Credit Union Market Over-Branched: FMSI
The credit union and community banking markets have too many branches and are spending more than $1 per transaction just in teller labor costs, according to a new study by scheduling-software firm FMSI.
The study of community banks and credit unions in North America evaluated more than 16 million teller transactions and found that even though the number of branches is down nearly 5% as of June 2014, from the all-time high of 99,550 in 2009, the ratio of population to branches has declined from 9,340 in 1970 to 2,970 in 2014, according to the study.
“This staggering metric is a result from a nearly 300% growth in the number of branches since 1970 while the population growth was nearly half of that,” FMSI reported.
Also dropping quickly is the average number of monthly teller transactions at credit unions and community bank branches. They’ve declined 45.3% since 1992, from 11,700 to 6,400, and tellers have gotten less productive, processing 15 transactions per hour worked now versus 18.4 transactions in 1992, the study said.
In just the last five years, it added, the productivity of credit union tellers fell 7%, from 17.2 transactions per teller hour in 2011 to 16 transactions per teller hour in 2015. Teller productivity at community banks fell at less than half that rate (3%). The average number of teller transactions per hour worked also decreased at a much faster clip for credit unions in the last five years (down 12.2%) than at community banks (down 1.9%), the study said.
In turn, teller labor costs per transaction have risen 133.3% since 1992, from $0.48 to $1.12.
“The labor cost savings associated with a focused and dedicated workforce-optimization program for branches has become too great to ignore,” FMSI said.
Most branch interactions are still simple deposits and withdrawals, according to the study. Check deposit is the most common transaction, generating 26% of traffic, according to the study. Cash withdrawals constitute 22% of traffic, followed by cash deposits at 11%, loan payments at 5% and bulk deposits at 4%. The five activities drive 68% of branch activity, according to the study.
“If you continued the rate of decline as recorded by the FMSI Teller Line Study out another 20 years, there would still be an average branch transaction volume of approximately 3,500 (per month). Nevertheless, at some point in the future these simpler transactions will almost certainly completely migrate to more efficient channels when the future generations replace the older population segments of today,” the study said.
Branches won’t die, the report noted, but they will ultimately become sales-centric places rather than deposit-centric places. Millennials will visit branches if they can get advice on financial products and services, which can translate to product sales and cross-selling, the report said.
Moving simple deposit and withdrawal transactions to the digital sphere could save a significant amount of money, the study said, but there is a caveat that ensures branches in some form will be around for a while.
“The reality is, no matter how simple the other channel technologies are, there will always be some that will never adopt it,” the study said.