How can credit unions reconcile the costs associated with shared branching?
It’s not hard to visualize the benefits of shared branching: A nationwide network of 4,500 branches sounds convenient and impressive by any standard. But, even as the economy wakes up a bit, it still can be difficult to rationalize new expenses. Will shared branching pay off in dollars and cents?
It isn’t always easy to quantify. Some of the math is easy to do:
- Shared branching enables a credit union to offer its members the fourth largest branch network in the country for about the cost of hiring a single teller. That’s leverage.
- “Shared branching users generate more than four times the profit of non-users,” says Katie Elston, Senior Marketing Manager for CO-OP Shared Branching, Duluth, Ga. According to a Raddon Financial Group study conducted on behalf of CO-OP Shared Branching, 38.6 percent of households using shared branching are profitable, compared to 28.8 percent of non-user households.
- The Raddon study also found that credit unions that act as both issuers (allowing members to use participating shared branches to do transactions) and acquirers (accepting transactions on behalf of other credit unions) earned, on average, $23,000 in transaction fees annually. “Even when revenue generated doesn’t negate the total cost of participating in shared branching, it does offset issuer costs,” says Miller.
One of the best reasons to sign on to shared branching – namely, member convenience – doesn’t come with a dollar value attached, and that makes it more difficult to place on a balance sheet. “What we’re seeing with consumers is that convenience in the form of nationwide branch networks is simply the beginning standard,” says Nathan Rogers, Vice President of Marketing for FSCC, LLC, Ontario, Calif., a part of CO-OP Shared Branching. “Shared branching enables credit unions to offer a level of convenience that will bring greater checking account penetration – and, with it, more revenue.”
According to this “Credit Union Journal” article, credit unions have a 42 percent penetration rate on checking accounts. “That leaves 58 percent of the membership to target, a tremendous growth opportunity,” says consultant Dennis Dollar, a principal at Dollar Associates in Birmingham, Ala. In order to foster growth, Dollar believes credit unions must offer the convenience of nationwide access.
Here’s the rub: “About 5 to 8 percent of members use shared branching in a given month,” says Rogers. “But those numbers can be deceiving. For the majority of people, branch access is less about usage than wanting the security of having it.”
Translation: Measuring the value of shared branching may not be simple or straightforward. But that doesn’t mean it’s inconsiderable. “The widespread accessibility credit unions gain when they participate in shared branching allows them to compete, both locally and nationally,” says Elston. “It’s also worth noting that when credit unions use shared branching as part of their branch delivery strategy, dollars that would have been used to build proprietary locations can be put into other investments like mobile banking,” and an even wider world of convenience.