Do Shared Branches Have a Role in the Digital Age?

A credit union fixture for years, sharing helps institutions manage declining transactions – even close branches – and maintain relationships with consumers who move, travel or simply like in-person banking. Banks with big branch networks won't likely ever share, but what about the rest?

“We have members all over the United States,” says the CEO of a credit union. It wasn’t the head of Alliant, the big digital-only credit union, who said that. Nor was it the CEO of Navy Federal, the country’s largest credit union.

It was Rhonda Baggarley, President of Sunset Science Park Federal Credit Union, just outside of Portland, Ore. The one-location institution with just $78 million in assets, participates in the national shared-branch program for credit unions run by CO-OP Financial Services. Sunset has been in the program for about seven years. Baggarley says it’s part of what gives them a nationwide reach, even though their market area is Oregon’s Washington County.

Baggarley points out that Sunset offers remote capture, mobile and online banking and online account opening, all of which help it keep in touch with members who relocate. But she says the shared-branch program is definitely part of the reason they rarely lose a customer who leaves the area.

“You have to have multiple channels,” says Baggarley. “You’re always going to have an audience, even among the younger demographic that like all the technology, but that still want to be able to use a physical branch.”

Goliath Equalizer:

For a community institution, being able to promote access to a network of 5,600 branches — more than Chase, Wells Fargo or Bank of America have — is a key differentiator.

Even locally, the shared branch program benefits Sunset. It proved very helpful during the pandemic and continues to do so now.

Shared Branch Program Details

The branch-sharing program in the U.S. is unique to the credit union industry and fits its cooperative nature. Christopher Cole, EVP and Senior Regulatory Counsel for the Independent Community Bankers of America is not aware of any branch-sharing arrangements in the banking industry, and says he has not heard the subject discussed among ICBA members.

Banks in some foreign countries have at times handled transactions in their branches for customers of other banks. Sweden is one example, although currently the country’s banking has shifted to digital to a very high degree.

Divergent Views:

Some regard shared branching as a throwback, as branch use continues to decline. Others believe the digital trend actually enhances the value of shared branches.

In the U.S. shared branching began in Michigan in the 1970s, according to Rick Hagopian, CEO of Wisconsin Credit Union Shared Service Centers. The original shared branches were standalone facilities in which each participating institution had a teller terminal. The tellers would move from one terminal to another depending on whose customer came in.

That quickly changed to an integrated platform allowing any participating institution to be accessed from one terminal. As the program spread, first to California, and then around the country, the standalone branches mostly disappeared, so that today, tellers in one credit union will serve customers of any of the approximately 1,800 institutions participating in the CO-OP Financial network, out of a total of 5,098 credit unions in the U.S.

Read More: 7 Trends Credit Unions Must Jump On or Lose Essential Opportunities

A credit union can participate as either an “issuer” or “acquirer” or both. Issuers allow their members to use other credit unions branches, while acquirers accept transactions from members of other participating credit unions. Currently 80% of the participants are both issuer and acquirer, according to Kathy Snider, SVP, Engage Solutions, for CO-OP Financial Services. She says that CO-OP is encouraging “issuer-only” institutions to fully participate, noting that there is a cost advantage if they do both.

The acquirer institution is paid a fee by the customer’s institution. Customers are not charged to use a shared branch.

“It’s probably one of the best retention tools in the entire banking industry,” says Hagopian.

The program handles basic branch transactions — including check cashing, deposits, withdrawals, bill payments and transfers. Consumers can’t open an account or apply for a loan in the shared-branch program.

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Any Worries About Poaching?

There are operating rules to participate in the shared-branch program. One fundamental of the program is that a credit union servicing another institutions’ member can’t solicit their business.

“We don’t see other credit unions as a business threat,” says John Pamer, CEO of Diablo Valley Federal Credit Union, Concord, Calif. “We are far more concerned about industry trends that will shift deposits, loans and payments to non-traditional entities than we are about another credit union.” Research by Ernst & Young sponsored by CO-OP Financial supports that view. It found that among credit union members PayPal edged out the members’ own credit union as the most trusted financial services brand.

Hagopian observes that “the reality is that a shared branching member is going to XYZ credit union to maintain their relationship with their host credit union. If they wanted to jump ship, they would have done so long ago. It’s a non-issue,” he maintains.

Rhonda Baggarley, however — while stating that Sunset plays by the rules — did tell The Financial Brand that her institution has picked up “a lot of new members through shared branching.” The reason is partly due to the situation in the Portland market, where several large credit unions still have limited branch operations due the ongoing social unrest in that city. That has prompted consumers to make the drive to Sunset Science Park’s branch or drive-through.

“There are some days we help more guest members than we do our own members.”

— Rhonda Baggarley, Sunset Science Park FCU

“We provide them with equal service to our own members and we’ve remained open when a lot of others have been closed,” says Baggarley. “There are some days we help more guest members than we do our own members.”

ICBA’s Chris Cole notes that because banks compete with each other they are unlikely to share branches. Credit unions, on the other hand, when they are serving different member groups are not really in competition with each other, he states.

The trend to community-based fields of membership, and the ability to service consumers digitally has altered that dynamic to a degree, but so far has not diminished participation in the shared-branch program, according to CO-OP Financial. The pandemic, however, did affect it.

Read More: Why Bankers Won’t Ditch Branches, Despite Digital’s Explosive Growth

Impact of Pandemic on Shared Branching

Both Baggarley and Pamer say the number of credit unions participating in the shared-branch program has declined. CO-OP Financial’s Snider acknowledges that “the temporary branch closures brought on by the pandemic certainly impacted branch accessibility. Almost all departures from the network were temporary, and we are in the process of bringing them back on-line.”

Says Pamer, “At our peak we were doing over 12,000 shared branch transactions per month. That declined somewhat during the pandemic but is starting to pick up again. As the economy opens back up we are confident that more credit unions will see the value and start providing [shared] service at their branches.”

What about the largest credit unions, do they participate in the branch-sharing program? Snider says that four of the top ten credit unions and nine of the top 30 in terms of asset size do.

Increased Use of Digital Could Make Sharing More Appealing

No one contacted by The Financial Brand suggested the shift to digital banking was not impacting branch operations.

“You can’t deny that,” says Rick Hagopian. “Financial institutions have rightly made a tremendous push to digital. But I think as things have opened up, what we’ve learned is that consumers these days, including younger people, want everything — all channels.” He believes branches can set financial institutions apart from some of the large fintech players and digital-only banks.

Diablo Valley’s John Pamer points out that the people coming into a branch to do transactions aren’t necessarily technology averse. Sometimes they just prefer to do a particular type of transaction in person. He gives a couple of examples: People who get paid in cash and want to make their loan payments in cash; people making a deposit or loan payment on behalf of another person.

Unexpected Use Case:

Financial institutions, including some credit unions, have been reducing branches. A shared branching network can facilitate that.

“We’ve had credit unions that have reduced staffing or even eliminated the need for a branch because of the presence of the shared-branching network,” Hagopian states.

CO-OP Financial’s Kathy Snider says “by participating in shared branching, credit unions can do two things at the same time — reduce their own commitment to owned and operated branches, while maintaining their physical presence in the community.”

At this point, for the reasons Chris Cole mentioned earlier, it’s probably unlikely that banks would consider sharing branches — even if they see some benefits. But in a banking world where less and less of the “old ways” of doing things remain viable, anything’s possible.

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