11 Jun 2024
by Michael Tattersall

Increased M&A Activity Signals Intent Among UK Building Societies / M&A Offensive Heralds Bright New era for the Modern Mutual

Over the past decade analysts have speculated over the long-term viability of the UK building society model. Slimmer margins following the financial crisis until recent interest rate hikes and increasing regulatory burdens have pressurised the banking sector. And in recent years, building societies have fallen behind on rising customer demands for a first-rate digital experience amid the emergence of digital challenger banks.

Yet two landmark deals involving the largest- and second-largest building societies have thrust the sector back into the spotlight this year. Below we highlight why building societies are here to stay due to the vital role they play in supporting their members to achieve their long-term goals. We also detail how data, AI, and the cloud will deliver the cost efficiencies and improved customer experience building societies need to thrive.

What is the news?

Hot on the heels of Nationwide’s proposed £2.9 billion deal for Virgin Money in March was news of an agreed £780 million takeover deal for the Co-op Bank by Coventry Building Society that was confirmed on the 24th May, returning the former to mutual status.

What does this mean for Nationwide & Coventry?

The proposed takeover deals add increased revenues and funding diversification to better compete with larger banks. And greater profits will help building societies deliver more generous membership benefits.

Scale & Diversification

Nationwide and Coventry will generate improved returns from increased scale in core products.

  • Upon the completion of the deal, Nationwide will leapfrog NatWest to become the UK’s second-largest UK mortgage lender & consolidate its position as second-largest retail savings provider.
  • While Coventry Building Society is set to gain some 3 million customers and grow its assets to £89 billion - if the takeover goes through - cementing its position as the second-largest building society.

Nationwide and Coventry Building Society will also diversify their revenues and funding. 

  • Coventry will gain market share in the business banking market through Co-op Bank’s 90,000+ SME accounts, in addition to bolstering current accounts.
  • While Nationwide will access greater diversity of funding from business deposits and unsecured consumer credit - to the tune of £6.7 billion with 8.6% market share of UK credit cards - while expanding current accounts.

More Competitive Products

Better returns from core products and diversifying funding and revenues will also enable Nationwide and Coventry to pass on more competitive savings rates and mortgage deals to their customers. Unshackled by investor pressure to return capital to shareholders, building societies can deliver on their core purpose to deliver member benefits.

What’s Next for the UK Building Society Sector?

Building societies are investing in their scale and digital propositions. Scale enables them to compete nationally for new customers while more competitive mobile apps keep them relevant to the next generations of customers. And greatly streamlined back-office operations will control costs at scale.

This will enable building societies to leverage their unique advantages of their mutual business model to deliver stronger customer growth, namely their trusted brands and established social values. After all, UK consumers rank them as the joint-most customer-orientated industry with retailers, ahead of banks and other financial services providers in 2024.

Building societies will prioritise accelerating their digitisations to lay on the digital user experience banking customers have come to expect while optimising costs. Legacy modernisation, greater cloud adoption, and data & AI investments will unlock necessary efficiencies and lay the found for better customer experiences.

Digital User Experience

Building societies must prioritise closing the digital user experience gap that has opened up between their digital products and their banking peers. Younger customers, especially, value a convenient digital experience as a table-stakes demand: It is second-most important reason for choosing a financial provider for 18–34-year-olds v. the 5th most across all ages, per a 2024 Moneyhub report. And building societies are missing the mark: Twenty-nine percent of UK consumers say either the mobile app or website functionality is limited, per Moneyhub.

Optimise Costs

Building societies need to drive operational efficiencies across their businesses to address high fixed costs from their branch networks and rising operational costs from regulation and technology investments. Tackling legacy estates will be a top priority for building societies. Legacy modernisation will be a large undertaking but is crucial to efforts to drive efficiencies and lay the foundations for digital success. More so, cloud migration and greater cloud adoption will also form a key part of efforts to unlock cost savings and get value from data & AI investments.

Data & AI-Led Personalisation

Analytics will enable building societies to build a deeper understanding of their customers and deliver tailored experiences. Predictive modelling will help building societies reach their customers at the right time, through the right channel, with the right message. This will allow building societies to go all in on supporting their customers to achieve their long-term financial goals. Building societies can guide their customers through their critical life stages and offer tailored products - from junior ISAs to first-time buyer ISAs, and other savings products - to build long-lasting loyalty.

Deeper customer insights are also crucial in building societies’ quest to attract younger customers: Nearly two-thirds of 18–34-year-olds say that they want personalised financial advice tailored to their financial goals, per Moneyhub.

BJSS: Transformation Partner of UK Building Societies for Decades

BJSS helps with designing these propositions, the move from legacy to digital and running it all safely in the cloud. Here’s how:

  • Experience Design: We combine expertise in service design and product design to construct and design compelling experiences and human-centred digital products.
  • Data EXP: Our data framework empowers organisations to swiftly and cost-effectively demonstrate the value of data to solve business problems and achieve outcomes.
  • Cloud Migration and Accelerators: We have deep expertise helping clients seamlessly migrate applications and data to the cloud without disruption, and our accelerators drastically reduce time-to-value.

We have deep experience helping building societies across the following areas:

  • Digital strategy and customer experience design 
  • Digital platform architecture and delivery strategy 
  • Digital programme design and agile transformation 
  • Legacy platform modernisation


Want to know more?

Get in touch if you’d like to know more about how we can help building societies. You can also click here to learn more about our building society and wider financial services work.


Michael Tattersall

Michael Tattersall

Financial Services Research Analyst, BJSS