Even though the digital world is eating away at branch traffic, credit unions are plowing dollars into branch construction anyway, according to a study by SNL Financial, leaving many credit union execs debating over the highest and best use of their expansion capital.
Branch transaction activity is roughly half what it was in 1992, according to the FDIC, and check use is barely a third of what it was in 2003. But SNL found that the total number of credit union branches rose for a second consecutive year; as of July 30, there were 27 more opened than closed in the United States. That may seem small, but it's a big difference from the 241 net branches lost in 2012 and 2013.
Navy Fed, which ranked first in SNL's list of 2015 net openings, has added 13 new branches so far in 2015 and expects to open seven more by the end of the year, Kathy Ward, senior vice president of branch operations at the Vienna, Va.-based Navy Federal Credit Union, said.
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One factor may be that digital still doesn't have the critical mass to usurp the $70 billion credit union's branches. Its average traffic today is as strong as it was in 2012, and new branches still attract more members than digital assets do, she said.
But fewer transactions and more advisory traffic is making some credit unions reevaluate their construction budgets. Both Ward and Tim Gray, the CFO of United Federal Credit Union, which ranked second on SNL's list, said many new branches will likely be smaller, for one thing. Vystar Credit Union, a $5.5 billion credit union headquartered in Jacksonville, Fla. with 493,000 members, is also cutting about 500 square feet off its typical branch, taking it down to around 4,000 square feet, President/CEO Terry West said. It has opened 13 new branches since 2012.
West said branch construction costs are akin to marketing costs, and his credit union's branches still attract more members than its digital offerings do. Nonetheless, digital is getting more of Vystar CU's capital budget, he said.
"While digital is wonderful and it's more convenient, I frankly don't look at it as a cost reduction. I look at it as an alternative distribution, an access point," he said.
That's another reason it may be hard for credit unions to get off the branch-investment treadmill when digital is so thirsty for capital.
"That voice is always there," Gray said. "We hear it all the time, but we have to resist that knee-jerk reaction to what the future is going to be. I definitely believe that digital is absolutely going to be a very important part in financial services moving forward. But exactly what it looks like, as much as they want to tell you that everything's going to move 100% there, I'm not buying that."
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