As digital banking explodes, brick and mortar still 'vital'

Even as credit unions push to compete against the big banks on the digital front, an old-fashioned element is still a factor in wooing consumers – branches.

Capital One has closed more than half of its branches in the last decade, shuttering approximately 50 in the last quarter alone. JPMorgan Chase, Bank of America and Fifth Third Bank, on the other hand, are all aggressively adding new locations.

Credit union branch figures, meanwhile, have stayed relatively steady, hovering around 10,900 industrywide for the last several years, despite the industry’s continued contraction. That factor, coupled with widespread shared branching, could help position CUs for growth in the years ahead.

“The branch is a vital part still,” said Karey Thomas, SVP of branch delivery at America First Credit Union in Riverdale, Utah. “It’s a digital age, but studies are showing that few people only want digital banking.”

Even with the proliferation of mobile banking, many consumers want the ability to visit a physical location. A 2018 digital banking survey from PricewaterhouseCoopers found that 65% of those surveyed feel that it's important to have a local branch and a quarter of respondents would refrain from opening a bank account that didn't have at least one local branch. The preferred channel for over 50% of consumers is to visit a branch when applying for a loan or deposit account, according to the study.

That shows branches are still relevant to many consumers. Those with a specific need that can’t be filled by a mobile app are especially reliant on branches.

For instance, service members need access to cash before being deployed to areas where credit cards may not be accepted, said Anthony Hernandez, president and CEO of the Defense Credit Union Council. The U.S. military may also need large quantities of cash, ranging from $50,000 to $250,000, which is used to pay for items such as landing and docking fees and necessities for bases in remote locations.

Credit unions on military installations "keep cash in their vault because when the military needs it, they can deliver the cash,” Hernandez said. The military doesn’t "take Apple Pay, they don’t take Visa, and they certainly don’t take bitcoin.”

Because of this, cash is an essential for missions, Hernandez explained. Credit union branches serving the military understand this demand for having this cash at a moment’s notice along with the need for operational security. A mobile banking app alone can’t deliver that, Hernandez noted.

Still, the role of the branch for many members is changing, experts said. Members are looking for a dual digital-branch approach, a philosophy that the $11 billion-asset America First is paying special attention to following the recent opening of its 128th branch. A majority of America First's digital members visit a branch every few months, Thomas said.

“Before mobile, our lobbies were filled with ropes [and] giant lobbies with members standing in line to cash their checks and get cash back. It was very transactionally driven,” Thomas said. “But today, we don’t have to have those big lobbies and keep our members waiting. They’re self-serving on the transactional side.”

Branches are evolving to include new technology and innovations and other features to draw in members. Quontic Bank in Astoria, N.Y., has taken note of the pop-up shops that have become popular in New York.

“One of the things that we see here in New York a lot is pop-up shops, so one of the ideas that we’ve been playing with is a pop-up bank,” said Patrick Sells, chief innovation officer at Quontic.

The $364 million-asset bank has toyed around with entering music festivals such as Bonnaroo as a pop-up bank. This is a method that Michigan State University Federal Credit Union in East Lansing has tried with a pop-up location in a local mall during the Christmas holidays.

Sells argued that financial institutions will have to get creative with using space in the future. Having an incentive to visit a branch helps. He pointed out Capital One’s Café model as an example. That’s a strategy that Canopy Federal Credit Union, formerly known as Spokane FCU, is trying with a new branch that will also include a local coffee house.

“You have to figure out how to use that space differently, but people still want that space,” Sells said. “I don’t think the consumers today are ready to go to a world where there’s no physical contact with a human in banking, but I think you have to figure out: how do you use that space, or use that space differently?”