CO-OP Reflects on the Evolution of Shared Branching
For some of us, the early 1990s don't seem like they were that long ago, but in the world of shared branching, they might as well have been the Stone Age.
Back then, dial-up modems were the only way to connect to the Internet, “Cheers” was popular on TV and the NCUA was only 20 years old. And for many credit union members, the idea of belonging to one credit union but going to another to make deposits or withdrawals was still a foreign concept.
But it was during the early 1990s when a team of credit union executives made some big bets that created what is now the CO-OP Financial Services shared branching network, which includes more than 1,800 credit unions.
The idea of shared branching was born in Michigan, CO-OP Financial Services President/CEO Stan Hollen said. There, an organization named Service Centers Corporation opened some “standalone branches” owned by multiple credit unions that could serve all their members. Today's sophisticated computer networks didn't exist then – tellers had to use individual, dedicated terminals connected to each credit union to process transactions, he recalled.
It was cumbersome but inspiring. In 1989, Hollen, who was president/CEO of The Golden 1 Credit Union at the time, headed to Michigan with a team of other California credit union leaders to take a look.
“We made the trip, came back and it was very apparent to me, having been a programmer before, there's no difference between sharing tellers and sharing ATMs,” he said. “That's when we formed Financial Service Centers Corporation.”
Outlets, which are owned by individual credit unions but use software to process transactions for other credit unions, proved to be a better way to go, Hollen said.
“We called together all of the data processors at the time to meet with this group of five of us and told them, ‘Here's what we’re going to do. We want to do this, want you to get it ready, we want you to switch the transactions, as tellers would be the same as ATMs, if you will,’” he said. “We actually got them all to agree to do it.”
Three prominent shared branching figures are pictured here in 2010: Former CUSC Board Chairman Kris Mecham, former FSCC Board Chairman Carl Stewart and former CUSC Board Member Bob McCloskey.
The FSCC Board of Directors gathered together in 2003.
FSCC operated mostly on the west coast, while Service Centers Corporation was up north. In 1992, Credit Union Service Corporation got into shared branching as well, working largely in the southeast and creating a third player in the segment, CUSC President/COO Craig Beach said.
By 1994, CUSC found a way to conduct interstate shared branching transactions, Beach said, and that fueled bigger ideas among the three entities.
“They decided in 1994 that, hey, you know what? Our whole goal here is to put dots on the map,” Beach said. “In order to do that, let's create this thing that we can have reciprocity in our networks.”
The three soon created mutual conventions for sharing, pricing and switching via a new organization called Credit Union Service Centers Network, Inc. It became a sort of rulemaking entity, according to Hollen.
By April 2001, the networks had 528 branches from 540 credit unions in 27 states. Only about a year later, it was up to 730 branches from 908 credit unions in 35 states and four countries, FSCC President/COO Sarah Canepa Bang said.
In 2002, CO-OP acquired Service Centers Corporation, largely for its ATM and debit business. That paved the way for Hollen, who took the helm at CO-OP Financial Services in 2005, to make shared branching growth a priority.
A deal to acquire a controlling interest in CUSC came soon after, in 2007. CUSC was led at the time by Carroll Beach, Craig Beach's father. CO-OP now owns 90% of CUSC.
The last of the three, FSCC, merged with CO-OP in 2011. Canepa Bang, who joined FSCC in 1999 and is now its president and COO, as well as chief strategy officer for CO-OP Shared Branching, oversaw the transaction. Rebranding efforts ensued, and CO-OP officially announced its new brand on April 30 of this year.
Without a doubt, shared branching growth has been a function of technology advances. In 1992, everything was done with a 9600-BAUD connection, Beach remembered, and even by 2000, the technology of shared branching was still relatively primitive. That changed dramatically with the advent of virtual private networks.
“It was like night and day,” Canepa Bang said.
Hurricanes Katrina and Rita in 2005 solidified its future as a disaster recovery mechanism as well, Beach added.
And in the beginning, Hollen said, banks clearly didn't recognize the seeds of what would become the country's third largest branch network – the 5,400 branches in CO-OP's shared-branch network now outnumber those of Bank of America and US Bank. Only Wells Fargo and Chase have more.
Canepa Bang remembers talking about the concept with students at the Western Intermediate Banking School all those years ago.
“They could not get their heads around it,” she said. “I’d be looking at a group of 300 smart people, and you knew they couldn't wrap their hands around sending a customer into the branch of a potentially competing institution. I will say this: After every time I taught there, people would come up to me in the hall, secretly, or women in the bathroom would give me their business cards and say, ‘We’d like to talk to you more.’”