Blog Type, Industry Sector, Finance | November 2016

A Modern Mutual: What does this mean?

Recently, there has been a rapid growth in interest in building societies, credit unions, and the wider stakeholder economy. This was emphasised in the Prime Minister’s conference speech where she spoke about the benefits of stakeholder’s interests in corporate governance. This growth can also be seen in industry, with consumer owned organisations such as the Yorkshire Building Society (YBS),  seeing an increase in net lending in the aftermath of the financial crisis.

On Wednesday 26 October, the Industry and Parliament Trust hosted a breakfast discussion examining the various aspects of mutual models, including how the model is moving into the modern world. The conversation focused on the similarities and differences of traditional Public Limited Companies (PLCs), building societies, the future of mutuals in financial services and the challenges it faces.

Differences between Shareholder Banks and Mutuals:

The concept of consumer ownership refers to an organisation that is run for the benefit of current and future members and their interests, as oppose to external stakeholders. When exploring this concept, there are some fundamental differences between traditional PLCs and financial mutuals. Whilst Building societies and banks are run with the same rigour, mutual models held accountable by the board elected by the membership. They follow the same prudential and conduct regulations that apply to PLCs.

However, the clearest difference between mutuals and PLCs are their ethics and values. Building Societies are viewed by customers for upholding particularly high standards of ethics and pride themselves on their customer service. They do this by focusing on members as owners and customers with no divide between interests, instead of having to consider shareholders first. Mutuals do not need to generate the same return on capital as PLCs, and they do not see money paid out in dividends to external stakeholders.

When exploring the business models, mutuals where shown by Cass Business School as lower risk in comparison to PLCs (CASS, 2015). In addition, in the case of YBS members benefited from an average savings rate of 1.4% in comparison to the wider market which paid an average rate of 1% (YBS Interim Results, 2016). One of the most important factors to consider when comparing building societies and PLCs is loyalty. Loyalty for savers is rewarded, with YBS paying more on longer-standing accounts. This presents a clear difference to the majority of its competition who tend to operate in the opposite way.


One of the key challenges of mutuality stems from the gap that exists between the younger generation and the older generation. In particular, the age of savings customers is skewed towards older people, but the principles of mutuality are just as relevant to younger people. With a growing concern for the types of organisation they will do business with, Generation Y may be more likely to opt for a building society. Their affinity with a business where decisions are based on values should be a natural one.

The future of mutual models

In order to set a benchmark for the wider financial services sector, mutuals need to have a level playing field, with proportionate regulation to the complexity of their business models. Furthermore, the wider stakeholder economy has scope to grow much bigger, across both customer and employee ownership models. The tax system and wider government policy need to recognise the benefits of a sector which is not public, nor private, where a profit is still made.