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Today's investment will be tomorrow's growth
I spent much of last weekend at my home in Wiltshire sorting out the greenhouse and vegetable planters and getting things ready for my intended Spring offensive in the garden. The more planning and effort that I put in during these winter months will pay big dividends later in the year…or so Monty Don said on Gardeners’ World! What applies to gardens also applies to businesses. Today’s investment will be tomorrow’s growth.
2020 was a remarkably busy year for Bath Building Society (BBS). Despite the problems thrown at us by the Covid virus, the Society ended the year with record mortgage and savings balances. We also delivered strong profits and grew our Membership. After the brief period of festive celebrations, it is now back to business, but not necessarily as we knew it. Despite having a good year in terms of membership and balance sheet growth, the 2020 lockdowns did expose some frustrating shortcomings in our business processes and systems. These operational weaknesses could potentially hold back the Society’s future ambitions for growth and thus we intend to invest to deliver process improvements that will bolster our future and improve our customer service. The Society intends to invest in more people to help deliver our busines change programme. We also intend to invest in improved document imaging and work-flow systems.
The way that customers do business with their building societies and banks has been changing for years. There has been a medium-term shift of customers away from using traditional branch offices towards using online systems. This shift has been turbocharged by Covid where enormous numbers of people have embraced online banking for the first time and where older customers have also become very familiar with other new technologies such as Zoom, Teams etc. Our customers are now demanding better technology and smoother application processes. We have to respond to meet their needs by investing in order to deliver a better customer experience. Similarly, our important mortgage intermediaries are making increased usage of our online broker portal. Anything that we can do to make it easier and quicker for them to do business with us is a good idea and as such we will be looking at improving our online systems that support intermediaries.
Between 35% and 50% of the Society’s annual lending goes to help our borrowing Members to purchase their first homes but, like most building societies, our savings Membership is primarily made up of children and the elderly. We need to attract more saving Members from the 16-35 age group and we have a strategic aim to particularly target new savers from this age range. Although our products are very competitive, it is fair to say that we are unlikely to be able to recruit younger Members in the numbers that we would like if we continue to only offer them a paper-based applications process and passbooks. BBS aims to be a financial institution that has systems in place that will be credible with those that are very familiar with using mobile technology and the Internet. We are working hard to launch an online account application process this Spring and create a mobile app for our savers.
As a business we have accepted that short term profitability will have to take a hit in order to finance our intended major programme of business change projects. This is an easier decision for a mutual busines to take compared with limited companies and PLCs. As a building society, all our profits are retained within the business and hence we have no shareholder pressure forcing us to keep up dividend payments. We are more capable of taking a longer-term view of the merits of increasing investment in the business.
Is it appropriate for us to be planning to invest so heavily in the middle of an economic recession? We have taken the view that there is no time like the present to get on with improving the customer experience and to increase the capacity of Bath Building Society to undertake greater volumes of business without having to materially add to our management expenditure. More efficient future growth in our asset base will drive the growth of our future profitability.
Just as investing time and energy now to prepare my greenhouse and planters will hopefully result in a bigger crop of vegetables at Chez Gray in 2021…so expanding investment in Bath Building Society should deliver enormous future benefits to our Members. We shall reap what we sow!
Please take care.