Facing an epidemic of branch closures, credit unions need to understand where to open a branch, know the right size, and know what services to focus on.
With thousands of credit union branches closing their doors in recent years, it’s easy to consider it a sign of the times. Since the financial crisis of 2007-2008, nearly 10,000 bank and credit union branches have closed in the United States. While many closed in the immediate wake of the crisis, branch closures have persisted.
Many credit unions believe that current trends—such as the public’s growing affinity for mobile banking solutions—are why branches are failing. But the reality is more complex. The blame often lays with decisions made by credit unions before they even open the doors of branches.
The mistake many credit unions make is opening a location because they can. They spend money on a location because the price is right. They choose an existing building with a lot of square footage because the owner offered a great rate. However, the decision to open a branch—or not—should be based on whether your services are needed in a given location to begin with.
An unfortunately familiar story for credit unions is the shutdown of a branch which opened only a few years prior. Money is spent to remodel a property, staff it, and advertise it. But despite the attractive design and full slate of services on offer, customers fail to show up. Efforts to advertise the location are stepped up, eventually abandoned, and sooner or later the space ends up back on the market.
This oft-told story doesn’t mean that branches as a concept are done. What it does mean is that credit unions need to be a lot smarter about where they open branches.
How do you determine what services are in demand? Research the local demographics. For example, if your location is surrounded by college students in temporary housing, private student loans will likely be in demand. Mortgages and car loans will likely not. Basic considerations like these not only determine whether a location is appropriate for a new branch, but also what services to offer and promote.
It’s important to look at the overall history of the area surrounding a potential branch. If historical bank and credit union branch closures are higher than normal in a given location, this should be a red flag.
If you’re looking at a solid property, and the demographics support your decision to open a branch, you then have to determine what is the right size for the new branch.
Not every branch needs to be massive, with a dozen teller lines, a greeting area, and several private offices. In fact, credit union branches rarely need more than four teller stations, including one or two that are ADA compliant.
Don’t let overspecialization be the beginning of the early demise for your new branch. There’s nothing wrong with having a dedicated loan specialist in a larger branch, but tellers should be able to process basic loan paperwork and handle other duties in smaller branches.
You can cut down on the size of your staff, and the branch as a whole, if your team is capable of doubling up on various aspects of your services. Overspecialization leads to long lines and upset customers, and ultimately gives the impression that it isn’t worth a customer’s time to visit a branch.
Think about how airlines are set up in airports around the US. An airline’s services are often centered around a single airport, which is referred to as the hub. While the airline will serve countless other airports, many flights going across the country will inevitably pass through the hub to pick up additional passengers, and allow others to transfer to connecting flights to other destinations. This “hub and spoke” approach has the effect of reducing the total number of aircraft required to serve the airline’s customers, increasing efficiency and profitability.
Credit union branches aren’t going away for good, but they are changing. Successful credit union planners recognize that people still want and prefer credit unions over the services of large banking institutions. Smaller branches in the right locations can take full advantage of this demand, and survive where larger branches might fail.