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In a statement to the London Stock Exchange, Britannia said the talks had been held in light of upcoming legislative changes, which will make it easier for different types of mutuals to work together.

Britannia said the talks with CFS were at a very early stage and would cover a wide range of options as to how the two organisations could work together, including a possible future merger.

This would be enabled through the introduction of measures contained in the Building Societies (Funding) & Mutual Societies (Transfers) Act - known as the Butterfill bill.

The legislation is expected to be in place by the end of this year.

A merger would also have to be approved by a vote by Britannia's members.

The combined and complementary strengths of the two businesses could offer customers a real ethical, customer-owned alternative to the plc market, with the combined organisations having around £70bn of assets and six million customers.

Neville Richardson, group chief executive of Britannia, said: "As two like-minded, forward-thinking and financially strong mutuals, we are talking with CFS about how we can work together to create an exciting proposition for our members.

"Both businesses have been pursuing successful strategies and do not need to merge but we recognise we could be even more successful by coming together and creating the UK's most trusted financial services business."