AUSTIN, Texas–Is the branch dead? Not by a long shot—but how branches are being deployed, built and staffed is changing, according to two credit unions that presented their branching strategies here.
Deonne Christensen, COO with the $650-million Mazuma Credit Union in Overland Park, Kan., joined with Matt Stephenson, EVP/COO with the $1.5-billion Rogue CU in Medford, Ore., to share with the CUNA CFO Council annual meeting here how each CU has completely rethought its approach to branches—and seen robust changes as a result.
Mazuma sees its 11 branches—plus one e-branch—as one of the channels it can use to really set itself apart. “The member experience is our primary differentiator,” Christensen told the meeting. “We know that products and services are commoditized.”
Not Keeping Up
Christensen said most credit union branches have not kept up with the introduction of other delivery channels, such as indirect lending, online banking, mobile banking, phone banking, ATMs/ITMs and cards, and Mazuma recognized the shortcoming, as well.
“What we have tried to do is meld together our digital and branching strategies,” she said. “The journey has taken about three years after we dove into this in 2015. In 2018 we’re starting to see some good financial movement where we can point directly to what we are doing. In 2015, we had large, 5,000-square-foot branches with specialized positions. A lot was added and nothing ever taken away from the branches, and nothing was changing in our branch environment. Volume was not reducing at the same pace as it had the capability to reduce.”
The First Step
To change its branch strategy, Christensen said Mazuma first defined the purpose of its branches. The credit union’s motto is “to make Kansas City a better place to live, work and bank.”
“Our branches are here to provide amazing experiences and provide services that traditionally can’t be done through any other channel,” said Christensen. “We’re here to connect and engage with members, and be a viable presence in the communities we serve. Branches are the outward face or brand of the credit union.”
Credit unions that don’t evolve their strategies will be left with staff that continue to do what they have always done, which are member transactions, she cautioned.
“Redefining the purpose of the branches is an imperative first step,” Christensen told the meeting. “You have to first ask, ‘What is it we want our branches to do?’ You have to look at every single procedure, process or service, and either eliminate it or change the way you are doing it. Nowhere does it say the purpose of the branch is to continue to process teller transactions or loans in the way we have done in the past.”
Changes Come With a Price
With CFOs in her audience, Christensen readily admitted all the technologies and changes come with a price tag—but also with cost offsets. For instance, Mazuma has eliminated between 12 and 15 offerings and services that it considered antiquated and which could be obtained elsewhere, such as offering gift cards.
Overhauling the Lending Process
One of the biggest changes Mazuma has made is in moving the lending function out of its branches.
“We took our lending process and looked at every single team member in the branch doing a lending function,” Christensen explained. “The amount of time it takes to train someone on every step of the process is a really long. It’s very burdensome. So, the amount you are paying in your branches just for that one function is significant. We changed the way our loan process was done and centralized it all to our e-loans team. (The e-team) in its first year pretty much surpassed all of the loans we did in our branches. The purpose of the branch team is to guide the member through what do they need and how do we get them started. Applications go right to our e-sales team. They have a turnaround time of less than an hour. They establish the contact with the member. Loan signing is done electronically, even if done in the branch and funds are disbursed immediately.”
Eliminating Positions
As a result, Mazuma has been able to eliminate 38 FTE positions in its 10-branch network, which has led to a savings of $5 million over three years. It has begun to operate branches that are smaller–approximately 2,000 square-feet and operated by just four or five team members. Of those 38 positions, it was able to redeploy 20 positions while still saving approximately $600,000 annually,” said Christensen.
“We are not going to replace our team with technology. We are going to allow our team to use technology to build relationships,” Christensen said.
The credit union has four to five relationship advisors who are part of a float pool. In 2013, Mazuma had approximately 200 employees. Today, it has 188, even though it has opened three more branches and bolstered its backoffice. “We have dramatically lowered our comp and operational expenses,” Christensen said.
The Purpose of Branches
The purpose of its branches, she said, is to be advisory based, not transaction based. It continues to use what are often referred to as “universal agents,” and while those agents are still required to “know everything,” the “everything” is much smaller.
According to Christensen, the benefits of a High Touch/High Tech strategy include:
- Strategic differentiator and fulfillment of credit union purpose
- Accelerated speed of execution and agile model
- Increased market presence to support marketing investments
- Scalable and sustainable cost structure
Rogue Credit Union’s Approach
Meanwhile, in Oregon, for Rogue Credit Union not only isn’t the branch dead, it’s a key component in its highly successful member loyalty program.
Stephenson said the credit union’s 21 branches (plus six branches in high schools) are just one piece in its Rogue Rewards program—albeit a piece that has had to evolve. “Member loyalty is our primary strategic focus,” said Stephenson, noting Rogue has quadrupled in size since 2008 as a result. “Growth is not our strategy. It happens due to loyalty focus. We seek a substantial amount of feedback from our members on what they want, where they want it and how they want it. It has nothing to do with us, and from a CFO perspective, it’s scary. We’re not about the bottom line, we’re about the experience.”
Stephenson said all of Rogue CU’s goals are built around Net Promoter Score and speed of delivery, among other criteria. He credited that focus with membership growth rates ranging from 11% to 18% each year and the fact it has captured 35% marketshare where it operates.
The Dominator
In its markets those branches remain popular, according to Stephenson, who cited Raddon data showing that branches remain the dominant driver of why someone selects a primary financial institution. Online has grown, as had mobile banking, but they haven’t replaced the other priorities, he noted.
“Members are now doing more transactions, but doing them in different ways,” he said
Indeed, Rogue Credit Union, which previously opened branches from 10-2 on Saturdays, has expanded to 9-5 hours and seen a 56% increase in nearly every type of activity as a result.
“Over past decade, our branch activity went to 82% from 90%, but it still dominates all the other delivery channels,” he said. “A JD Power study shows 71% of consumers, including Millennials, still use a branch, and the satisfaction numbers for those individuals are higher than those who don’t use a branch. The notion that branches are going away is faulty.”
What people especially like about branches, he said, is that when they have a problem in another channel, there is a place they can go to find a human to help. “That’s where the service satisfaction numbers go through the roof,” he told the meeting, especially when the experience feels seamless to the member as they move through channels.
Since 2012, Stephenson said Rogue Credit Union has seen substantial number in transactions as the result of its growth, even as the average transaction per member has declined somewhat.
Help from the Competition
According to Stephenson, banks in its markets have only helped the credit union.
“Our competitors are closing drive-ups and we get members every day as a result. So that made it easier to go to remote video tellers in the drive-up,” he said.
Those video tellers also help members to transition to using other digital services, Stephenson added. He called its drive-up interactive teller machines a “huge win for us,” and said it no longer purchases ATMs as costs have made using ITMs comparable.
“We started using the machines in 2015 and now have 30 in service that operate from 7-7,” he said. What those centralized video tellers have done for Rogue, according to Stephenson, includes:
- Move to centralized staffing, which provides easy load balancing
- Extend hours without significant staffing increase
- 70% of transactions are now done as ATM transactions
One Disadvantage
He said one disadvantage with video tellers is the can work only one drive-through lane at a time, versus two in the old tube systems. Moreover, while transaction times are very similar to traditional system, if a teller doesn’t answer right away members perceive that as taking longer. “One way to combat this is we have an estimated wait time on our splash screens now. A lot of this is psychological.”
Today, Stephenson reported that 74% of RCU’s transactions are ATM transactions.
“Our goal is to make sure the member knows they can talk to someone if they want to, but they don’t have to,” he said.
A survey of members who have used its live video tellers has found:
- 61% prefer live video teller
- 28% prefer traditional drive-up
- 11% still prefer traditional branch walk in
“The branch is absolutely not dead,” said Stephenson. “We are building them as quickly as we can. A driver of our growth has been other FIs pushing consumers to digital, and consumers don’t like it. We are designing our branches to operate as traditional branches, but to be easily converted to alternative delivery methods later.”
Rogue Rewards
Those branches are serving members who are attracted and retained by the credit union’s Rogue Rewards program, according to Stephenson. The base account in that relationship is what Rogue calls its “Ownership Account”
“On day one, we pay the loyalty dividend into it,” he said. “All reward accounts pay back into the Ownership Account. Any dividend is transferred into the account. Right now, it’s paying 3%. You can only put money into it through the Rewards program. You can take money out any time, but you cannot put it back. We call it the Ownership Account to differentiate ourselves from the banks.”
Stephenson said its strategy costs Rogue between 30 and 50 basis points versus its competitors, but it makes that up with net interest margin. It does not use fees to compensate, he added.
“Our absolute most loyal members are ones with a checking account and an indirect relationship,” he shared. “Our aggregate balances per member has grown at the same time our membership base has.”