May 17, 2011
Credit Union Management magazine’s Web-only “Facility Solutions” column runs the third Tuesday of each month.
Do we really need more branches? Technology has replaced branch process workers while transactions are declining and consumers are becoming more comfortable with automated cash delivery. Automated teller machines can provide remote branching services. Video conferencing allows centralization of high value service representatives for mortgages, investments, insurance and wealth management.
If process is the only factor, we do not need branches. But branches remain the best place to develop and nurture member relationships that produce high numbers of accounts and high deposits per household, and create credit union advocates and sticky relationships that last.
So, if branches should focus less on transactions and more on relationship building and profitability, how should the branch business model evolve to significantly enhance performance and reduce operating cost today—and in five and 10 years? This is the question every credit union should be asking before its leaders consider spending another dime on a new branch location, remodeling, or plans to grow and optimize their branch networks.
Today, we see a good deal of money being wasted on facilities that are too large relative to market opportunities. A 2,500-square-foot branch can support the same level of funds under management, including inflation, as could a 5,500-square-foot branch 10 to 15 years ago. Most branches are inefficient in terms of the space dedicated to developing and growing member relationships. The industry average is 65 percent retail efficiency (member accessible space). But, 85 percent is attainable and should be the goal. You can calculate the significant savings to your bottom line if you multiply a 25 percent efficiency factor times your network facility square footage over 10 years.
David Cavell, international speaker and author of “The Branch is Back, Global Case Studies in 21st Century Banking,” states: “Most financial institutions in the United States overbuild their branches and spend too much. The most successful institutions will right-size their branches to target market potential, employ competent staff, and place them at great locations.”
Right-sizing branches for the future requires answering the question: “What is a branch for today and what should it be in five and 10 years?” This question cannot be fully answered by making a small change in desk positions, picking new colors, adding cash dispensers, implementing a video messaging system, or advertising for staff in the retail employment section of the newspaper. Answering this question requires a clear analysis of a credit union’s business and collective delivery objectives, and the role branches play in a holistic approach to delivering the brand experience, products, and services through all delivery channels. It requires building up a new branch business model and culture from a strong business strategy and brand.
Every branch business model three years old or older should be considered outdated to some degree until proven otherwise; too much rides on the performance and efficiency of each branch in terms of delivering a strong brand experience, member development and advocacy, staff satisfaction, and return on investment.
There are a number of ways to create your high performance branch of the future. One method is to hire an architect or design/build contractor to design an attractive new facility that will get you positive comments from members and staff. But branch success does not come from just being aesthetically pleasing. The most productive method is to establish foundational goals by taking a 360-degree look at your business objectives, delivery strategies, technology initiatives, cultural evolution, market environment, and brand characteristics. Then, build the branch business model and prototype upon this reflective set of performance criteria.
This requires inclusion of internal executive-level stakeholders from all departments, often working with a savvy outside facilitator who can bring all product, service and delivery facets into a cost/benefit framework. This process produces a clear set of performance expectations and criteria upon which individual branch delivery components and a powerful branded branch experience can be designed.
If the branch prototype is well designed, it is composed of a kit of parts that can be successfully applied to branches of all sizes and configurations and matched to specific target market characteristics. It can also be used to “brand wrap” or retrofit existing facilities to a budget.
Branches are very expensive and critical to the success of every credit union. Don’t spend another penny on branching until you know how your branches must perform to help you grow and thrive well into the future.
Paul Seibert, CMC, is VP/financial services of CUES Supplier member EHS-Design, Seattle.
