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Soaring consumer expectations, ever-expanding regulatory demands and an increasingly unpredictable economic environment. In many ways, running a mutual is an unenviable position. Mutuals do not have the fat margins enjoyed by the majors to enable them to throw money at talent, at technology, at risk management. They do not have the market position to let customers slip away when faced with a clunky interface. They do not have the vast suite of products or large product development teams to generate the next big thing.
What mutuals do have is agility, trust and an inbuilt customer-first focus. But these competitive advantages are at risk. Investment needs to be directed where it will have the most impact and deliver the greatest gains. Bank customers are notoriously sticky, and growing a customer base increasingly costly. The backbone of the banking industry, the mortgage, has become a commodity, and mutuals are left competing on price, or left to pick up the irregular borrowers that are rejected by the algorithms of the major banks. In this environment, mutual bank leaders are making tough investment choices – on the one hand, improving the digital experience is essential to keep and attract customers, on the other, these customers might not materialise without significant investment in marketing and competitive rate setting.
In this environment, it’s not surprising that risk management and governance are not always at the top of the investment agenda. However, to retain the advantages inherent in the mutual model, a long-term view is necessary. Investing in risk management and governance now will not only prevent the kinds of failures or errors that can be devastating to a smaller institution, but will improve efficiency and reduce costs over the longer term. At Rhizome, we see four key, interrelated areas where mutuals can invest now to see outsized future gains:
Recalibrating risk mindsets and structures
In 2025 and beyond, risk management must be adaptive. Mutuals are well placed for this with their existing flexibility and capacity for responsiveness. Adaptive risk management is better suited to a changing environment, where resilience is as important as mitigation. In an organisation where adaptive risk management is the norm, risk management does not just sit with the risk team, but neither is a rigid 3LoD model adhered to. Rather, risk is deeply embedded in strategic planning and decision-making, with leaders recognising the interdependencies both between risks and between risks and organisational structures and culture.
In an adaptive environment, the risk culture is one of continuous learning and incremental change, rather than box-ticking compliance. Digital tools play a part in this (and more on that below), but our experience shows that creating an adaptive risk management environment will depend more on the leadership approach and the practices and processes that are in place to support it.
Bringing technology governance to the forefront
Mutuals are known for their human-touch: putting people and communities first. But we are in a digital world, where customers increasingly interact with their financial services providers through technology. It is critical that this interface is both effective and safe for customers. Improved technology and data management is also essential to improving operational efficiency. With a strong cost cutting imperative, it can be easy to leap to solutions that promise easy wins and quick savings. However, this can easily go wrong, eroding trust and wasting time and resources. To ensure that mutuals realise the gains from technology, while maintaining safe and satisfied customers and resilient systems, mutuals should prioritise technology, artificial intelligence and data governance strategies that centre the need for digital to do what digital does best, while recognising that technology is also reliant on people.
Leveraging strategic partnerships
In the realm of technology and innovation, but also more broadly, to have access to the advanced technologies and specialised expertise necessary, mutuals need to exploit strategic partnerships and leverage their participation in cross-sectoral eco-systems. To do this effectively and safely, it is essential to have in place a robust framework for dynamically managing third party relationships. APRA’s CPS 230 has set the scene for oversight of these relationships, and as it becomes further embedded it will be important that mutuals are not just complying, but using the regulatory impetus to dynamically manage their partnerships.
Enabling agile leadership
To retain the agility that sets mutuals apart from their competitors, mutuals need governance structures and leadership mindsets that promote efficient decision-making and enable the effective balancing of individual accountability with collective delivery. They need structures and a culture that encourages and enables cross-functional collaboration. They need tools to better understand and align organisational culture with strategy.
Mutual banks are a critical part of the financial sector landscape, but in a challenging external environment, those that are not forward looking and adaptive will fall further behind. Running one might be the toughest job in banking. But it can also be the most rewarding, and the one with the most opportunities to effect positive change for the people and communities that mutual banks serve. So, it is up to those leaders to ensure that the internal conditions are calibrated in such a way that enables their businesses, and their sector to thrive.
Rhizome works with firms across the financial sector to understand, prepare for, and respond to risks and regulations.
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This communication provides general information which is current at the time of production. The information contained in this communication does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Rhizome Advisory Group Pty Ltd shall not be liable for any errors, omissions, defects or misrepresentations in the information or for any loss of damage suffered by persons who use or rely on such information (including for reasons of negligence, negligent misstatement or otherwise).