The Metamorphosis of a Credit Union – From SEG Legacy Branches to Online-Only Members

After reconfiguring their branch network and average branch size, Keypoint Credit Union, has seen significant increases in member relationships and a strong member migration to the online channel for transactions.


Chartered in 1979, Keypoint Credit Union ($837M in Santa Clara, CA) is still a fairly young institution. In 1996, when Juli Ann Callis, former COO, began, it had about $315M in assets, 215 employees (FTEs) and 12 branches. Now, they are close to $900M in assets, with 150 FTEs and 11 branches. Originally associated with the American Electronics Association, they serve 3,200 high-tech companies and their employees, including Apple, Intel, Adobe, and Google. Now, over one-third of members have never visited a branch, and another third visit the branch less often than once per year.

Developing a Long-term Goal of Reducing Expenses
Callis recalls, "We were staffed to the max, so the original goal was to move from legacy branches to a more streamlined approach by reducing the footprint of the branches, and therefore the associated expenses." Callis' background includes a stint at CitiBank, where she oversaw 81 branches in the New York City Area. "It was a great test laboratory for manned and unmanned kiosks, hub systems, and different branch configurations."

To reduce the footprint, they had to reduce the number of transactions. In 1996, over 50% of transactions were shared branch, non-member transactions. The overall delivery system metamorphosis was driven by self-service technology. The credit union established a goal in 1996 to move as quickly as possible to self-service transactions, comprising 90% of all transactions on an annual basis. They hit the cross-over point in 2001, helped along by the burgeoning Internet and their high-tech members' preferences for electronic channels.

Targeting the Right Markets while Improving Branch Performance
Working with Weber Marketing Group, a design/build firm based in Seattle, the credit union reduced both the size and number of branches and created a heightened retail atmosphere in remaining branches. To do so, they developed metrics and incentives to encourage the consumer to use non-branch channels, such as encouraging members to set-up individualized account alerts online. Then, they established that each interaction at the branch had to contribute directly to the P/L of the branch.

In their goal to have branches in the right location in the right market, Keypoint ended up selling some of their branches and domiciled deposits to two other credit unions. Callis notes, "We were trying to reduce our footprint and sold our stake in markets that weren't appropriate for us." Such acquisitions happen frequently in the banking world, but are decidedly less common in credit unions.

When opening their new retail branches, in their desired markets, Keypoint set specific performance benchmarks. Within three years the smallest branches, known as "Express Branches", between 600 – 1,200 square feet, were to have at least $50M in new money. Medium-size branches, their "Community Branches", 1,200 – 2,400 square feet, were responsible for $75M and their largest branches or "Community Finance Centers", greater than 2,500 square feet, had to reach $100M in new money within three years.

Building an Online Constituency
One-third of their members have never visited a branch. By enrolling with their SEG at the time of employment, they are automatically enrolled in online banking. Combining this process with the onset of employment also guarantees a high concentration of DDA accounts and deposits for Keypoint. With such a large portion of online-only members, Keypoint measures branch profitability by domiciling members in three ways with each group having its own profitability model:

  1. Online-only Members – Members who have never been to a branch or who have not visited a branch in an extended period of time.
  2. Transactors – Branch-visiting members, which are re-domiciled annually based on both frequency of visits and the most recent visits.
  3. Dormant – Members who have used branches in the past, but have not visited a branch in the past year. After members are in the dormant group for a year, they are re-evaluated and then put in either one of the other groups.

By eliminating common branch visits by switching transactions online, the branches and their staff can focus on specialized areas, such as mortgage lending, investment services or specialized needs. Callis notes, "You may not see growth in our net members year over year, but the growth in relationship has been extraordinary. When I started in 1996, the average household balance was $102. Now, in early 2009, we are well over the $10,000 mark."

Keypoint recognizes that it is futile to make every member acquire a certain number of products or services. They comprehensively look at the household and consider factors such as age, occupation, and location to determine the best products and relationship level for the member. This consultative approach enhances the retail atmosphere of their branches.

The retail delivery system must also meet the needs of a diverse population. With most credit unions in California focused on the Hispanic market, Keypoint has targeted Asian populations. Since 2005, about 28% of new members are Asian. One future project in development will focus on global mobility given their demographic speciality and the need for financial services while on-the-go.

Future growth drives for the credit union include a well-funded marketing team with significant public relations support to develop the retail atmosphere. Keypoint will continually upgrade their technology and website, which together form the virtual branch for 1/3 of their members.