MONTREAL — Much lip service have been paid to the "branch of the future," but two credit unions have already implemented their own strategies to take their branch networks into the future... or not.

For years, futurists predicted that brick-and-mortar branches would go the way of the dodo, but they're still alive and well — if nearly unrecognizable from the branches of yore.

All that marble, the crimson velvet ropes, the tellers lined up like so many peas in a pod have given way to kiosks so smart they should have diplomas, or to the branch each member can hold in the palm of his hand.

At $2.5 billion Coastal FCU in Raleigh, N.C., personal teller machines (PTMs) and interactive teller machines (ITMs) have replaced the teller line and drive-throughs respectively.

The PTMs and ITMs use remote video technology from NCR that allow members to interact with a human teller located at a different site. The results, according to CEO Chuck Purvis, speak for themselves:

  • Zero robberies in the last five years
  • Number of tellers decreased by 40%
  • Number of hours teller service is available to members increased 86%
  • Number branch managers decreased 50%
  • Sales per branch FTE per day increased 73%

"We know of at least one case where a robber entered one of our facilities, couldn't figure out where there was anything to rob, walked back out and up the street to go rob a bank instead," Purvis told a standing-room-only crowd at NAFCU's annual meeting here.
Although Coastal didn't retrofit all of its branches overnight, it has now implemented the "tellerless" strategy across its entire branch network — much to the initial dismay of Purvis' mother-in-law.

"We had a small group of members who, as we converted their branch, they'd go find one of the branches we hadn't converted," he said. "Then we'd convert that branch, and they'd go find another. My 81-year-old mother-in-law was among this small group who would drive all over town looking for the branch we hadn't converted yet. But we have concierges in the branches to help people the first few times they use the technology. Once they actually use it, they're sold."

At $17.8 billion Pentagon FCU in Alexandria, Va., on the other hand, members might be hard-pressed to find a PenFed branch.

"We have 29 branches for 1.3 million members," CEO James Schenck said. "We'll do $2 billion in business in California this year, but we have no branches there."

With members scattered not only all over the U.S. but also deployed all over the world — including some places you really don't want to be building a branch — PenFed serves its member primarily by traditional call centers and over the Internet.

Schenck shared a timeline showing how delivery channels at PenFed have changed over the years. In the 1930s, when PenFed was first chartered as the War Department FCU, 100% of transactions were done at the branch.

But by the 1970s, call centers started chipping away at the branch channel. By the 1990s, phones had eclipsed branches and online banking was in its infancy. By the 2000s, the web was neck-and-neck with phones, with web taking the lead in 2010. Indeed, when PenFed launched its mobile banking, the use of phones plummeted while web and mobile skyrocketed.

Ten years ago, Schenck said, PenFed set a goal of conducting 80% of its business via online and mobile banking, 15% via call center and 5% in brick-and-mortar branches. The CU has already surpassed that.

"We drove our operating costs down from 187 bps to 100 bps," he said. "The money saved gets plowed into the interest rates we offer on deposits and loans."

Indeed, PenFed has gone against conventional wisdom by deciding to compete on price. "Bank of America owns the brand of convenience," Schenck said, noting the crushing number of B of A branches. "So we're not going to go after convenience. In my world, USAA wins the service award every year."

That left price, and to make that happen meant finding ways to drive down costs. "We have one-ply toilet paper. We've got no art on the walls," he related. "We drove down our costs and use that to offer the best price."

A member of the audience asked Purvis, whose branches have no tellers in them, and Schenck, who has so few branches, where members go to close a loan. Both CEOs sais their credit unions use DocuSign technology, which allows loans to be closed online. Schenck added that PenFed will even send a loan officer to a member's office or home to close a loan, if need be.

Noting that Coastal and PenFed have completely different strategies when it comes to branching, Schenck pointed out that both strategies are working very well.

"We compared notes, and we have the same ROA, but what we do with it and how we get it is different," he said. "Years ago, when I came out of the Pentagon and went to work for my predecessor, Frank Pollack, he told me it was fine to come to these conferences and share our strategy, because we could all triple in size and still be just 20% of the financial services market. There is room for all of us to grow."

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