Securing customers' interests through mutual ownership A Nationwide case study


The changing market for building societies

Building societies have a long history of caring for their members. They encourage them to save and help them to buy homes by lending them money at affordable rates of interest over long periods of time.

Until the 1980s the various operators in financial services concentrated on their own areas of expertise. Customers wanting banking services went to a bank; for insurance services they contacted an insurance company and for a mortgage they approached a building society.

However, in the 1980s the market for mortgages was deregulated and 'opened up' to new entrants. This change encouraged banks to enter the mortgage market alongside building societies. At the same time the 1986 Building Societies Act allowed societies to offer more financial services than previously. It also allowed mutual societies to demutualise and convert to banks.

Building societies: the choice

In 1989, the first building society demutualised and became a public limited company. Several other major building societies soon followed. Nationwide, however, is one of a number of mutual organisations whose management and members continue to confirm their wish to remain mutual and to stand by principles and values that originally led to building societies being set up.

Nationwide believes that its mutual status gives it a competitive edge in the mortgage loans market because of the clear benefits that mutuality brings to its members who are also its customers.

Nationwide Building Society

When Nationwide and Anglia merged in 1987, the new organisation had a larger branch network than any other society, not only in the UK but in the whole world. Today, Nationwide is the UK's fourth largest mortgage lender and remains a mutual organisation owned by and run for the benefits of its members.

By remaining mutual Nationwide aims to offer a broad range of services such as mortgages and other financial products while charging as little as possible for day-to-day services.

Organisational structure and objectives


All organisations have stakeholders, but the number and range of stakeholders depends on the organisation's structure. Building societies and public limited companies such as banks all have employees, customers and suppliers among their stakeholders. Mutual organisations that convert themselves into public limited companies, however, create a new and very different stakeholder: the shareowner.

Whereas in a mutual organisation its owners are also its customers, the shareowners of a public limited companyare much more divorced from the business. For the most part, they will be concerned only with their investment within the business and will expect a solid financial return for the risks they undertake as owners. This return is paid in the form of a dividend upon the shares they hold within the company.

As building societies do not have to pay dividends to shareowners, they do not need to generate the same level of profit that banks require in order to pay dividends to shareowners. As a result, building societies are able to charge less to borrowers and pay more to savers. They are also more free to focus upon satisfying their customers and members who are prime stakeholders.

Building societies that have become banks are able to raise money more easily and to take on new and different lines of business, but they also take on additional obligations to shareowners that alter the way in which they can set about doing business.


An organisation's form of ownership influences its business objectives. The needs of public limited companies are driven by their shareowners. To satisfy these needs, managers focus upon making decision that maximise shareowner value. That means trying to increase the dividends they pay to shareowners and also improving the profit outlook for the firm in the future, so that the company's share price remains buoyant on the Stock Exchange.

The objectives of public limited companies are, therefore, driven by the need to make profits to keep shareowners happy and onboard. Whilst the key to making sufficiently high profits involves being very good at providing what the customer wants, for public limited companies it can also involve setting prices that reflect a need of high margins. There is then the danger that prices will be set in line with a policy of 'charge what the market will bear' rather than with reference to the actual costs of providing the service, which may be markedly less than the price charged.

As a mutual organisation and without the need to satisfy shareowners, Nationwide is free to adopt a different business approach. It looks to deliver value for its members by setting low margins. This is in keeping with the society's objectives. By continuing to develop tangible benefits for its members, Nationwide's borrowers and lenders continue to enjoy lower fees and charges.

Creating a competitive advantage

Within a rapidly changing and highly competitive marketplace for financial services, organisations flourish by establishing a competitive advantage. This results from being different and distinctive in ways that matter to customers.

Nationwide emphasises that it is 'proud to be different' : this is its strapline. The challenge then is to demonstrate to customers that Nationwide is different in ways that really do matter to customers and which are to their great benefit.

The strapline message reminds Nationwide's owners and customers that its approach to business goes beyond commercial interests. The core of the business include a responsibility to members that enables Nationwide to offer services that compete with banks but at a lower cost because dividends do not have to be paid to shareowners.

Emphasising this link with customers is particularly important for Nationwide, as its customers are also its owners, known as members. Staying mutual enables such organisations to retain their ability to serve members in a way that these members clearly value. This includes offering services that are inclusive and local.

By contrast, those financial organisations that opted for demutualisation have to face the harsh realities of shareowners' requirements. To compete in the market place, many of these newly-formed banking organisations have had to reduce their cost base.

Measures taken have included reducing branch networks and maximising the use of technologies to provide customers with forms of service that require little or no human contact. These measure have also led to marked reductions in staff levels, including redundancies. By contrast, Nationwide has, to all intents and purposes, retained its branch network whilst at the same time developing its online services.

Measuring effectiveness

Key measures of Nationwide's effectiveness as a mutual organisation include the terms and conditions on which it does business with its members, who also form the overwhelming majority of its customers.

During 2003/04, Nationwide delivered £588m by way of better value to its members. This consisted of £236m to savers in the form of better savings rates, £223m to borrowers through lower rates and £129m in lower fees and charges.

Another measure of effectiveness is an organisation's treatment of its staff. In 2003, the European Commission carried out a survey of 1,000 businesses around the EU. Nationwide was placed in the top 100 workplaces. In a survey conducted by the Financial Times, Nationwide was placed 11th in the competition to find the best of the UK's top 50 workplaces.

Another measure is Nationwide's ability to attract new members (members are either savers or borrowers who take out a mortgage). In the year 2003/04 Nationwide attracted nearly 370,000 new members and has a current membership of around 11 million, equivalent to at least a quarter of all UK households.

The growing popularity of mutual organisations allied to their ability to retain existing customers and attract new business means that Nationwide has now achieved a 12.8% market share of new mortgage lending compared with a historic market share of 7.9%.


As a business concept, mutuality remains alive and well. By playing to its strengths, Nationwide Building Society is demonstrating that, within the financial world, organisations which for strategic reasons, have made the decision to remain structured as mutual organisations are able to flourish.

This is because they have the flexibility not only to provide a service to their members instead of maximising profits, but also to do it in a way that provides them with a distinctive advantage over demutualised organisations operating in the same financial market place.

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