Battle Of The Branches: Lessons From A Branchless Model

A credit union emphasizes virtual access over brick-and-mortar but sees value in strategic location placement.

More than 35 years ago, PSECU ($3.9, Harrisburg, PA) embraced a branchless model to serve members in 67 counties across a state-wide charter. With 9.03% annualized loan growth, roughly 392,000 members to date (the credit union is growing by about 10,000 members per year), and an operating expense that similar-sized institutions would covet (it serves roughly 676 members per full time employee), this approach is working well. But as it turns out, a virtual-focused institution can still share valuable insight into branch strategy.

It’s been our experience that consumers still prefer to go to a branch to open a new account, says Gregory Smith, CEO. Yet we’ve been able to overcome that by offering superior rates on the deposit and loan side.

The Electronic Footprint

In addition to online, mobile, and call center resources, the credit union currently owns a network of more than 125 ATMs throughout the state and covers all foreign fees and surcharges for any outside units.

I continue to believe that PSECU is better positioned for the future with its model than those that rely heavily on branches,he says. To date, only about 10% of PSECU members ever set foot on one of its physical facilities.

Despite being largely virtual, PSECU does operate a branch office at its headquarters as well as a small branch near the state capitol. The larger branch has eight teller windows, but neither of the locations disburse cash. Instead, members are encouraged to use their ATM card for those needs. There is also a bank of PCs and phones for members to take care of more advanced services such as getting a loan.

Members who apply online without any in-person engagement from PSECU staff make up around 65% of the total consumer loan applications received. For mortgages, that number increases to around 90%.

The Right Time And Place For Branches

Despite its virtual leanings, PSECU is not entirely opposed to brick-and-mortar in certain scenarios.

We also have 13 small offices on state university campuses which we call eCenters, Smith says.They range between 200 to 300 square feet and are staffed by paid student interns who recruit and train new members on how to use our virtual channels. In the 10 years PSECU has had this campus presence, it’s opened over 50,000 student accounts in the branches.

These were a revelation to us, Smith says. We tried going branchless on the campus and just didn’t get the results that we wanted. When we first started putting in those small locations, we compared one to a university without a branch presence and there was a fivefold difference in the number of new members attracted.

Because new account openings typically occurs during new student orientation, it may be the mentality of parents that you have to go somewhere to open an account rather than students that is driving this trend.

I won’t say branches are dead or going to go away because there’s something about people wanting to go somewhere and scope things out, at least during the beginning of the relationship, Smith says. However, evolving technologies like remote deposit capture may shift that mentality in time.

May 29, 2014

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