WYOMISSING, Penn.-Starting out as a virtual credit union may be easier than becoming one, according to a 75-year-old CU here that has always been branchless.
"Our membership is comfortable with the virtual model, because they never had it any other way," explained Jane Kennedy, marketing, business development and e-services manager at the $1-billion Utilities Employees CU (UECU). "If members are used to branches and you pull them away, well, that's a different story."
A full 98% of UECU transactions are completed electronically, Kennedy said. The CU won't debut mobile banking until late this year, so the CU's website serves as the primary transaction channel. The remainder 2% of transactions is completed through the CU's telephone banking, "minimal" ATM alliance-and cashless headquarters that can perform certain transactions "in case somebody walks in."
Look for more credit unions to transform to the cyber business model in coming years, Kennedy suggested.
"I do think that eventually the virtual world will happen for other CUs," Kennedy suggested. "I don't think it will start in the CU movement, though. It will start with banks when they realize they can't fee more and more to make up difference for branch costs. That's when there'll be a shift to lower-cost models. And once banks make that shift, credit unions will follow suit."
UECU's greatest challenge being branchless arises when recruiting new members, continued Kennedy. "We have trouble with the perception that branches are convenient, so bringing in new members is an educational prospect for us."
In particular, new members want to know how they'll get their hands on their cash during a crisis, she said. "They don't seem to mind if their loans are accessible online, but with cash, they get nervous."
The CU softens the transition by encouraging new members to keep their checking account open at another financial institution, Kennedy said. That way, the member can immediately transfer money at no charge from their UECU account into a local account, where they can withdraw cash from a branch or ATM.
"Eventually, they like the utility at UECU, and they close that local account," she added.
Cost Savings Returned In Rates
It's no secret, Kennedy noted, that being branchless is a "very low cost" model. "Our deposit rates are usually three or four times higher than what you find in the market. And members can call us to negotiate their loan rates. At most institutions, there's no room for negotiation."
New members are initially attracted to UECU by deposit rates, but they slowly add products, "once they realize the ease of access and the better options we provide," Kennedy said.
The average UECU household holds 2.28 services, a rate that considers all savings accounts as one service, she said.
Kennedy said she worries about the day when Bank of America goes branchless. "When BofA takes the virtual model and begins offering better deposit rates, then I won't have the marketing dollars to compete. I'm in a nice spot right now, but that will change."
To prepare for that day, UECU is attempting to allow members to complete all types of transaction online, she said. "But now it also has to be more convenient than a branch."
Later this year, the CU will transform online banking to make transactions more "intuitive," Kennedy said. "The platform will mirror the way they live their lives online at other sites."
