors to keep up to date with changing regulatory, auditing and accounting requirements.

This popular annual seminar, organised in conjunction with KPMG LLP, provides a summary of recent changes and reminders of key requirements and explains the implications for building societies and their auditors, with presentations from specialists with extensive financial sector and building society experience.

Senior management arrangements

London, 9 October 2014

Regulatory changes under the banking reform legislation will be very significant for deposit-takers, their senior management and their staff. This event, in conjunction with Eversheds LLP, looks in detail at the practical implications and what firms should be doing in preparation.

How mutuals can stay relevant in an increasingly digital world


The BSA and The Digital Banking Club are jointly hosting a debate for building societies to explore how mutuals can stay relevant in an increasingly digital world.

Introduction to … financial services regulation


This event, run in conjunction with Addleshaw Goddard LLP, is part of a series of BSA introductory seminars and workshops designed to provide key information about major retail financial services topics to new starters and others.

BSA mortgage seminar


This year's mortgage seminar analyses the challenges for mortgage professionals of the fast moving regulatory and political landscape and delivers practical insight, guidance and ideas from policy makers, analysts and leading industry practitioners.

Introduction to … compliance and legal

London, 4 November 2014

Expert speakers will run through what can be expected of these functions, relationships with senior management, outsourcing and other key practical areas.

An introduction to treasury management


This course provides an overview of treasury operations within financial services, more specifically within building societies and within the regulatory environment. There is also an in-depth study of treasury operations, focussing on liquidity, wholesale funding, credit risk and financial risk.

Treasury risk management


The objective of this course is to provide participants with an overview of the financial and balance sheet risks a building society faces as a consequence of being a mortgage lender and how these risks are managed by the treasury function.

BSA Annual Lunch


Celebrate the sector's achievements, discuss matters of interest with industry peers and network with key contacts from government, regulators, industry bodies, the media and other organisations that work closely with and support our sector.

Complaints seminar


This seminar will cover the FCA's views from their complaints thematic review, a view from FOS of the areas where complaints handling needs improvement and practical guidance on making the most of root cause analysis as a tool to improve future service.

Seminar for newly appointed directors


This seminar provides an intensive introduction to the issues faced by new directors. It allows participants to discuss a range of current issues including the business environment, the board environment and the current regulatory environment, and facilitates an exchange of ideas on industry issues.

Seminar for established directors

London, 2 December 2014

This seminar provides directors with an update on matters affecting the sector and features presentations on current policy and regulatory issues.

BSA events 2014Educational, networking and knowledge sharing events for the building society sector.

Next steps

For more information and to register, visit bsa.org.uk/events


SOCIETY matters

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society no. 33 autumn 2014 matters - bsa - home | the ...the housing crisis roger harding, director...

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