CHICAGO-If online and mobile channels are so crucially important, why don't credit unions spend the money to reflect that?
That was the query posed here recently by Rob Rubin, founder of Facilitas and a former research VP at Forrester Research. Rubin spoke on "The Bearish Case for Branches" as part of the Filene Research Institute's "Future of the Branch" Colloquium. Online and mobile channels, stressed Rubin, are more than critical. "This is where all of the new members are going to go before they become new members," he said.
Rubin urged credit unions to recognize that a number of market forces are converging, making branch systems harder to maintain and eliminating the case for the model.
Simply put, consumers can perform the vast majority of their transactions electronically, he said. Rubin stated that mobile banking is growing 300% faster than online banking did, and an increasing number of applications (for loans and membership) are started online.
Young consumers also pose a significant challenge to the traditional branch structure, explained Rubin. For starters, FIs must be visible where those consumers look for products and services (including Google and Yelp), and where they spend time, such as on Facebook. But along with an increased digital presence, credit unions need to be sure that interested consumers can actually find the information they're looking for.
"The No. 1 challenge I've seen is credit unions hate to use the word 'bank,' but no one uses 'credit union' in a search," said Rubin, stressing that limits how well credit unions will come up in online searches for banking services. "If you make it harder for them to get an answer to a question, they probably won't do business with you" regardless of how good your service is and how convenient you are.
Providing easy answers to questions via online and mobile channels is vastly more important to young consumers than having someone greet them at a branch they may never visit, added Rubin.
On top of that, there's plenty of competition-but it's not just banks versus CUs anymore. "Competition is now on a larger scale than just a financial institution's new branch in your town," he said.
That new competition is coming from online lenders and mobile payments providers that are taking traditional banking activities out of the banking relationship.
Rubin highlighted Simple.com as an example of a site that offers financial management products in its own way and manages the banking relationship. The site-which requires a smart phone for use-lets the financial institution do all the hard work while Simple reaps the benefits of the relationship, he said. Among its features is "Safe to Spend," an amount the site predetermines based on analysis of the user's previous financial habits, regular bill payments and more.
People Helping Other People
Moreover, sites such as The Lending Club (lendingclub.com) bring together borrowers and investors for personal loans-including debt consolidation, vehicle loans, home improvement, business lending and more-using the person-to-person model that eliminates institutions from the lending process. Not only are these groups meeting via channels in which many financial institutions are not present, said Rubin, but they represent a competitive challenge to branch banking because their cost structure is so radically different.
Ultimately, traditional branching is just too expensive to be maintained, said Rubin, noting that "the idea that cross-sell is the reason for branching doesn't actually bear out in the data." In other words, very little cross selling occurs in the physical branch, according to Rubin.
Plus, he said, consumers who open accounts in-branch are more likely to use the branch for their transactions, rather than lower-cost non-branch alternatives. He noted it costs an average $3.58 to deposit a check at a branch, compared to six cents for ACH deposits.
Taken together, all of those factors are eroding the effectiveness and sustainability of traditional branching, said Rubin. "There's not one killer app that's going to say 'Now branches are cooked.'"
