MADISON, Wis. – A new study released Friday by the Filene Research Institute challenges the flood of credit union spending in recent years on new branches, concluding the proliferation of new delivery channels has made traditional brick and mortar an expensive, and in many cases, an unnecessary option.

The new study, “Identifying and Managing Overstaffed Branches,” comes as credit unions, often in efforts to expand brand awareness, are coming off of an unprecedented building spree over the past five years when they have added more than 500 new branches and have plans to add almost 400 more, according to NCUA data. This, at a time when 1,000 credit unions have disappeared through mergers and more and more consumers are opting for alternative delivery channels, like call centers, ATMs or the Internet.

Spending for new branches has come at a major cost to credit unions, according to Joseph Prunty, president of CorePROFIT Solutions, a management consulting firm, an author of the study. “Worse still, this inefficient model prevents credit unions from offering members better rates on loans, lower fees, improved product choices, and more convenience,” says Prunty.

NCUA data shows that the number of branches in credit unions grew by 522 to a peak of 12,065 at September 2011, and declined slightly since then to 11,993 at March 31. At the same time credit unions have plans to build as many as 400 additional branches. At an average cost of $500,000 per branch, that amounts to about $450 million in capital investments over the past five years.

The Filene study concludes that both the unit time (the standard time to perform an activity for all centers/staff involved in the processing) and the unit cost, for each product’s activity are higher at the branch channel than at alternate channels.

“To put it more simply, the branch unit times are consistently higher because the branch is either inefficient or overstaffed or both,” says the study. “A walk through any credit union branch lobby during nonpeak hours will usually find tellers (as an example) processing administrative paperwork, chatting with other tellers, or engaging members in quality-of-life conversation that may actually delay the efficiency of transaction processing.”

Yet Prunty found that 65% of members using the branches in one $2 billion credit union he studied are unprofitable.

At one $1.2 billion credit union he found that 17% of the total withdrawals took place at the branch, but those transactions accounted for 63% of the total costs of withdrawals in all channels.

At a $500 million credit union the unit cost for making deposits at the branch was $3.65, while the unit cost for this same deposit via ACH was just $0.05.

Prunty recommends several ways to trim branch costs, even for those credit unions committed to the physical presence of an extensive branch network.

For one, “a strategy that focuses on the development and sale of new products that limit (or avoid) branch reliance would be a great starting point toward envisioning a reduction in branch capability,” he says.

“As credit unions continue to merge or explore new geographic markets, management must seriously consider the value and cost savings of entering these markets with alternate channels since products could be priced quite competitively to gain market share without the expense burden of brick and mortar,” he suggested.

 Another approach to converting overstaffed branches is to isolate the excess capacity that exists in the branch model and shift this time into value-added activities, such as re-tasking branch personnel to take on member service functions such as making member satisfaction calls, performing outbound promotional cross-selling, for following up on delinquent or pre-delinquent loans.

 He recommends these steps for credit unions in the early stages of addressing branch staffing:

Cross-train branch functions so that branch member service reps could also perform teller functions at peak member demand times.

Branch staff scheduling by utilizing flexible schedules, cross-training employees, and part-time employees to cover peak member demand times to lower overall staffing levels.

Right-sizing branches to create smaller branch footprint and fewer staff in declining transactional areas.

 

 

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