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Mutuals must differentiate themselves, not compete on price, suggests report

Up to a third of mutuals are likely to disappear through merger, consolidation or closure in the next five years, warns a report on the UK financial services industry by consultancy Ernst & Young.

The report entitled, Returning to radicalism? Mutual financial institutions in the 21st Century, warns that the pressures of intensifying competition and the increasing burden of regulation will lead to a contraction of the sector.

But E&Y says the future is not all doom and gloom for mutual life offices and building societies. It predicts that those which differentiate themselves in the market will do well.

Conditions are ideal for growth rooted in social value rather than profit maximisation, it says.

E&Y gives two essential conditions that mutuals must fulfil to prosper, which are development of sufficient scale and operational excellence to survive in a sub-1 per cent world and differentiation through elements other than price.

It advises mutuals to define and promote the benefits of mutuality rather than fight an increasingly one-sided price war with big plcs.

Head of retail banking Philip Middleton says: “While there will still be a need to fend off carpetbaggers, there a significant opportunities for mutuals in such fields as community-based financial services, charitable work and provision of local services, as well as providing a competitive alternative to proprietary institutions.”

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