Lattes and lending: How co-location is changing branch strategies

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A Spokane, Wash. credit union is preparing to test out an entirely different kind of shared branching strategy.

Spokane Federal Credit Union is in the process of building a branch that will share space with Revel 77, a local coffee house, and some analysts say that sort of partnership may be the ideal way for CUs to increase the visibility of their branch networks.

“Sharing space with a coffee vendor…is a way to greatly expand branch traffic,” said Joe Salesky, CEO of CRMNEXT, a Novato, Calif.-based provider of customer resource management technology to financial institutions. “There is a demand by Starbucks and other coffee retailers to take advantage of great locations through the co-location model.”

Salesky suggested this branch strategy could work particularly well for community-chartered credit unions, especially in a time many institutions are saddled with significant expenses surrounding their brick-and-mortar facilities despite declining branch traffic as members increasingly rely on digital channels for transactions.

One successful example Salesky pointed to is Pinnacle Financial Partners, a regional bank headquartered in Nashville, Tenn. Pinnacle reworked its Germantown, Tenn. branch by renovating its four-lane drive-thru facility so one lane could be used by Starbucks, two modified to use a video connection for bank customers, while the fourth lane was converted to a drive-up ATM plus a pneumatic tube.

The interior of the Pinnacle branch had roughly 3,000 square feet of space – Starbucks took two-thirds of the area, leaving room for two teller stations, a work room, two offices and a room for safe deposit boxes.

After the conversion, the bank saw “a significant increase in traffic,” Salesky reported.

“Increasing branch traffic while minimizing costs, it is a pretty terrific marriage with the right brand of retailer that has traffic coming in on a daily basis,” Salesky assessed. “Credit unions and banks that have great locations could look for the right partner for mutual benefit. Instead of just doing branch redesign to make the branch look better, or taking out teller lines to establish meeting spaces, the credit union could bring in a partner. A retailer brings more traffic into the branch, Starbucks, or a different company, benefits from the great location.”


Charlotte Nemec, president and CEO of Spokane Federal, explained that the shared space with Revel 77 is actually a former bank branch built during the 1960s. The facility was scheduled to be demolished earlier this month and new construction will commence in April. The new building is scheduled to open in July and the signage will carry the $157 million-asset credit union’s as-yet-unannounced new name, along with “featuring Revel Coffee.”

Nemec said the goal is to have a cohesive look and feel in which both sides would look the same. It will have no teller lines, but there will be member advocates to help members talk to tellers through Interactive Teller Machines.

“The architect came up with a great design,” she said. “There will be a center wall made of glass, on our side will be our cash recycler and desk area, on the Revel side will be seating. When those doors are open, you won’t know if you are in the coffee shop or the credit union, other than the different colored logos.”

Nemec said management knew it wanted a high-traffic partner for the new branch and had also considered a bakery before settling on the coffee shop.

“There will be a seamless connection between the two spaces – our credit union on one side and Revel 77 on the other side,” Nemec explained. “If there is a 10-minute wait to speak with one of our representatives about a loan, they can go to Revel and get a coffee.”

By coincidence, the architect Spokane FCU was working with had already designed a Revel 77 store.

“We have been looking to go to the Spokane Valley for a little while now,” she said. “We talked to Revel and worked it out. Both Revel’s customers and our members have been asking for a Spokane Valley location, so this is perfect timing. Serendipity.”

Caution required

Some analysts cautioned this strategy is not a cure-all for branch traffic woes.

“Many banks and credit unions have locations in grocery stores to take advantage of the thousands of repetitive shoppers,” reminded Jim Burson, managing director of the channel practice at Scottsdale, Ariz.-consultancy Cornerstone Advisors. “Grocery store branches have mixed success, based on the data. They never have been wildly successful, mostly because they were servicing locations, not sales locations.”

And the coffee strategy presents its own challenges, he added. Capital One Café launched 15 years ago in New York City, but Burson pointed out a challenge: if someone wants a cup of coffee, will they go to Starbucks or Capital One?

“I am a little cynical, so my gut reaction is, I am going to go to Starbucks or my local coffee shop,” Burson said. “Even though you see Starbucks in grocery stores, if I am going to the store and see a Starbucks I might make an impulse purchase. I don’t see banking as generating that same sort of impulse.”

Ryan Myers, a director for Cornerstone Advisors who leads the consultancy’s community on branches, acknowledged, “I can see some of the optimism.” But, he added, “I share Jim’s concerns about how much conversion is going to take place where someone goes to get a cup of coffee and then opens a checking account just for fun.”

Financial institutions have tried opening branches near malls, because that is where people go, Burson said, but the hours do not match up. “If you are going to do a co-location strategy, you have to align the two.”

While Burson said Cornerstone Advisors “definitely” thinks the branch of the future should be geared toward financial conversations, not transactions – and coffee could potentially be part of that equation – he said there is currently no good source of data on co-location arrangements and cautioned against relying on sharing space with any vendor to drive foot traffic.

“Credit unions should look for partners that will benefit them by enhancing the branch as a destination point. Does a credit union want to offer free Wi-Fi and tables for people to work, as they do at a Starbucks location?”

Salesky, however, noted coffee brands have loyalty and drive regular business, and suggested the concept also could work with food venues, such as McDonalds, Panera Bread, or other shops with regular, frequent visitors.

“It all comes down to ‘Does the physical space make sense?’” Salesky said.

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