MADISON, Wis. — Once again, rumors of the death of branches have been greatly exaggerated, according to a new study.
In fact, in the credit union community, brick-and-mortar transactions are increasing with young adults playing a key role in that growth.
Those are the findings of a recent report from the Filene Research Institute and the Pennsylvania Credit Union Association, which addresses a topic roundly debated among credit unions and the publications that cover them: What does future of branches hold during a time when online transactions are commonplace and mobile banking is taking off?
The findings run counter to reports that branch transactions are declining at financial institutions. For example, the 2013 FMSI Teller Line Study indicated that branch volume at all financial institutions has declined by 45.3% since 1992.
The Filene study, "Channel Delivery for Tomorrow," found that while online and mobile channels are growing-mobile grew by 90% in 2012-branch transactions at credit unions are rising.
During the past four years, the average monthly branch volume per member (number of items or inquiries processed per member per month) has grown nearly 12% to 32.8 per month.
The study observed branch usage among more than three million credit union members since 2009, concluding that branches still process the most items and inquiries per member. Ben Rogers, research director at Filene and the study's author, said the finding confirms that as member access channels grow, so does credit union usage.
An 'All-You-Can Eat' Buffet
"Think of it like an all-you-can eat buffet," said Rogers. "You assume that when you put a new, great offering on the food line that a lot of diners will substitute what they normally eat with the new entrée. What we are finding is that with all of these great offerings, like mobile and online, members are not substituting, they are supplementing. Turns out they just keep using the branch along with all these other channels."
When it comes to the financial buffet, young adults eat the most, according to Rogers, who said this further deflates rumors that Millennials only care about online and mobile. The report indicates young adults actually use more of everything-branches, mobile, online, and ATMs-than any other age group.
"The idea that due to their love of mobile and online, youth will gravitate toward those channels to the exclusion of others is not true at all," said Rogers. "This certainly sends a message to credit unions that anyone interested in attracting young adults can't just launch mobile and expect that to be the answer. You need to work all the other channels too."
Rogers said 18- to 24-year-olds interact with their financial institution twice as often as 65-plus retirees. And the younger the age group, the more they prefer to come into the branch for important transactions, such as account opening.
Rogers said the research suggests that younger, less financially experienced adults feel better opening accounts in person while older consumers are more comfortable interacting online. "This was surprising to me," acknowledged Rogers.
Jim Marous, SVP of corporate development at New Control, a marketing company in Brecksville, Ohio, said the study's finding that younger consumers still rely on branches correlates with research completed by several firms over the past two years.
"Research has also shown that younger consumers prefer direct mail as a way to evaluate financial services options," he explained. "I think both of these findings illustrate that when a person wants to learn or evaluate a subject as important as financial services, traditional channels continue to be important, especially for those segments that are less comfortable."
Marous pointed out that one of the reasons consumers continue to visit the branch for account opening is because FIs have often made it difficult to open an account online or through mobile devices.
"Javelin research showed that online account opening processes, while becoming better, still result in an abnormally high abandonment rate, most likely caused by a cumbersome process," said Marous, adding that this problem is going away as banks and credit unions make online account opening easier.
Credit Union Journal has previously reported (Jan. 17, 2013; Dec. 24, 2012) that branch transactions are falling and Marous sees branch traffic declining as well.
"Most financial institutions, large and small, banks and credit unions, are seeing a drop-off in branch traffic as more customers move more of their banking to online and mobile channels. With mobile banking still in its relative infancy, I see this trend continuing in the future."
Charles Wendel, president of Financial Institutions Consulting in New York, said his bank clients are seeing branch transactions decline between 7% to 10% annually.
"This [Filene/PCUA] study is counter-intuitive to everything I know. I see in the study that if someone deposits five checks one time a month, it is counted as five transactions. That is not how most banks count transactions."
Previous CU Journal reports indicate that many credit unions are shifting routine transactions to e-channels. Sources say branches anymore are far less about deposits, withdrawals and check cashing, and more about sales and deepening relationships. Many credit unions are rethinking what a branch should look like, shrinking the footprint of the teller line and the branch entirely.
Marous agrees with that approach. "Those basic transactions are moving out of branches to digital channels. This creates a bit of a conundrum for management of financial institutions since there is such an investment in bricks and mortar and in personnel to staff the offices."
While some institutions are responding to this trend by bringing more automation to the physical stores, and others are trying to repurpose offices using more space to serve member's higher financial needs, such as advisory services, Marous explained the challenge is that many of these offices have a larger footprint than is needed for the services that will be provided in the future.
Branch Focus Shift
Mark Waller, EVP and COO at the $1.3 billion Associated CU in Norcross, Ga., said CUs have to shift branches from transaction centers to consultative and sales offices. "There's a fine line between bricks and mortar and online. We have to change the branch experience to become a more educational environment around products and services. We want to be seen as trusted financial adviser and our members' PFI."
Corinne Sherman, PCUA SVP of fee services, expects the data will guide CUs in Pennsylvania and around the country in "developing multiple channel strategies."
Filene's Rogers emphasized two points: branches are worth the investment, but they must evolve. "[T]he branch is not dying. But the branch is becoming the location where high-value transactions happen and credit unions need to find ways to move the low-value transactions to alternative channels."
The Filene/PCUA report relied on proprietary data from McKinsey & Co., Novarica and Fiserv, along with national data from Gallup and expert interviews. Findings on consumer branch usage were derived from a McKinsey consumer survey.
