ALPHARETTA, Ga.—There is a misperception that the branch will soon be a thing of the past, according to one person.
As Chad Davis, senior industry marketing manager, Kronos for Banking (Kronos now owns Financial Management Solutions Inc., or FMSI), observed, “People are saying the branch will be dead. Frankly, it’s not going anywhere.”
In fact, credit unions have even seen a rebound in average monthly branch transactions in recent years, he said.
Davis’ observations are offered as part of a series in CUToday.info on “fake news” in credit unions that may be leading to poor decision-making.
It’s true that many branches have been closed since they reached their peak of just under 100,000 (for all financial institutions) in 2009, acknowledged Davis, and there are approximately 8% fewer branches now than there were at their peak. But that doesn’t mean they are being replaced by online or mobile banking; it just means the financial system has been over-branched, especially by banks.
FMSI conducts a bi-annual study that measures trends in branches, among other things. Its Teller Line study has measured a 34% drop for all financial institutions branch transactions between 1992 and 2017.
But what is really worth noting, according to Davis, is that over the past few years the average transaction volume has increased a little as the number of branches has fallen, and for credit unions that increase has been 10% since 2013.
Between 1970 and 2016, the population of the United States increased by 50%, but the number of branches doubled, Davis notes. In 1970, the population-to-branch ratio was 9,340 to 1. Today, it’s 3,518 to 1.
A Market Correction
“The market’s overbranched. The strategy was, ‘If we build it they will come.’ This is what they did,” shared Davis, adding, “The branch is dying is fake news. I think what’s happening is correcting the overbranched market.”
What’s taking place, according to Davis, is that “Branches are changing to become more sales-centric. People come in to talk about a loan or with a question about their account.”
Those consumers/members visit a few times a year as opposed to 25 years ago, when the consumer might come in to the branch on a bi-weekly basis to cash a paycheck, he noted.
Is there a similarity to other retail industries such as bookstores or record stores that have been reduced or eliminated by online competition?
“That’s not a safe comparison,” responded Davis. “That’s different than talking to someone about complex financial transactions. Online and mobile certainly changed how many times people need to go to the branch. (But) the 60-and-over crowd is not down with that technology. Eighteen percent used mobile/online, and the rest go to the branch for simple transactions.”
Rising Salary Costs
“People still put a premium on having convenient locations,” said Davis, noting that branch consolidation will continue. “Labor costs continue to rise.”
He pointed to an increase in salary and benefits costs that have risen 100% since 1992. Labor costs per transaction are 147% higher, Davis noted, going from $.48 per transaction in 1992 $1.19 per transaction in 2017.
What should credit union managers do to more efficiently manage their branches?
“It’s all about the branch experience, having a pleasant experience every time a member comes in. Wait times are important. If they wait 30 minutes it’s not a pleasant experience,” Davis said.
That means credit unions need to have the right number of staff based on forecasted transactions. And on the lobby side, appointment software is adding to member convenience.
“There’s a need for these kind of things. The right person needs to be there.” That means training and recruitment is key, he says.
FMSI’s latest Teller Line study will be out in July. It is based on 16-million transactions at 100 or so credit unions and banks using the month of March for a benchmark. The firm specializes in branch performance management.
Davis has written a white paper on the future of branches, and can be viewed here. In the paper, he writes that branches of the future will not be all that different from current models, and will consist of traditional branches, personal experience upscale branches, and self-directed technology branches.
—Mark Fogarty