LAS VEGAS-Its future is as debated as any topic within credit unions, and as one panel of CEOs and analysts here made clear, that debate over what is to become of branch networks is not near being resolved.
The discussion took place during the 35th Annual Directors' Convention here, and featured Eduardo Alvarez, director with NewGround; Rudy Hanley, CEO of SchoolsFirst FCU; Greg Smith, CEO of Pennsylvania State Employees CU, and Jeffrey Pilcher, publisher of "The Financial Brand." With the notable exception of Smith, whose credit union has existed with a largely "branchless" model for decades, the panelists agreed it is premature to say the branch is dying.
"It will be difficult to get rid of branches altogether as long as there are physical transactional elements such as checks and cashier's checks," said Pilcher. "The branch will not disappear in our lifetime, but there is a move away from performing transactions in a branch."
Hanley predicted Internet banking will replace cash and checks, but said they are a "long way" from being eliminated. Hanley said CUs are different, not only from other financial institutions but from each other. "Depending on the field of membership, branching may or may not make sense," he said. "Some of our members don't go into a branch, but won't join unless there is a branch near them."
According to Hanley, SchoolsFirst's research has found it is a "fallacy" that old people like branches and young people don't use them. "What we say and what we do may not be reflected," he said. "Despite many predictions, ATMs still have not replaced tellers. The branch is the way to acquire not only members, but loans. That will change, but the shift will be gradual. It has been gradual up to now and will continue to be gradual."
The branch, insisted Hanley, is needed for "that personal touch" and for dealing with more personal issues. But he added his CU is also rolling out new branches more slowly, and that those branches are smaller.
Nearly Branchless In Pennsylvania
One unique model is that of Harrisburg, Penn.-based Pennsylvania State Employees, which, despite being a $4 billion CU with 400,000 members, refers to itself as branchless, even though it does have a couple of facilities. "The cost of running branches is very, very high," CEO Greg Smith said. "Plus, there are many employees who are wasted in the branch model. PSECU serves many more members per employee than our peer average."
Smith said PSECU has proven having branches is not a necessity for lending, with 65% of its auto lending online, even though he said said it does not have a particularly tech-savvy membership. "Our main office only has seven teller windows to serve 400,000 members, so we hope they don't all show up at once," he said with a chuckle. "We have no cash on hand, other than in an ATM. If people walk in wanting to ask about loans, they are directed to phone to talk to our lending center."
Out of those 400,000 PSECU members, Smith said 90% have never set foot in one of its facilities, and he said technology may soon whittle that figure down even further. " deposit capture is a branch killer," he declared. "Once someone can take a picture of a check with a smart phone, why drive across town to deposit it at a branch? But, it does help to have a physical presence for the account-opening process."
According to The Financial Brand's Pilcher, study after study on branching has come to the same conclusions: as long as there is a branch that attracts members/customers, deposits and loans, financial institutions will continue to open branches.
"Gen Y tends to open their accounts in a branch," Pilcher said. "They want to know the branch is there, but once they open their accounts then they never set foot in a branch again."
A Staggering Statistic
NewGround's Alvarez cited what he termed a "staggering statistic" from a study that found 80% of Gen X or Gen Y will "make a beeline for a branch" when they feel the need to get educated on a product.
"Eventually there might be two-way videos to accomplish this purpose, but today people want to go to a branch," Alvarez told the meeting.
Once concept that is growing is popularity is the "hub-and-spoke" model. Pilcher said this typically is comprised of a main branch that has all functions, in conjunction with one or more smaller satellite branches.
Alvarez agreed, adding, "To really have a branch strategy a credit union must think about all the factors, including Internet banking, two-way video and more."
Nevertheless, as CUs debate the issue, some banks are "opening branches like crazy," while Bank of America is closing branches, Hanley observed. "There is no right or wrong answer, it is a strategy," he said. "But if credit unions change strategies too rapidly they will wind up not serving anybody."
"The key word is strategy," said Alvarez. "We help build a strategy for each organization based on its long-term business model. We don't just start building branches. Sometimes the credit union finds it does not really need more branches, it needs to focus more on the branches it already has."
Pilcher said there is not one a one strategy that applies, "particularly credit unions."
"The heritage, the membership and the local area all are factors," he said. "It is dangerous to say every branch has to have an Internet area. The core of the CU philosophy-personal interaction-has become more difficult to deliver with the coming of technology. It is difficult to preserve that fundamental distinction between banks and credit unions without that personal exchange."
Branches Become Training Center
Branches and service are two elements that have been differentiators for CUs for years, said Hanley.
"We don't tell our members what to do, but we tell them how to buy a car, buy a home or plan for retirement," he said. "Our branches have training centers now. Having a physical location is important, and empowering members through advice and know-how will allow credit unions to be seen as the source for empowerment and looking out for the little guy."
Smith acknowledged PSECU regularly asks members what it can do to serve them better, and many answer "build more branches."
"When I came to PSECU 21 years ago I thought it was arrogant to have a branchless strategy. But now I think we have been able to use our branchless strategy as a differentiator. People ask me about downsizing their branch networks, but I don't really have an answer because I never had to do that."
When asked about best practices in branching, Pilcher said a "popular theme" is technology-focused branches with iPad displays, touch screens, video walls, and kiosks. and other offerings.
"We are stuffing technology into branches, but are still using the old style to sell the new channel," he observed, before asking, "Why go to a branch to have a video consultation?"