Branches: Knowing When to Hold 'em, Knowing When to Fold 'em
Is the death knell sounding for branches? Can we expect more closings or will there be a surge in branching taking advantage of the current economic environment?
The short answer: It depends. Perhaps a shift in perspective is in order to focus on the right questions, experts said.
"With the economy, everyone is looking to maximize their resources, so if a branch is draining resources, not providing the function or service level originally intended, then that needs to be reevaluated and something needs to be done about that," said Gary Shaivitz, senior consultant at financial services strategic solutions provider CCG Catalyst. "Since 1972 people have been talking about how the role of the branch is declining, when the ATM came out it was, 'Oh, the branch is dead.' It is really a generational thing and more about learning how consumers want to interact with their financial institutions and finding ways to strategically maintain or increase the level of service to members through various delivery channels," he said. "So credit unions need to consider and have a firm grasp of their strategic mission in life and their branching strategy should help drive that mission."
"Don't let the short-term obstacles and crisis of the market cloud the vision of long-term objectives," added NewGround President Kevin Blair. "An institution's brand identity and promise, as well as its commitment to the community, are vitally important to the success of any financial institution coming out of this crisis. Get back to the basics of your brand strategy, focus on knowing who you are and what you do best."
"Concentrate on enhancing your brand, revitalizing old worn out legacy branches, and energizing and leveraging frontline staff," said Blair. "Being a market leader means stepping out in times of adversity and making sure you've got the right brand strategy that aligns not only with your credit union's physical and virtual space but also their culture."
For Raleigh, N.C.-based Coastal Federal Credit Union, keeping its brand position properly aligned meant a renewed focus on returning to its roots in the Raleigh, Durham, Chapel Hill Triangle market and closing its branch operations in Charlotte.
"The Triangle is where we were founded and where we have had our greatest success. This is where we enjoy our strongest market share, solid brand recognition and best return on our investment," said Willard Ross, senior vice president and chief retail officer at the $2.1 billion credit union. "Rather than spread ourselves thin by continuing to support physical branch operations in two major markets, we're committing to focus on branch growth and expansion throughout the Triangle market."
Out of a total membership of more than 195,000, Ross said only 12,000 used Coastal FCU's three Charlotte branches, and compared to the Triangle, the credit union didn't have as big a SEG presence there either. He said that in addition to a smaller membership base, the Charlotte branches have had to contend with a minimal market share and limited branch network, while facing much stronger competition from banks and other credit unions. Ross said the decision to close branches boils down to ensuring profitable growth by playing to the credit union's strengths, such as its more than 6% deposit market share and 15 branch network in the Triangle, a strong growth market.
"One other factor is admitting when a branch has not met expectations and cutting losses. We expanded rapidly over a number of years, and most of those new branches have exceeded expectations. However, in several cases, the locations we chose just did not work out and we have closed those," said Ross. "Interestingly, we have more members in Charlotte who did not use the branches than did, so we knew we could provide good service through alternative delivery channels."
One such channel developed during the past few years, has been Coastal FCU's Express Teller technology, which enables the centralization of tellers in the Express Teller Center.
"Taking the tellers physically out of branches does several positive things. It frees up the branch manager to focus on their frontline staff that make loans, open accounts and solve more complicated problems for members who walk in or call in," said Ross. "It also frees up time to make proactive outbound telephone calls to members."
Express Teller branches require less square footage because the actual tellers are no longer in the branch. This technology also enables the CU to provide branch services in some nontraditional locations, said Ross. "For example, we recently opened a micro branch in Lenovo's Triangle headquarters building with one Express Teller machine and one MSA in less than a 100-square-foot space near their caf?," said Ross.
Signs that something is happening at the branch level can be found by looking at the level of activity going on at the branch, for example decreased new account volume, according to CCG Catalyst's Gary Shaivitz. Credit unions should also be aware of the delivery behavior of their members. Are they branch dependent? If so, and if the activity level is decreasing, find out why. Is it marketing, products offered, the design? If all those factors have been ruled out and the branch is a drain on net revenue, then it might be time to consider closing it. Once the decision is made, clear and frequent communication is key to managing the member response, Shaivitz said.
"Credit unions should clearly communicate their reasons behind the decision and provide several alternatives for members," said Shaivitz. "Explain and educate your members on how they can continue to interact with your credit union. Use your branch staff to make calls and write letters, because they are the ones your members feel know them best, and it will help reassure members that although the branch is closing they will still receive the same level of service they've always had through these other delivery channels."
Coastal Federal had a solid communication plan in place, which focused on getting the news out to affected branches, then all employees, then members and the general public, all within a fairly tight time line. Members were notified by mail-letters were actually dropped prior to the internal announcement-and in-branch collateral, which was made available soon after the announcement was made to credit union employees. Ross said many also found out from local news coverage.
"We've had our VP of member loyalty on location in the region since the announcement date to help address member concerns in person. For the most part, members have been very understanding. Some have expressed disappointment but considerably less than was expected," said Ross. "Branch expansion and optimization is part of our five-year strategic plan. Our intent is to upgrade the branches we can, replace the branches we must and then begin looking to fill in gaps in coverage by opening brand-new branches in locations where we know we can succeed."
"Optimization is the word we're hearing from all financial institutions large or small. You may have branches no longer relevant to the member base that's struggled over years, so now optimization in some instances may dictate closures. But you need to know the rest of story. Will those branches be replaced with other facilities?" said Blair. "The focus is one of cost containment and reduction rather than investment and growth. The belief is that this strategy will enhance short-term financial performance and increase a credit union's ability to take advantage of the recovery when the opportunity arises."
However, for those credit unions that can, Blair pointed out that land is very cheap, construction costs are low and there may be no better time to buy and build than now. "You can buy existing branches for 50 cents on the dollar. Remember, decisions to buy or build today will make their impact mid 2011 or 2012, so your branch will already be in place to attract the market share when the economic pendulum swings back," he said. "Today's dismal, drawn-out market conditions combined with waning consumer confidence marks the perfect storm of opportunity for credit unions."
Texas City, Texas-based Amoco Federal Credit Union has opted to make the most of a buyers' market by expanding its branch footprint with two new branches with plans underway to build a new main headquarters.
"We set out over five years ago to build a total of four new branches and despite the hiccup in the economy, we decided to stay the course with our branch expansion strategy," said Amoco FCU President/CEO Shawn Bailey. "At the time we had only one branch so it was crucial for us to continue our branch expansion plans so we stayed focused on specific counties we wanted to serve."
For its size, the $543 million credit union is "an anomaly and has been playing catch up to everyone else" as far as branching, Bailey said. As part of its strategic approach, the credit union begins building brand awareness within the communities where branches will be built before even breaking ground.
"As soon as we made the decision to be at a specific location and started negotiating the land acquisition, our business development team went out and hit the ground running for example through meetings with the local chamber of commerce," said Bailey. "It's been the secret for our success. So much so that in two locations we were named business of the year before we even opened those branches. That is how active we are within community and I think if you wait get involved until after the branch is built or for the grand opening then it is already too late."
Amoco FCU also plays up its more than 73 years of history as a way to reassure members and nonmembers alike that while the facility may be new to the area, the credit union itself has a longtime record of serving the needs of its members.
"We want them to know we're not some fly by night set-up but that we are here to stay so we made sure our branches reinforce that message," said Bailey.
The facilities offer a retail feel mixed with traditional elements like a teller line that work well in the area. Bailey added that brand consistency has been vital to building awareness so that members know instantly when they walk in that it is an Amoco FCU branch.
"Certain parts of our area are growing tremendously, and the first few branches we built serve as central hubs for future expansion," said Bailey.
As far as the pestering rumors of the branch going the way of the dinosaur, CCG Catalyst's Shaivitz and NewGround's Blaire both said credit unions would be well-served to focus on what new role the branch will play in the future such as serving as more of a resource for consumers looking for advice rather than a place for transactions. The growing challenge will be how credit unions can translate that new branch role into opportunity in better serving members.
"At Amplify, the branch is viewed as more of a multipurpose facility," said Amplify Federal Credit Union Senior Vice President of Retail Delivery Pierre Cardenas. "So when people come to our branches or retail store we want to deliver an experience that is more than just cashing their check."
So the $536 million Austin, Texas-based credit union branches live up to the tagline, "Bank Less, Live More" by having staffers who walk around ready to serve members in an open space that looks more like a retail store than a credit union branch. Branch staffers have laptops and are cross trained to provide one-stop service. In addition, video conferencing is made available to members who may need a commercial loan officer or investment adviser. The branch is a true community resource, even after hours as Amplify makes the most of its square footage by opening the branch to local bands who want to hold concerts, musicians who want to sell their CDs and artist who want to display their work.