This opinion piece is half of a new Credit Union Times feature Forum Focus, which will comprise opposing viewpoints on key credit union issues.
The initial predictions that branches would no longer be relevant surfaced around the time ATMs were first deployed in the early 1970s. Despite numerous predictions since then, branches continue to be an essential element of delivery strategy. At Tower, we recognize the branch network may eventually become obsolete, but until our members tell us branches are no longer relevant, we will continue to selectively expand our branch network where the demographics, location and break-even forecasts tell us it is prudent to do so.
Credit union executives who decide to close down their branch network and rely strictly on remote and electronic banking may regret that decision. We believe branches are still important because our members continue to tell us so.
Based on Tower’s most recent member survey, our members believe branches are most important for making cash and check deposits, resolving problems and obtaining cash. Over 65% of our members say convenient office hours are important, and 63% want convenient office locations. Over 80% prefer having employees available to answer questions, and 87% want prompt resolutions to their problems, with many wanting face-to-face contact.
Branches are a valuable tool in building meaningful and sustainable relationships. For over a decade, Tower has employed a blended delivery strategy, coupling remote and electronic solutions with branches, to enhance the likelihood that our members continue to consider Tower as their primary financial institution. A financial institution with only electronic access can still attain PFI status with most of its members, but it requires more time without a branch network.
We are well aware electronic delivery is cheaper and gaining some traction in the marketplace, but we expect branches will remain a vital component of our strategy for at least the next five to 10 years.
Branches create intrinsic value for a credit union. They provide essential exposure in areas where members work or live. They give greater comfort to members, knowing that a branch is nearby when they think about opening a checking account. They create linkage with members as part of their local community, and they increase the likelihood that members will become personally attached to the credit union and see its importance in their long-term financial well-being.
Becoming a known quantity in the community, by associating a face with the credit union, can go a long way during periods of economic turmoil or when competition enters the local marketplace. Branches can have a significant impact on increasing member trust and loyalty, thereby maximizing PFI potential.
Maintaining a network and adding new branches is costly. But if coupled with increased efficiencies and effective utilization of new technologies, branches can be affordable and become more profitable by attracting new deposits, originating loans, and cross selling products and services. Some successful strategies that Tower has used are employing its hub and spoke branching concept, enhancing branch efficiencies with the use of cash dispensing and remote-teller technologies and redeploying employees from existing locations to new branches.
Our hub and spoke branching links larger hub branches with much smaller spoke branches. It has been valuable in minimizing management staff at smaller branches, with management advice and assistance coming from larger branches when needed. It is a smaller branch footprint with fewer staff at each branch and greater efficiencies that has allowed us to expand our branch network without incurring significant increases in overhead costs. The ongoing challenge is to maintain service levels with fewer employees.
These strategies seem to be working. According to a recent Raddon Financial Group study, Tower’s average combined household balances were $38,600 (95th percentile) and net income per household was $221 (91st percentile). Household penetration of checking accounts was 72.6% (98th percentile) and credit cards was 40.5% (97th percentile). Household retention was 98.3% (85th percentile), services per household were 3.00 (99th percentile) and accounts per household were 4.76 (98th percentile).
Maintaining a branch network may not be necessary for all credit unions, such as those at universities, which have a relatively homogeneous and technology savvy membership. But for many credit unions, it remains a valuable and relevant component of service delivery.
Richard L. Brake is senior VP, member services at Tower Federal Credit Union, Laurel, Md.
Contact 301-497-7042 or Richard.Brake@towerfcu.org