In-branch retail partnerships could decline after coronavirus

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The coronavirus may have slowed down a shift in credit union branching before it had a chance to fully take off.

A small but growing number of credit unions have launched co-location branches, in which the credit union shares space with one or more businesses under the same roof. But with consumers venturing out less due to the coronavirus, combined with reduced consumer spending and social distancing measures, the co-location trend may soon become less popular.

First Alliance Credit Union in Stewartville, Minn., opened a co-located facility in June that includes Moka coffee shop and Great Harvest Bread Co. The credit union runs the branch with interactive teller machines and a small number of on-site staff in an open-concept space with chairs and a fireplace at the center. The building has two drive-thrus — one for the credit union and one for the coffee shop — that help keep staff and customers socially distant, and the tenants also provide rental income to First Alliance.

First Alliance Credit Union's shared branch space with Moka coffee and Great Harvest Bread Co.
First Alliance Credit Union's shared branch space with Moka coffee and Great Harvest Bread Co.

The building was originally slated to open on April 1 but was pushed back two months on account of the pandemic, said Mark Hettinger, chief operating officer at the $231 million-asset institution, who noted that the project benefited from having started before the coronavirus outbreak began.

“Consumers are scared,” he said. “While it would have been nice to open April 1, June 1 was a better time to open. We recently had a virtual grand-opening for everybody and that went well, but we questioned whether we should do that, too, just because we don’t want to encourage people to come out and not be socially distant.”

The branch was designed to require fewer staff members than usual. With the pandemic showing no signs of subsiding, employees are wiping down all surfaces at least every 30 minutes, wearing masks and limiting interactions with others in the building.

Two additional spaces are still available for retailers, but Hettinger said the timeline for filling those has been thrown off by the pandemic.

Further west in Spokane, Wash., Canopy Credit Union is putting the finishing touches on its second co-located branch, the first of which opened in early 2019. Unlike the open floor plan First Alliance utilizes, Canopy’s facilities can be separated by sliding glass doors, “which has been a godsend to us during this COVID situation because Ladder Coffee can have their people in their space without us having to worry about our staff being exposed.”

Staffing is also limited — the branch uses ITMs and has just four employees on site, up from only two in March and April.

The branch currently under construction will be identical to the one that opened in 2019 and also include Ladder Coffee. However, once the new facility opens in September, Canopy plans to put a hold on branching — a discussion it was having even before the pandemic.

“Members, customers and the general public now are saying, ‘How much do I need to be in a physical space?’” said Nemec. "You’re always going to have those people who want to be in a physical space, but demand may become much less now. How we branch in the future is not necessarily, ‘Should we open up with Ladder?’ but ‘Should we open additional branches at all?’”

Nemec said the credit union will likely put all future branching on hold until after a vaccine is found, “and then we’ll sit down and really evaluate what kind of branch options we want to pursue after that.”

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While the name co-location may be somewhat new, the concept is not. The earliest credit unions began on factory floors and in church basements, and many credit unions today continue to operate facilities inside the offices of their select employer groups. However, some CUs have said in the wake of the pandemic they may shutter some of those locations in buildings tied to SEGs.

Rather than an increase in co-located branches, analysts said, in the coming years credt unions are likely to invest in technology that speeds up virtual face-to-face interactions rather than putting resources into brick and mortar.

“There’s no question that branches are expensive. The question really becomes, compared to other expenditures, do I spend on branches or do I spend on improvements to my member experience platform?” said Joe Salesky, CEO of CRMNext.

That’s particularly important right now, he added, since the pandemic accelerated mobile banking adoption and helped some consumers’ down from the fence who may have been hesitant to utilize some e-channels.

That doesn’t mean consumers don’t still need branches, though, and one branching expert suggested self-service channels may have reached their saturation point.

“People are funny about money and you have to figure out what that means,” said Jeff Baker, president of Image 4, a Manchester, N.H., company that helped design America’s Credit Union Museum. “There’s a whole group of people out there who want to be physical in touch with their money or those taking care of the money for them…I think there are large parts of the country where there is tremendous wealth and tremendous credit union membership where the social metric is face-to-face. And I think the drive-up is taking the place of that face-to-face.”

On the other hand, one factor that could keep the co-location design popular is the fact that some institutions may already have contracts in place that predate the pandemic.

“We’re not going to see much of a change for the next 18 months for businesses already lined up if both the business and the institution they’re partnering with are solvent,” said Liz Hummel, VP of operations at Image 4.

But, she added, fewer banks and credit unions are comfortable sharing spaces with different types of businesses, particularly those that operate on a drop-in basis. The future, said Hummel, may look more like a “business center” where similar industries — banking, real estate and insurance, for example — share a location that operates on the basis of what she called, “wear your mask, have an appointment.”

First Alliance in Minnesota is betting that things eventually return to some level of normalcy and traditional consumer behavior patterns eventually will be back before long.

“Obviously during COVID people aren’t able to come hang out, but that’s only for a short period time, even if it’s for a year and a half,” said Hettinger. “Long term this location will be beneficial for our members and for consumers who enjoy coffee, enjoy salads, sandwiches and bread, and want to potentially do banking with First Alliance.”

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