Planning and preparation ahead of location closures will help ensure member retention—and could even lead to market growth.
Should you close branches to optimize network efficiency and reduce delivery cost? Will closing branches undermine your position as a community-focused credit union? Is your digital banking offering sufficient to retain target members and core deposits? Can you still mine markets for loans without a physical presence?
Twenty years ago, the answers to these questions were similar for most institutions: Branches were the only solution for growth. Today, credit unions can employ multiple strategies to build and retain target relationships by combining virtual and physical delivery. Branches come in many sizes and types today: 150-square-foot micro branches; 800-square-foot express branches; 1,200- to 1,800-square-foot neighborhood branches or lending centers; 2,500- to 3,500-square-foot community branches; smart ATMs and ITMs, and so on.
Branch networks should be analyzed at least every three to five years to understand market changes and to ensure products and services align with your target market segments. This tuning process often uncovers shifts in market dynamics that drive the need to add, close, sell, relocate, downsize or renovate branches to increase productivity and efficiency and deliver the desired member and staff brand experience.
These are hard decisions. You own a 30-year-old, 3,500-square-foot branch with five staff in a remote market with just $13 million in deposits, a loan-to-share ratio of 45% and 48% market share. Do you close this location? The market is in economic decline, and the branch has been in the red for three years. If you leave the market, can you come back in the future?
Two other branches are just one mile apart, but both are growing deposits at double digit rates and loan-to-share ratios are above 90%. Should you close one of those branches to increase efficiency? These are complex questions that require branch performance, market segmentation and growth data analysis, member transaction trends analysis, and SEG and community relations considerations. If you do decide to close a branch, you should also consider ways to reduce the negative impact on your members.
Reduce branch size and staffing to match the market.
An underperforming branch can be replaced with a smaller, more focused branch—say reducing from a 3,400-square-foot community branch with eight staff to a 1,500-square-foot neighborhood branch with 3.5 FTEs and first right of refusal on adjacent leased space to accommodate future potential growth.
Lease vacant portions of large branch space to others.
Many older branches are 3,500 to 6,500 square feet, significantly oversized in view of declining teller transactions per member and fewer member visits per month. A well-placed branch with a drive-thru may be hard or impossible to replicate in a different, smaller location. Consider downsizing your branch within the current location and leasing the remaining space to a retailer that will attract your target market and not overburden parking.
Replace a branch with an ITM or ATM.
ATMs and interactive teller machines can be effective when you close a branch in a remote market, as they continue physical presence. This works particularly well for small SEG branches that only see a few hundred members per month and hold low deposits and loans. ITMs provide a face and voice to your brand experience. Smart ATMs can provide cash and take deposits. Viability depends on location, visibility and potential market size. There are also other factors to consider, such as promises made to a building or site and agreements with specific SEGs.
Explain how the change will improve product and service delivery.
Before a branch is closed, a messaging campaign should be developed to tell members and the community why you must close the branch. Communication should focus on multichannel delivery, better fees and rates, and long-term viability. Sell your remote delivery options. Offer no-fee transactions at all market ATMs, and consider allowing members to use shared branches for free. There are 5,000 shared credit union branch locations across the nation. You may also want to assign specific staff to your highest-performing members and small business clients to maintain and build relationships through the transition.
Before you start such a campaign or close a branch, be certain you are delivering an easy to use, competitive and on-brand virtual experience.
Sell the branch to another credit union or community bank.
This is a good way to help your members through the change—by working together to provide a nearly seamless transition between institutions. You can retain or sell some or all of your loans.
Increase rather than eliminate marketing budgets for remote markets.
If a market is productive in terms of lending, you may want to retain and even increase awareness through marketing. You do not need a branch for indirect auto or mortgage lending. An alternative is to create a hybrid lending location that focuses on building lending relationships and offers transaction services inside or outside the location via ATMs or ITMs.
Get your data in order.
The decision to close, relocate or downsize a branch must be based on good data. Bad data in, bad decisions out. For example: A client had placed three $2 million branches in new markets, and they were not performing well. The model used when deciding to open the branches was weighted heavily toward lending and included significant indirect lending. The latter was a very successful product. Unfortunately, the model directed the client to locations that did not match its target segments. Indirect lending should not have been so heavily weighted.
Assigning members to a branch is one way to understand branch success in terms of growth per year, deposit and loan balances, and member engagement, but it can be deceiving. For example, some credit unions assign members to their branch of origin, even if they have been members for 30 years and moved away from that location. This can inflate the profitability of one branch and deflate income generation at a more deserving location. Be certain that your members are assigned to the branch they have most often used over the past six months to a year. This will make your profitability analysis much more accurate.
During and after the Great Recession, many financial institutions closed branches across the nation. Over the last few years, we have seen a great shift in the purpose of branches, impacting focus, size, staffing and location. Closures are tough, but they are just the nature of our evolution toward healthy and profitable branch networks. A well-devised plan and preparation well ahead of closures will help ensure member retention and potentially lead to market growth through reallocation of resources.
Paul Seibert, CMC, is an independent facilities and real estate consultant under Paul Seibert Consulting, Seattle.