Raddon-CO-OP Study Finds That Share Branching Boosts CU Profitability
An integral part of the message for profitability during tighter times focused on shared branching. The concept has grown steadily, particularly in the wake of natural disasters that shed light on the role shared branching can play in disaster planning.
But one of the stumbling blocks shared branching has faced has been the perception that it is essentially a member-service expense for credit unions-that even though participating credit unions make money when members of other credit unions use their branches, they still lose more money when their own members use other credit union branches.
Craig Beach, vice president of marketing for CO-OP Shared Branching, hopes a recent study from Raddon Financial Group and CO-OP Shared Branching, which demonstrated that shared branching is a boost to credit union profitability, will overturn that misconception.
CO-OP and Raddon released the study at the conference. It consisted of an examination of data from 15 credit unions that are participants in shared branching and clients of Raddon. The study found that even credit unions that had just started using shared branching were seeing higher profitability from the service.
"Many credit unions are already aware of the benefits of shared branching," said Carroll Beach, chief operating officer at CO-OP Shared Branching, "but as organizations look to cut costs during these tough times, this study shows shared branching has never been more important."
The study found that that shared branch users represent 23% of a credit union's overall profitability. Further, shared branch using households generate an average profit of $119 for credit unions, while nonshared branch households averaged $28.47.
Beach and Craig Capp, national sales manager for Raddon, acknowledged that 15 credit unions was a small sample size to draw conclusions from but stressed that they worked to find credit unions from all different regions and asset buckets.
They said they expected to continue and deepen the study periodically to glean more information from the records and discover, for example, whether a credit union's more profitable members were drawn to shared branching or offering shared branching helped make members more profitable.
Shared branching and increased CU cooperation was also the subject of a tag-team by former NCUA Chairman Dennis Dollar and Carroll Beach concentrating on the current financial situation.
The former NCUA official who has since gone into credit union consulting drew a chuckle from executives when he paraphrased a comment frequently offered by CUNA CEO Dan Mica: "My, what a good day it is to be the former head of the NCUA," Dollar said.
Dollar said the current economic downturn had made credit unions' historical 1% return on assets an impossible standard. Additionally, the hits credit unions had taken to their capital and from increased charges from share insurance fund had made it almost impossible for many, if not most, credit unions to have a positive ROA, this year and maybe next.
"I think we may be into 2011 before we see this thing really start to turn around," Dollar said, noting that the NCUA appeared to be adjusting its expectations of CUs. "They are having to face the cold, hard facts just like the rest of us," he added.
Beach concurred and said the current numbers emphasized how credit unions must cooperate to advance their reach and cut their costs. He recounted how he had described shared branching to a banker friend, who saw the advantages of it before noting that banks would never do it. "Cooperation is a key credit union strength that bankers just don't have," Beach observed.
In another later session a CO-OP executive urged the attending leaders to pay closer attention to their point-of-sale networks.
Lynn Kneebone, sales director for CO-OP Financial Services, explained that as part of the legacy of POS networks in the U.S., many credit unions have been left with two or three or sometimes more POS networks. What they don't realize is that these networks do not all bring the same interchange and not using the one that brings the most interchange is likely costing them money, she explained.
In order to remedy the problem, Kneebone urged credit union leaders to carefully examine and analyze their flow of interchange to find the net interchange for each network they have and consider leaving the ones that do not bring as much money. Net interchange is the amount of interchange the credit union has left after subtracting out fees and some ATM transactions from what it makes from other ATM and merchant transactions.
"When a merchant has the same POS networks as you do, they can arrange them in order of which one they want to use first and, not surprisingly, they are going to choose the one that is cheaper to them and not as good for you," she said.