Brother, Can You Spare a Branch? Economics Drive Shared-Branching Decisions
Shared-branching executives reported that, traditionally, shared-branch access has allowed credit unions to offer their members branches nearby without laying out the capital to build new ones. But they added that shared branching has also begun helping credit unions soften the blow of closing branches under the pressures of collapsing balance sheets.
"No one wants to close a branch, but if you know that your members are still going to have branch access through a shared branch that is less than three miles away, it makes the situation more manageable," explained Sarah Canepa Bang, CEO of Financial Service Centers Cooperative. FSCC members include many larger credit unions in California, which, Bang pointed out, have been hit hard by the economic downturn and the fallout of the NCUA's actions with Wescorp.
Bang acknowledged that three miles could be a significant distance, particularly in parts of California and other states known for their severely congested traffic. But she argued that from the credit union's point of view, an available distant branch is still better than having no branch available at all.
She also acknowledged that, in some cases, branches closing has also meant shared branching outlets closing as well.
"No one has set out to deliberately close a shared-branch outlet," she noted. "But all the same, if a credit union closes a branch that is also a shared-branch outlet, they have closed that outlet."
On the positive side, Bang also reported that more credit unions that had previously joined shared branching to allow their members use of other credit unions' branches are now opening up their own branches to other credit unions' members to capture the income from shared-branch transactions.
"Sure, that income from shared branching acquiring might only be $1,000 per month per branch," Bang noted. "But that is still $1,000 dollars per month from that branch that you didn't have before."
Credit unions with members who use other CUs' branches for shared branching transactions are issuers and pay a fee for those transactions. Credit unions that host other CUs' members are called acquirers and receive income from those transactions.
On the whole, Bang said, the network has seen more shared branches open than close as credit unions seek income from acquiring transactions.
One credit union CEO whose credit union started shared branching in mid-April agreed that a strong economic case could be made for shared branching.
"Shared branching made sense for our members and for our credit union," said Jane Brannon, CEO of the $209 million HealthCare Associates Credit Union, headquartered in Naperville, Ill. "We're using the technology and cooperative nature of shared branching to compete with the nation's largest financial institutions. Many businesses have been hit hard with the slow market; however, we don't see the decline as detrimental but rather an opportunity to open more doors for our members to have more access to their accounts than ever before-all through shared branching."
Vicki Schultz, assistant vice president of marketing for HealthCare Associates, reported that shared branching enabled the credit union to offer branches long before it could have opened branches on its own. She explained that the CU has four branches and currently acquires shared-branching transactions in two of the four and plans to start acquiring in a third soon.
"We definitely hope to see more income from it, but since we just started it in mid-April, there really hasn't been enough time for data to be collected," she said, adding, "Anyway, the income would only be incidental. We really joined shared branching for member convenience."
David Rossignol, CEO of the $127 million NorState Federal Credit Union, headquartered in Madawaska, Maine, explained that shared branching was the only way his CU could afford to better serve its 13,000 members.
"Many of our members live in Aroostook County, a county in Maine that takes up about the northern third of the state," Rossignol explained. "Shared branching was the only way we could put a branch in a lot of the places our members are."
Rossignol also recounted that the credit union had been looking for an affordable retention strategy. Aroostook county has lost about 10% of its population over the last decade, Rossignol said, and has an economy firmly rooted in farming, logging and paper production.
"Many of our younger members end up leaving here for other places, and we wanted to have a way of allowing them to keep their relationship with us despite living somewhere else," he said.
Craig Beach, vice president of marketing for CO-OP Shared Branching, agreed that economic pressures have helped make acquiring shared-branching transactions more attractive.
Previously, some credit unions resisted opening their branches to shared-branching transactions due to start-up costs for the necessary hardware and software and logistical concerns, such as serving more nonmembers than members.
But Beach said the experiences of credit unions that have acquired shared-branching transactions, combined with the income opportunities, have eased some of those concerns.
"It's always difficult to quantify an average shared-branch transaction because the acquiring fee varies so much by what is being done and whether they are using a teller, etc.," Beach said. "But shared-branching transactions range from between $1.25 or $1.35 to up to $2.35 or $2.40."
Beach also pointed out that credit unions coming into shared branching now can benefit from having a credit union-owned switch, CO-OP Shared Branching's Next Generation switch, to both cut costs and maximize income.
"It's always been something of a background shared-branching advantage, but we hear credit union executives speaking more clearly and often about it now," he said.