Financial mutuals are an important part of the co-operative ecosystem – and a part that is growing in numbers, members and recognition. It is also a pillar of Labour’s long-held commitment to “double the size of the co-operative economy”.
“It’s vital that our economy is not dominated by corporations that only act in their own interests, creating systemic risks to the economy,” said Gareth Thomas MP, chair of the All-Party Parliamentary Group (APPG) for Mutuals and former chair of the Co-op Party. “Co-ops and mutuals crucially have a very different purpose to their competitors. They’re focused on service and price, rather than on extracting the most profit from the business.”
Thomas was opening the Mutuals Stage at the London 2023 Fintech Talents (FTT) Festival. FTT is a community of over 200,000 digital leaders from across the fintech ecosystem, which focuses on supporting Fintech communities and sharing content and experiences. The organisation hosts events worldwide – and the inaugural Mutuals Stage at the London event brought together representatives from credit unions, building societies, friendly societies and federations.
Thomas reminded delegates of the power of co-ops and mutuals to offer high service and better prices and be accountable to the people it was set up to serve. “Mutuals do not exist to serve external capital investors,” he said. “It’s a very different way of doing business, with a very different purpose.”
But he acknowledged that while mutuals are “the bedrock of our economy [which] create growth, prosperity and spread wealth by focusing on people’s needs”, these organisations in the UK do not have the support they need to grow and thrive.
“A quarter of banking services in Europe are provided by co-operatives,” he said. “What these countries have that we do not is a positive policy environment that ensures a supportive business environment in each country […] We have to recognise as politicians that too often the contribution of mutuals and co-ops to the UK economy and society has been overlooked – and as a result, the level of understanding of mutual businesses by the government and by regulators is surprisingly low.”
Three things are needed to change this, Thomas said: government policy that understands and supports co-ops and mutuals; legislation that is up to date; and regulation that recognizes the business purpose and the value of co-ops and mutuals. “Only then will mutuals able to provide and reach their full potential for contributing to the prosperity of our country.”
He highlighted how the recent saga of LV= (which saw members vote down a £530m sale of the insurance mutual to US investor Bain Capital) “exposed the weakness” of the legal and regulatory environment.
“One of the things that came out of the fight to stop the sale of LV= a was a recognition by government that a root and branch review of friendly societies legislation was needed, and the Law Commission has been tasked with doing that,” said Thomas. “That will be an important opportunity for us to lay down the foundations for doubling the size of the sector.”
Thomas confirmed that the APPG for Mutuals will lead a campaign in the new year to try “to get agreed what it is that needs to change” and work with the Law Commission to lay down a framework for helping the sector to “expand and prosper and ultimately double in size”.
“From January we’ll provide a platform for the mutual sector to lay out its thinking on the case for new and better legislation,” he added. “We’ll conduct hearings to gather evidence, build a new coalition of support for change and make a submission to the Law Committee to review.”
Over the two days of the event, delegates explored issues around growth, data, diversity, resilience – and the response of mutuals to approaching net zero.
On net zero, education and communication “has to be a priority,” said Rachael Hunnisett of the Green Finance Institute. The GFI aims to accelerate the transition towards an environmentally sustainable and resilient economy “by catalysing investment in net zero and nature positive outcomes”.
But there is an issue around capacity, and the green agenda is one part of a “constant tussle between priorities,” said Aimee Smith of Principality Building Society, highlighting that many organisations are struggling to balance legacy issues, ongoing digital transitions and the needs of members, alongside net zero transition.
This is also the case in Ireland. “Our members are focused on weddings, christenings, and other immediate needs, but at the same time, the green agenda is becoming a priority,” said David McAuley of Donore Credit Union. “We have to be ready for that and have products ready.”
But they have to be the right products, he added. Recently Donore partnered with energy companies and building providers to develop new green products for homes. They developed branding, set up a one-stop shop and offered a structure of tiered interest rates for the loan.
“But there was no appetite for that product,” McAuley said. “We had to come right back to member relations and start again, looking at enabling and educating. The road to net zero is long. There is no silver bullet for consumers in their retrofit journey.”
Balance was also discussed in a session looking at sights from the C suite: balance between members and products, branding and awareness, and growth and legislation.
Tipping this balance for many is the cost of living crisis. Caroline Domanski, CEO of the No1 Copperpot Credit Union, which serves the UK’s police force family highlighted how the impact the crisis has on its members is “very real”.
“I’m conscious that over the next 18 months we’ll see a lot of mortgages reprice and people’s rents going up. That has a real impact and is a challenge that we need to navigate through.”
Domanski also highlighted some of the other challenges that restrict credit union growth – many of which come down to legislation.
“The legislation for credit unions is from the late 70s,” she said. “We have had some reform along the way, particularly around the services we can provide, but the legislation is written in a very prescriptive way, saying what we can do rather than what we can’t do.
Another challenge is around the common bond; No1 Copperpot serves members of the police force and their families: “But the 70s had a very specific view of ‘family’, how a family should look in society and about how a family should all live in the same house. That’s just not the case anymore, and does create some restrictions for growth.”
Andy Morris, CEO of the Cirencester Friendly Society, is glad to see mutuals on the political agenda, but believes there is also a task for individual organisations to ensure they are up-to-date and relevant for their members. “Practically, you also need to be engaged with the digital economy, and be able to grow into markets with products that people actually want. Otherwise, it’s just nice words.”
Developing products that members want is something that Market Harborough Building Society has grown through its Thrive agenda.
“Our society has less than 30,000 members,” said CEO Iain Kirkpatrick. “Last year we grew our balance sheet by 20% and we’ll do something similar this year […] but there’s no use in being a mutual if you just retain profits and don’t do anything that’s worthwhile.” Last year, Market Harborough invested £1.2m pounds in its communities, he said, reminding delegates that “investing back into the community is what building societies were originally set up for”.
Andrew Whyte of the Association of Financial Mutuals highlighted how at the heart of the mutual sector is “a spirit of innovation, and doing things differently”.
“It’s about finding new ways to provide services to develop new products – and working in different ways which meet the needs of people whose needs and aspirations have not been met by the big financial services companies.”
He added that the cost of living crisis and financial precarity have left many people feeling uncertain – and consequently, the demands and expectations of people have changed. “What mutuals offer has never been more important.”