Shared Branching: Saves Costs and Maintains Member Service During Difficult Times
by Credit Union Centers EVP/CFO, Dan Davis
Op-Ed for Credit Union Times
With today’s economy still sputtering, credit unions – and just about any other organization across the nation – remain vigilant about cutting costs to survive and hopefully thrive when the economy returns to good health. In the meantime, credit unions are making every effort to keep their expenses in check while not sacrificing member service to maintain their value.
Surprisingly, even with the lingering economic woes, many credit unions are actually growing their memberships. That’s great news for them, our industry, and the economy. But, unfortunately, there are a fair number of them that want to continue growing but cannot afford to because of the high expense of properly serving their expanding memberships. A couple of those costly overhead expenses include building and maintaining branches along with hiring additional employees to fill those branches. If they cannot physically expand to accommodate their growing membership, how do these credit unions continue growing – or simply retain their current members? It’s a quandary for sure, but there is an answer: shared branching.
Shared branching promotes the cooperative nature of credit unions to members. You can implement technology services galore, but there’s nothing like brick and mortar that gives members the feeling that their credit union is always available to them.
Here’s how it works: A shared branching network consists of participating credit unions nationwide that “share” their branches with each other. Members of the participating credit union can use any other participating credit union’s branch for free to access and manage their accounts as if they were their credit union’s regular branch. Shared branching can help a credit union’s growth without the added cost of constructing buildings and hiring employees.I’m not sure if there’s another industry that helps itself more than this one. Credit unions constantly help one another to keep the movement thriving. It’s a cooperation that must be done to compete with its much larger counterparts. This helpful attitude is sometimes awkward, but a vast majority of the time it’s welcomed. Nothing represents this welcomed cooperation more than shared branching.
Shared branching helps if a branch must be shuttered in a particular area because of a difficult business decision, for instance. A shared branch can easily take the place of a closed branch without the high cost of maintaining it. It can minimize the possible damage of losing those members because of closing a branch in a particular area. With shared branching, there’s still a credit union presence in the area to serve those members affected by the closing.
In another scenario, many branches located in the workplace have strict security access that makes it a challenge for spouses or other family members to bank there. A shared branch in the same vicinity can eliminate that access challenge without having to build and staff a new one. There’s no longer a need to use the security-laden branch because the comparable shared branch is nearby.
Participating credit unions don’t need to spend an extra penny on employees because of shared branching’s ability to allow them to leverage other participating credit unions’ employees to expand their presence. One credit union, for instance, that has been around for over 50 years only has 13 employees, still works in its original headquarters, and it amazingly has 15,000 members who reside in multiple states. Because of shared branching, it is able to serve its members via the thousands of branches at its convenience nationwide.
One of the biggest keys to shared branching success is retaining members who have moved from the credit union’s immediate service area by being able to offer them a brick andmortar remote location where they feel comfortable transacting their business. One member of a participating credit union, for example, was excited to be able to manage her finances remotely at her credit union’s shared branching location on her college campus – which was across the state from where she used to live.
As a bonus, according to a study by Raddon Financial Group, even though the shared branching users only make up 6.8 percent of all the households at the average credit union, they bring in 12.7 percent of the total profit. On average, the annual household profit for shared branching users was $90.25, compared to profit of only $7.07 on households that do not use shared branching. Even after applying the direct costs associated with shared branching transactions, the average profit remains at the lofty level of $47.53.
Since we’re talking about profits, another credit union, which started using shared branching in 2007, began opening branches to shared branching transactions. This process took the credit union until January 2008 to cross the threshold where the income received from acquired transactions exceeded what it paid for its members performing transactions at other credit union owned branches. For example, in April of 2010 the credit union netted just over $7,000 in excess of its cost – which annualized is an estimated $84,000 in additional income.
From the stated examples and Raddon study, not only is shared branching cost effective for credit unions on a budget, it is also profitable for credit unions looking to boost their bottom line. So for those credit unions that are looking to grow or replace branches without the overhead expense of building and staffing branches, shared branching is a viable option to consider in this still uncertain economy.