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Earlier this year, Financial Management Solutions Inc., Alpharetta, Ga., released its Low Transaction Volume Branch Study, based on a compilation of labor and front-line transaction data collected from financial institutions across North America. (FMSI has access to data gathered from the activities of more than 10,000 financial services employees in more than 1,000 financial institution branches.) In the study, FMSI found that low-volume branches constitute 25 percent of most retail branch networks, yet account for a mere 8 percent of total transaction volumes.
LVBs are not only cost-prohibitive to operate, but the slow work pace in these environments can reduce worker productivity, morale and commitment to the success of the credit union. Fortunately, institutions that take proactive, corrective action can mitigate, if not eliminate, the negative effects of LVBs quickly and effectively.
LVBs and Their Impact
FMSI defines an LVB as one that processes fewer than 3,000 transactions per month. Many of the more than 450 LVBs FMSI evaluated for this study had far fewer―in some cases, averaging as low as three or four transactions a day. In branches with so few transactions, the only option may be to close them. However, for others that are making other valuable contributions, the choice is not so clear.
The reality is that LVBs have operational efficiency far below that of their higher-volume peers. For example, our study found that LVBs, on average, have a paid labor cost per transaction that is 142 percent higher than the average for all branches. Yet many CUs have a difficult time designating a branch as an LVB. To help executives quantify the negative impact of LVBs more clearly, consider this:
Most CU branches have a minimum annual operating cost of $150,000 to $250,000. To break even on the operating expense, a branch needs to generate and maintain a collectable loan portfolio with a net 3 percent interest rate margin totaling $5 million.
In FMSI’s experience working with hundreds of CUs across the country, few LVBs can claim such an achievement.
Resolving the Challenge of Profit-Draining Branches
Despite this gloomy outlook, CUs shouldn’t assume they must close all LVBs. Workable strategies exist, especially for those on the edge of breakeven, or have loyal clients with considerable loan, investment or other portfolios. Here are a few strategies that help LVBs carry their weight.
1. Redirect idle time. As FMSI has long advocated, idle time, which we also call “waiting for work time,” is one of the great nemeses of CU productivity. Eliminating or redirecting idle time is even more important for LVBs, where generally there is an abundance of such time. The first thing CU management should do is ensure personnel have tasks assigned to do when they are not expected to be busy.
2. Hire universal associates. LVBs are generally perfect candidates for universal associates—individuals trained to perform multiple roles in an equally competent fashion. Having qualified UAs onsite enables LVBs to meet service and sales needs—and justify the UA’s higher costs. Because of their cross-training and extensive knowledge, UAs often thrive on diversity and a CU with more than one LVB might be able to use them as floaters in different locations.
3. Reduce hours of operation. Many CUs overlook the benefit of reducing hours or closing on a Saturday, where it is appropriate. In one example where FMSI helped a financial institution make decisions about its LVBs, a branch with 800 transactions a month was projected to save $10,000 yearly from closing an hour and a half earlier during the week, and closing completely on Saturday.
4. Optimize staffing levels through technology. Even with branch hours trimmed and other measures taken, CUs may need to achieve further efficiencies for some LVBs to remain open. Reducing the number of full-time staff can be helpful in this regard:
- As full-time front-line staff departs, shift to using more part-timers and/or flex-workers.
- Consider implementing automated technologies such as in-branch ATMs and video tellers.
- Optimize staffing by having the right number of employees for forecasted traffic volumes. CUs that are having a hard time forecasting traffic proficiently may benefit from implementing technology that harvests and processes transaction data to predict staffing needs.
When dealing with LVBs, CU executives are much better off making decisions based upon facts rather than relying on emotional factors, such as perceived member loyalty or account history. Maintaining the status quo when it comes to LVBs can be costly for years to come.
Meredith Deen is chief operating officer of FMSI, Alpharetta, Ga. FMSI provides easy-to-use, yet sophisticated, software-as-a-service solutions, including Omnix Staff Scheduler™, Omnix Interactive Dashboard™, Omnix Performance Analytics™, and Omnix Lobby Tracker™. Reach Deen at 877.887.3022.
