Branch Transformation

Though the demise of the branch has been forecast for decades, the reality is more about adaptation. Just as a caterpillar morphs into a butterfly, branches are becoming even more beautiful in their strategic capacity. As the volume of routine transactions continues a downward spiral, credit unions’ brick-and-mortar networks still serve a vital purpose as sales and consultation centers.

The challenge facing retail managers is how best to deploy member service employees with support from evolving technology and how to resize facility footprints cost-effectively—one branch at a time. Getting this right is critical. Winners will be ready with a piloted and tested plan. Losers will struggle with excessive drag on their financials from their branch networks.

Then and Now

The steady shrink of traditional transactions—check deposits, cash withdrawals and account transfers—persists unabated. The most recent Cornerstone Performance Report for Credit Unions shows a drop from an average monthly 7,786 transactions per branch in 2014 to 7,521 in 2016, and that trend is expected to continue in lockstep with declining check and cash use in favor of digital and card payments. Visa predicts for 2018 a 6.5 percent year-over-year increase in debit card transactions and an 8.2 percent increase in credit card use volume.

At the same time, branches are still the No. 1 driver for opening new accounts. When people shop for checking and loans, personal interactions are still preferred. Adoption of online account opening has been slow, and the abandon rate high, in part perhaps because supplying documentation required to verify identity is burdensome. Even when member service employees have all the forms lined up for members to sign at a branch, the process can take five to eight minutes—an eternity in the do-it-yourself online environment.

Branch location also retains a prominent role in consumers’ decisions about where to bank. Mobile mapping has us all trained: When we want to dine out, our cars need repairs, or we’re shopping for financial service providers, we pull out our smartphones to see what’s available nearby.

In short, the branch still matters to people who want to open accounts, get advice and get help solving problems. These branches serve a different purpose than when members stopped by to deposit paychecks and withdraw cash. It follows that today’s branches should be staffed, sized and equipped to reflect members’ changing needs and preferences.

Right Size, Right Tech

If a credit union were to start from scratch building a branch network, it would likely feature smaller offices outfitted with cash recyclers, enhanced ATMs and/or video tellers to optimize cost-effective service delivery, and employees trained to serve as universal agents and consult with members.

In lieu of a reset, managers can identify when to integrate the “micro-branch” footprint and supporting technology as branches are renovated, relocated and launched in new markets. Regional 2,500-square-foot loan production offices are losing momentum, and midsize branches are struggling to remain relevant alongside smaller, efficient offices that can operate productively with minimal staff. Cash recyclers eliminate the need for three employees on duty simultaneously to fulfill dual-control requirements, and enhanced ATMs and video tellers can reduce the onsite FTE needed to support drive-up lanes and teller stations for routine requests.

Adhering to the following best practices can help credit unions identify and implement the most efficient member service combination.

Think smaller. Optimizing the return on investment in branch infrastructure still rests on location, location, location. The once-standard 2,000-square-foot branch is $1 million just to get started. But eliminating a drive-up lane or a few square feet adds up. A micro-branch strategy offers a lower-cost option for new markets—planting that all-important dot on Google Maps—and maintains a familiar but more cost-effective presence for members.

Forget one-size-fits-all. The data on declining teller transactions are averages. Some branches still run 80,000 to 100,000 transactions monthly. For CUs with such branches, maintaining regional service centers with many busy full-time tellers and a loan production office makes sense. So does deploying tech-supported micro-branches in lower-volume, but still key locations.

Commit at the branch level to the facility size, technology and blend of member service professionals appropriate for each location. If a new branch is expected to process 15,000 transactions a month, it will lose money from day one if the CU applies a traditional staffing approach. But a small branch with self-service technology allows the CU to stake a claim in a desirable market while simultaneously reducing operating costs and positioning universal agents to consult with members, open new accounts and drive up sales.

Manage staffing for your new fleet. Adding micro-branches to the mix introduces the cost and service advantages of being able to train branch employees as universal agents and retrain other staff to provide face-to-face service from a distance.

Financial institutions that have deployed video tellers report anecdotally higher employee satisfaction among staff members in this new department than in their previous service roles. In the long run, these new staffing models may alleviate the ongoing struggle in recruiting and retaining branch employees.

Set realistic expectations for financial performance. In Cornerstone’s research on the ROI of converting a branch into a tech-enabled knowledge center, the micro-branch option doesn’t save enough on staffing to fully offset the technology price tag. But it is an opportunity to streamline operations and improve service.

Cornerstone’s 2017 for-purchase report “The Quest for Video Teller ROI” indicates that the return on assets for financial institutions that have invested in ITMs averages 0.94 percent compared to 0.74 percent for those without this technology. Credit unions that deploy video tellers and ITMs may not reduce their overall headcount, but may solve personnel issues at low-volume branches; obtain an efficient market entry or exit approach with micro branching; and deliver extended hours or create a differentiator to build brand equity.

Develop, execute and continually refine your branch technology plan. The not-uncommon “experiment” of placing an ITM in the corner of a branch while maintaining a fully staffed teller line just to monitor adoption typically results in the new equipment standing unused and ignored. A more effective approach is to identify an optimal location for a tech-enabled micro-branch, commit to the strategy by converting all drive-up lanes and teller stations to self-service, and learn from this pilot before introducing it in other locations.

Ease members into this transition. When unveiling this technology, station employees nearby to invite members to step up and use the machines and to offer a quick demonstration on the full range of their capabilities. A little virtual hand-holding goes a long way to reduce a natural fear of the unknown and guide members to discover on their own how easy and quick technology-enabled transactions can be.  

Ryan Rackley is a senior director for CUES Supplier member and strategic provider Cornerstone Advisors, Scottsdale, Ariz., specializing in branch technology, payments, mergers and contract negotiations.