It seems almost blasphemous to suggest that credit unions no longer need to build branches to expand. Yet in the dynamic and rapidly changing market for financial services, it is a question that should be discussed during every 2010 planning session.
Yes, I know all of the arguments for expanding branch networks…your members like to come into the branch, your branches provide visibility in the community, your branches provide specific services that cannot easily be replaced, and so forth. They are all valid arguments and they ring very true for the long term members of most credit unions.
But the reality is that branch banking is a specific business model that may or may not be the right one for the future of your credit union. It depends upon the demographics of your membership, how tech-savvy they are, and what they want from your credit union. It also depends upon the competition in your market and the alternatives available to your current and prospective members.
The bottom line is that any or all of these factors can change your business model and require you to do something in the future that goes against everything that has seemed logical in the past. To move forward with the assumption that branches will be a necessary component of your growth without exploring other options and evaluating your current business model would make about as much sense as approving a loan without reviewing capacity, credit, capital and collateral!
ACTION ADVICE: Include the five questions below in your planning discussion this year as you consider pathways for growth for your credit union. Test the limits a bit and push your thinking beyond ‘what has always been’ to ‘what could possibly be’–it will be a revealing and insightful discussion that may shed light on some new and powerful possibilities that would not otherwise be considered.
1. Branch Contribution…What is the current profile of your branches in terms of contribution to the profitability of your credit union? What differentiates your most profitable branches from your least profitable branches?
2. Branch Pay-Off…How long does it take to recover the investment, how soon is a new branch profitable, and how much new business is produced from a new branch?
3. Branch Alternatives…Are there ways to service your current (and potential) members that do not involve building new full-service branches, such as un-staffed kiosks, shared branching networks, full-service ATMs, shared locations with other businesses (not necessarily in the financial services industry), acquiring a branch from another credit union, etc.
4. Branch Location…When you build a new branch, are you expanding your member base or shifting points of access for your current members?
5. Branch Development…What is the lead time necessary to create sufficient traffic to justify a new full-service branch? Are there any possible intermediate steps that should be considered to develop the market before making the investment?