September 21, 2010

Credit Union Management magazine’s Web-only “Facility Solutions” column runs the third Tuesday of each month.

Over the past five months we have shared the findings from our 2010 branch network optimization survey of credit unions and banks. In this installment, we will address the survey question: “What lines of business do you deliver through your branches today and what will you deliver in three years?” The survey results provide some real take-aways for you to consider in your branch planning.

According to the survey, credit unions are getting ready for a big jump in two lines of business: private banking and wealth management. Forty-two percent of respondents said they offer private banking in their branches today and 58 percent said they would in three years, a 38 percent increase. Wealth management will also see growth of 26 percent as the percentage of institutions including the offering in their branches grows to 73 percent from 58 percent.

One of the CU industry leaders in this arena is $1.4 billion North Shore Credit Union, located in a wealthy area of Vancouver, British Columbia. Six years ago the CU decided to pursue the “emerging wealthy” and “mass affluent” by developing a powerful targeted brand experience along with a sophisticated array of products that changed the market’s perception of the CU’s brand and capabilities. The result was an increase in “funds under management” from $750 million to $1.2 billion in five years.

Credit unions have a similar opportunity with their existing members and traditional target households, as much wealth will be transferred to these households over the next five to 10 years. The key to success will be focused brand evolution and a service culture that warrants a higher share of wallet and deeper advisory relationships.

A smaller jump in the percentage of credit unions offering consumer banking and business banking is projected by the survey results.

Ninety-two percent of respondents stated they offer consumer banking today and 100 percent said they would in three years. We are observing that many banks have suffered losses from commercial lending and want to refocus on their communities. Umpqua’s consumer banking has fueled growth and profitability for many years. A number of credit unions have suffered unprofitable if not disastrous business lending initiatives, and are retrenching to their founding core of member consumer relationships.

Small business banking also shows a potential uptick over the next three years from 92 percent to 100 percent. This suggests that while many credit unions suffered from their efforts to offer small business banking, clear lessons can be learned in terms of hiring the right expertise, lending due diligence, and relationship management that makes the small business opportunity prudent and profitable.

Adding new products and services to branches requires detailed market assessment and may require changes to branch configurations. Every market provides a different level of opportunity for checking, mortgages, auto loans and investment advisory services. To move forward with new offerings, credit unions need to answer questions like:

• Which branches serve markets with potential high household growth, owner occupancy and target income levels?

• Which branches should include a mortgage officer or which should take the applications and refer further contact to a centralized mortgage officer?

• Do the market characteristics warrant having an investment advisor at a specific branch, or should the advisor visit branches and share a “hoteling” office with other service providers?

Detailed market analysis should be used to place and plan branches. Some markets may require full-service, free-standing branches to maximize target market share, while others would be most profitable with a leased strip-mall community financial center of 2,500 square feet or an express branch of 1,200 square feet. For some opportunities, a lending office with automated cash delivery may be the best option, as it has low capital and operating costs, as well as flexibility to facilitate expanding or following a market.

Our studies of numerous markets and hundreds of branches each year tells us that many branches are sized based on branch standards rather than real market potential. It is often assumed that to deliver a solid brand experience all a CU’s branches must be the same size and have the same staff contingent. This is not so. Branches should be located, sized and configured to match market opportunity to minimize break-even time and maximize market potential and return on investment. A well-conceived customer and brand experience can be successfully delivered through nearly any branch size or configuration.

Every institution is looking back at what has worked and not worked in terms of branch delivery and what needs to be done to take advantage of new opportunities to grow and prosper. The right mix of products and services delivered to the right markets via the right branch models will help ensure success.

Paul Seibert, CMC, is vice president of CUES Supplier member EHS Design, Seattle, and author of CUES Complete Guide to Facilities.