Shared Branching Flirting At 30
It was 1975, and in Greater Detroit the news was dominated by the emergence of these little Japanese automakers offering fuel-efficient automobiles to consumers suddenly aware of three little letters: MPG.
Miles per gallon were getting significant media attention, as gas prices increased and some offered dire warnings that gas might hit a buck a gallon.
Receiving far less attention, if any, was the rollout of a pilot project by something called Service Centers Corp., which optimists hoped would become a model for the entire credit union movement-a service center, or "shared branch," that allowed members from various credit unions to conduct financial transactions under the same roof.
Thirty years later, some believe shared branching is finally set for considerable expansion.
"The genesis was that these five credit unions knew that they needed more branches but also knew they couldn't each afford to build," said Ken Sucher, SCC President. Jointly, they created a single outlet in Michigan's Downriver community that would give some 9,000 members more convenient access to the types of things they could do at their credit unions, including cashing a check or getting a loan.
During its first month in operation, more than 800 credit union members from the participating CUs transacted business at the new facility in Riverview, Mich. One member even said he drove 80 miles "to get money" because his own credit union's branch was closed.
News accounts at the time gushed over the great potential of this latest extension of the credit union cooperative spirit, the "shared branch," but for all that potential there were limits on how much sharing could be done and how many credit unions could participate. The key issue was the lack of technology allowing for real-time "sharing" to occur.
Thirty years later, SCC has become an international shared branch provider that operates 19 Credit Union Family Service Centers in Michigan and five in the Washington D.C. area. It is also partner in the CU Service Centers Network Inc., which offers access to more than 1,900 shared facilities in 41 states and five countries. Some 30,000 members visit these facilities daily, conducting more than one-million transactions per month.
"It took continuous reassessment of company goals and offerings to sustain three decades in the credit union industry," Sucher said. "We ultimately found that flexibility is the key to shared branching success. By adjusting to meet the industry's needs, SCC has been able to maintain strong partnerships and provide effective shared branch products and services."
For example, in 1999, SCC joined with Financial Service Centers Cooperative and Credit Union Service Corporation to become an equal partner in Credit Union Service Centers Network Inc., the national shared branching network organization.
And, in 2002, SCC became a CO-OP Network subsidiary, creating a national platform for SCC expansion under the industry's largest credit union EFT provider.
"Although technology plays a large role in today's financial environment, branch locations help credit unions foster and expand member relationships," said Stan Hollen, the former CEO at The Golden 1 Credit Union and Liberty Enterprises who now heads up the CO-OP Network. "After 30 years of leading the shared branching charge, SCC has proven that shared branching is here to stay."
Shared branching was making its debut at the same time President Gerald Ford was wearing a "Whip Inflation Now" button and a major recession was hurting much of America and especially its auto-producing heartland, Michigan. Unemployment was rising and members, not surprisingly, weren't borrowing. Among the hopes for this new concept was that it would bring more people to the credit union who otherwise didn't have convenient access near their homes.
But, according to one key player in its formation, it didn't happen overnight. In fact, said Donald J. MacKinnon, then manager of Dearborn FCU and president of SCC, those involved in its creation had to overcome "many slips between the cup and the lip" before opening the very first center.
That included getting approval of both federal and state regulatory authorities, MacKinnon said.
In a letter addressed to Bryan Conroy, then VP of Marketing at SCC, on March 8, 1995, MacKinnon recalled some of the history that included resistance from the state Banking Department.
"There were strong misgivings because the idea was so novel and bureaucrats (at least at that time) were still trying to contend with share drafts and other such revolutionary ideas," McKinnon wrote. "NCUA gave us tentative approval based on the fact that transactions between credit unions and Central Credit Union were electronically based, another revolutionary idea at the time."
Final approval for both state and federally chartered credit unions to participate came when MacKinnon gave an NCUA administrator and some top aides a tour of the Riverview facility.
"After observing our operations for a few minutes, (the NCUA administrator) said, 'I am satisfied you have a great idea here. I am going to give all federal credit unions a permanent O.K,' " he recalled. "Perhaps because there was a strong rivalry between NCUA and the Banking Department over charter switching, the latter removed its objections...and we were on our way."
The concept began to catch on despite the cumbersome tasks involved.
"The first transactions were done manually," Sucher noted. "The teller would conduct the transaction and then call it in to the appropriate credit union."
Typically, the teller would have to look up the member's name and account information from a printed alphabetical listing, Sucher said. The transactions were conducted via the phone lines, then recorded manually and later delivered to the individual credit unions.
"We would have someone drive over those reports," he said. "We did have cars back then."
At the time, Sucher was working with one of the CU's vendors- World Computer Corp. in Bingham Farms, Mich. He said he joined SCC as SVP in 1997 to establish the Information Technology functions required for the EFT and shared branch networks. He stepped into the presidency in January 2004, replacing Dan Balagna, a pioneer in shared branching who retired after serving 28 years.
Soon after the concept got under way, newfangled computer terminals were installed at the service center-one for each participating CU-that allowed tellers to keep better track of data processing records. But this was no universal, Windows-based solution with which tellers were working. "When a member came in, the teller would go back to the appropriate terminal to conduct the transaction," Sucher said. "Of course, one of the challenges there was that the teller had to know how to operate in all of these different environments."
In the early 1980s, Dearborn FCU (now DFCU Financial)-one of the founding participants-created a device that allowed the teller to flip a switch from a single terminal to call up data from any of the participating credit unions, making the process even more efficient.
"Dearborn Federal implemented this technology that allowed a transaction to go to a system at DFCU that would then determine which CU and which format was needed before transferring it," Sucher said. "It was a very unique system for its time."
By this time, SCC had opened three more shared branches for 44 credit unions in Michigan, processing 48,000 monthly transactions. In 1983, ATMs were installed at all 50 credit unions participating in SCC shared branching. A year later, the SC24 ATM Network was launched.
As the concept became more popular, some credit unions agreed to open the doors of their existing branches to guest members, Sucher said. "Initially, it was stand-alone branches only that SCC owned and operated. But, over time, individual credit unions wanted to support and promote the cooperative environment."
Sucher said that concept really helped the SCC network expand.
While Michigan still has the highest number of credit unions participating in shared branches-around 55%-credit unions in 40 other states have since signed on. Still, just 15% of credit unions nationwide participate in shared branching, Sucher said. "We don't understand why a credit unions does not participate in shared branching," he said. "It provides many more locations for their members."
Some Unfounded Concerns Over Poaching
Helping to slow expansion was the belief during the 1990s that the move to online banking and other Internet-provided access would mean the end of bricks-and-mortar.
In fact, the opposite has occurred. "And, credit unions may have unfounded concerns that members will change from one credit union to another," Sucher said. "But there are strict rules that prevent credit unions from participating in the network if they solicit."
He said while credit unions of all asset sizes are involved in Michigan, other states generally have only large-asset CUs as participants. "Maybe the smaller credit unions don't think their members travel as much," Sucher reasoned.
Perhaps an example of how SCC made a difference during a natural disaster will change some perceptions, he said.
When RiverLand Credit Union's New Orleans headquarters was ravaged during Hurricane Katrina on Aug. 29, 2005, officials had to find a way to continue serving members. Making the task more challenging, they thought, was that many were employees of its primary sponsor, The Entergy Corp., and were being relocated to facilities in Jackson, Miss.
"After the hurricane, we called CO-OP Network and [its]subsidiary SCC and learned that establishing a temporary branch would cost much more than partnering with SCC, which already has several shared branch outlets there," said Carol Irby, RiverLand's CEO. "Besides, with many of our members relocated across the country, we could quickly gain access to an additional 1,900 branches through SCC's national shared branch network."
To help boost transaction volume at a stand-alone shared branch in East Lansing, Mich., SCC and CO-OP Network formed a unique partnership in early 2005 with Financial Health Credit Union of Lansing, Mich. The latter took ownership of the SCC-led shared branch facility while SCC continues to staff and manage it. The facility operates both as a full-service branch for FHCC and a shared-branch for members of participating credit unions.
"It just made sense to take advantage of the existing branch in our area by creating a partnership outlet with SCC," said FHCU CEO JoAnne Fillwock.
Sucher said SCC has owned and operated the Lansing shared branch since 1986. "It's an ideal situation for everyone involved because FHCU members are already familiar with the Lansing branch location-they've used it since the shared branch opened-and SCC can continue to provide services to other shared branch credit union members in the area."
Among SCC's top priorities in 2006 will be to continue adding more CUs to the network.
To participate, CU's must sign a three-year agreement under which the credit union is billed per transaction. There are no volume requirements.
"We think more credit unions will become involved as we start to offer more," Sucher said. "Service Centers was once a very regional organization. But since being acquired by CO-OP, there are suddenly many more opportunities for a national culture...We think the momentum is finally coming around."