Does Branching Promote Growth?

In the credit union industry, heavy branching does not always correlate with growth. Chip Filson identifies several things credit unions can do to leverage their branches without the brick-and-mortar expense.


This article is an abbreviated version of Chip Filson’s article in the Callahan Report.

Credit unions are in the branching game, and for much the same reasons as banks. As they attempt to grow in new markets, they need a physical presence to gain members, show community commitment, process transactions and grow the credit union.

The dilemma with this approach is that in most major markets, credit unions will not be able to out-branch their competition. For example, Commerce Bank plans to open 200 branches in the DC area in the next several years. In almost ten years of effort, credit unions have opened fewer than ten shared branch outlets in the same market.

But the questions are more than just issues of resources. The issues include such questions as:

  • What do we know about the importance of branches for our members?
  • How should the functions of a branch evolve?
  • Is there a cycle to branching strategies, and is the current frenzy the peak of a boom?
  • Can incremental deployment of one or two branches per market per year by a credit union significantly change its market standing?
  • How is branch performance to be measured: growth, profitability, or activity?
  • How does the cost of acquiring a new member via a branch compare with other acquisition strategies, such as indirect and point of sale lending?
  • What should be the model for a branching strategy: Other financial institutions or non-banks such as Starbucks and Schwab?

With rare exceptions, credit unions have not developed innovative approaches to branching. Rather, many of the same factors of location, design and marketplace demographics that drive for-profit branches are the ones used by credit unions. Although this approach might be feasible in a small market with a community charter, will it be successful in large urban and suburban markets?

Some Initial Results from Credit Union Branching

Nationally there are approximately 2.6 bank branch offices per 10,000 of population. The credit union ratio of offices per member is 2.3. Do credit unions with higher branch per 10,000 member ratios show higher performance? Is there evidence that adding branches results in higher rates of growth?

When the top 100 credit unions in branches per member are compared with their rates of growth, there is no correlation between branching coverage and growth. This outcome applies to both new members and shares.

When credit unions of the same asset size are compared using groups with more branches per members versus fewer, there again appears to be no growth advantage accruing to the credit unions with higher investments in branches.

What is the Credit Union Branching Advantage?

As in every other area of credit union business planning, credit unions will not be able to outspend their competitors trying to gain advantage. Instead we must outthink them. Although branches are essential, building branches does not by itself guarantee success. But other factors when combined with branches have provided real advantage. These include:

  • Locating within a sponsor’s workplace or where there is a convenience advantage for members. Many DC-area credit unions -- from Bank Fund and NIH to the Congressional FCUs -- have offices where their members work. These locations are a significant factor in their member service.
  • Branching should be viewed within the context of total “points of presence.” Members have multiple channels that include surcharge-free ATMs, shared branches, point of sale (auto) relationships, kiosks and even on-site credit union representatives. All of these create a physical distribution network. By focusing on the total network, credit unions can provide options that match differing member needs and the coverage portrayed by competitors’ branch focus.
  • Cooperation can make a difference. One of the fastest growing credit unions in the past 10 years is Local Government Employees in North Carolina. Their branch, ATM and call center network is provided by State Employees. How many other large credit unions could open up their operations to outsourcing partnerships with neighboring credit unions?
  • Branches will evolve in terms of purpose, key measures of effectiveness and relative importance to a credit union’s overall performance. In some instances, just changing managers can affect a branch’s results; in other cases performance may require a whole reworking of a location’s functions.

Branches do matter for strategy. Unfortunately there is no single blueprint that fits every situation. Just as with mortgage lending, web delivery and service capabilities, innovation will be a key factor in branching success… and with innovation a realization that cooperatives’ primary advantage is combining their individual resources in shared networks equaling or exceeding the biggest players on the field.

To read other thought-provoking articles by industry leaders such as Ed Callahan and Bucky Sebastian, click here to subscribe to The Callahan Report. 




Dec. 5, 2005


  • You are full of shit.