One of the evolutions in credit unions has been more open chartering. This is a return to credit unions' community roots which is how the first charters were organized. Federal credit unions are seeking community charters as the easiest way to cope with the impact of HR 1151. State chartered credit unions have increased the scope of their activity to lessen dependence on the economic fortunes of sponsors. The business challenge is how to serve a geographic community. One approach has been to partner with grocery stores in order to draw from their stream of traffic.
The following is a brief summary of some of the pros and cons of this approach by a credit union that has used grocery store branches as part of its distribution strategy.
We, at Boeing Wichita Credit Union, continue to learn about and evaluate the success of our in-store branches. The decision to enter into this type of branching environment almost five years ago gave us the opportunity to expand and increase awareness about our credit union. This was approximately a year after we converted to a community charter, so the timing was right. The projections and ROI may not be reliable, depending on how the branches are designed and operated. The supermarket chain required that our credit union put a branch in all their stores in our city (5 at the time). We continue to learn about things we can control and the things over which we have no control. Some of those issues are:
Things We Can Control:
*Using a consultant. Consultants help credit unions get into the retail outlet. Without the help of a consultant, credit unions would probably not be able to get into retail outlets, such as supermarkets. Consultants' recurring charges, however, last as long as the lease term.
* Contract negotiations regarding rental rates and commissions paid to the supermarket and lobby hours. Boeing Wichitas' in-store branches are open from 10:00a.m-8:00p.m. Monday-Friday, and 10:00a.m-6:00p.m.on Saturday. Adequate staffing for a 10-hour day is challenging-especially with late evening hours. The turnover is higher and often times the employee is not career minded. Although it may be challenging, hiring the right person for each position is essential.
* Educating members to use technology deployed in the in-store branches. In-store branches can get very cluttered if the credit union is permitted to develop into a high teller transaction outlet. This increase in size allows for an increase in overhead, which may be disproportionate in comparison to a stand-alone brick and mortar branch. For example, most folks will walk right past an ATM that has check cashing capabilities to have an employee take their deposit. As part of the account opening process, from day one, take the time to train the members how to use your kiosk and check cashing machine.
* Focus on sales. Employees can increase sales by spending time in the aisles promoting the credit union to shoppers. The challenge is that most folks frequent the same supermarket, so there are many repeat customers/potential members. Also, many of them are in a hurry and do not want to take the time to hear about the credit union. Once again, hiring the right type of manager and employee team can make a tremendous difference.
Things out of our control:
* Employees of our original sponsor give us mixed reviews regarding our branching out into the community. Some original members like the convenience, while others feel they are paying for the rest of the community to have access to 'their' credit union. This sentiment may exist even without in-store branches. Of course, new members also appreciate the convenience. Community penetration is definitely enhanced with more public branches.
* Different supermarkets appeal to different clientele. The consumers that frequent Supermarket A may have totally different financial service needs than those that frequent the competing supermarket. Do those consumers use the products/services/delivery channels to make an in-store branch successful?
* Retail stores come and go. In August 1999 our credit union was notified that one of the supermarkets, in which we were located, was going to be closed within 60 days. It happened to be in an area of town where we knew we needed to be. It took us over six months to locate, purchase, remodel and re-open. Only now, approximately a year later, are we back at the level of traffic we had before the supermarket closed.
Where are we going?
Our operating expense ratio is higher than our peers largely due to the number of branches we have for our asset size-10 plus a mobile branch. A typical credit union of $250-300 million has about half that number. We are considering converting the in-store branches to shared branch facilities. They would be run by our CUSO and would be open for use by members of other local CU's. Their participation may help us cover some of our costs.
Another strategy we are currently trying in one of our in-store branches is to operate as an electronic branch manned by only one Member Service Representative (MSR). I believe this is how most in-store branches should be designed to operate. There has been concern from some members because the staff we moved out of this branch had developed excellent relationships with them. The members hated to see them go. Even though the branch is still open the same hours, their perception is that it has been closed because of our self service technology and there being only one MSR.
Gary Regoli, CEO
Boeing Wichita Credit Union
Making Lives Better, Together!
Interested in more information on credit union branching strategies? See our 3rd Quarter Branching Study.