February 15, 2011

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

Today it takes about one half the space to support the same deposits and loans as it did 15 years ago. Alternative delivery systems, member preferences, and advances in technology substantially reduce the number of staff needed to drive successful relationship development in credit union branches.

Many institutions own legacy branches they do not want to sell because of a great location or down real estate market. This can mean extra space in large branches that is underutilized and inefficient. Facility managers are often pressured to find ways to offset this operating cost.

Reducing facility costs by filling up empty space with outside service providers is an admirable goal, but success has been modest at best. Many banks and credit unions have tried enticing customers to visit and fill space with cafés, food service, cleaners, mortgage brokers, appraisers, dental insurance, auto sales reps, attorneys, travel agents, and investment brokers. The reality is that the farther away an outside provider is from a credit union’s core products and services, the less successful they tend to be.

Before considering filling space to pay the rent, here are a few questions to consider:

• Are we just filling up our branches so we can rationalize the space? Or, should we develop a strategic branching plan that will right-size branches to market potential over the next five to seven years to maximize productivity and ROI? (This idea was posed my ABA Banking Journal article, January 2010).
• Will the addition of other companies to our branches enhance our desired brand expression to target members? Or, will it diminish our brand?
• Do we need to retain the location with the excess space for market positioning or is there a better alternative?
• Should we be expanding our real estate strategy to increase our facilities’ flexibility in terms of lease vs. own?
• Can we physically separate our branch so another business can occupy half our building and operate as a separate entity while we enjoy close proximity with independent operation?

The branch of the future will take many divergent forms. Consider the evolving differences between the Umpqua Bank, Chase Bank, Citibank, North Shore Credit Union, Huntington Bank branch concepts I described in ABA Bank Marketing magazine, January 2011. These new branch concepts are fine-tuned to maximize the positive member and staff brand experience and enhance branch and market performance, while reducing operating cost and increasing ROI. In these concepts, there is very little—if any—space for outside service providers.

I believe overall branch network efficiency starts at the individual branch level based on an intimate understanding of each community and neighborhood, the target customers, and each customer’s personal, family and business needs. For example, North Shore Credit Union in Vancouver, British Columbia, developed a new branch prototype and evolved its culture a few years ago. This work included analysis of each market and target member base and the creation of the CU’s “Financial Spa,” fine-tuned to each location.

In these “Financial Spas,” a highly knowledgeable and cross-trained staff employing the best technologies works within a powerful relationship development environment that delivers a brand experience that has won the market. At the same time, North Shore CU studied its branch network and branch sizes to ensure geographic and facility efficiency. The result of this effort after five years was impressive; the CU increased from $750 million to $2.3 billion in assets under management, enhanced ROI, and continues to evolve, grow and prosper.

The effort to fill space can be a costly distraction from delivering a strong brand experience and enhancing customer engagement and share of wallet. While we look to solve short-term space utilization issues, we should simultaneously be developing strategic branching strategies and tactics, evolving our brand, and developing our own unique and highly productive branch business models and design concepts to enhance member relationships, and increase growth and profitability.

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