ATLANTA -- The financial services market is so over saturated,institutions in some areas are faced with three choices: fail,merge or adapt.

John Hyche, principal at consulting firm Level5, calls thisscenario "The Tipping Point." The lead strategic consultant in afirm that also manages construction, real estate, architecture andbranding, Hyche said he's seen evidence of The Tipping Point acrossthe country, as he reads trade publications, discusses the industrywith colleagues, and works with clients.

The highly competitive environment doesn't have room foreveryone, and institutions that lack savvy employees, efficientoperations and a unique market position are unlikely tosurvive.

"Once upon a time, credit unions were very fraternal," Hychesaid. "Everybody had a clear and non-competitive field ofmembership.

"Then gradually, credit unions adopted community charters, andthe next thing you know, you hear about credit unions acquiringeach other, which used to be a banker's term."

Increasingly sophisticated credit union strategies aren'tentirely to blame, Hyche said. Big banks purposely overbuild in newsuburban developments to get a monopoly on convenience. Small banksaddress competition with VIP-level service, innovative technologyand strong community ties. De novo banks and non-banks that providefinancial services, like insurance and investment companies, crowdthe market even further.

Over saturation has resulted in fewer members per branch,forcing retail locations to produce more with less to breakeven.

"Way back when, 5,000 customers was considered a nice metric togauge sufficient population to support a free-standing branch,"Hyche said. "Now, we're seeing more and more branches with apopulation around 3,000."

The competition is great for consumers, who demand everythingfrom the latest Internet banking technologies to safe depositboxes.

However, when consumer demands for amenities are combined withincreasing costs for construction, real estate, energy and employeecompensation, a slim-to-none interest yields and fewer potentialcustomers, the numbers just don't add up, Hyche said.

Thankfully, there are adjustments credit unions can make tosurvive the competitive landscape.

The consultant's advice includes directives to reduceoperational costs, deepen relationships with members, and convincemembers their relationship with the credit union gives them afinancial edge.

He pointed to $110 million Innovations Federal Credit Union as asuccessful adapter. The community charter credit union isheadquartered in Panama City, Fla., which Hyche identified as anextremely competitive market.

CEO David Southall has made some difficult, major changes atInnovations since taking over as CEO in 2004.

"There was no sales culture at all; in fact, my board chairreferred to the credit union as 'Sleepy Hollow', and that was thetruth," Southall recalled. "Tellers would grumble when memberswalked in, because it meant they had to do something."

Uninspired clock-watchers are a prime example of operationalinefficiency, and though "cleaning house" is often emotionallymessy and can attract lawsuits, Southall said credit union managershave an overriding obligation to successfully manage memberassets.

In a branch setting, Hyche recommends cross training employeesto fulfill all branch functions, which adds value to compensationdollars. Additionally, branch employees must transition from ordertakers to sales representatives, and embrace a sales and serviceculture.

Multiple relationships help make up for a lack of availablecustomers, and keep the member sticky.

Finally, credit unions must emphasize ways members are betteroff with them than at another institution, speaking to them as ifthey were private banking or wealth management customers.

"While the experience must be positive and the 'wow factor' isimportant, improving the financial well being of the customershould be a goal," Hyche said. "When this goal is reached, andpointed out to the customer, there should be some resultingtraction in gaining positive word-of-mouth," Hyche said.

Though he believes the Internet will eventually replace mostbranch functions, Hyche believes it is at least a generation away,and said he thinks brick and mortar will still survive, though fora different purpose.

"Just because a kid can master X-Box, doesn't mean he knows tohandle his financial affairs online," Hyche said.

He theorized branches may develop into education and servicecenters, a place where customers can speak face to face with arepresentative to clear up a problem with their account, or receivefinancial counseling on the eve of an important decision.

"Customers will still need to talk to somebody when they can'tfind the answer in the FAQ section of your website," he said.

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