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CUSB Misconceptions: It's Too Expensive

A recent CO-OP Financial Services white paper is debunking myths about Credit Union Shared Branching. Here is an exert from the white paper that address the first misconception: Shared Branching is Too Expensive. Hear what fellow Missouri credit union representative Louie Delk has to say about the issue. 

Misconception One: Shared Branching Is Too Expensive

While focusing on the bottom line in the wake of The Great Recession is the new norm, certain credit union executives mistakenly look past shared branching as a revenue generator, because they deem it will be too expensive, especially in terms of data processing costs. Is shared branching an expense? The answer is yes, but it should be perceived as an investment with the potential for quickly realized returns. All credit unions participate in shared branching as issuers, meaning they allow their members to visit other locations in the network. Credit unions can also participate as an acquirer, in which case they handle transactions for guest members in some or all of their facilities. As an acquirer, a credit union has the opportunity to generate revenue, or at least offset issuer costs. For issuer-only institutions, providing convenience gives a credit union the opportunity to expand relationships and eventually see financial gains, resulting in real value.

According to the April 2012 Callahan & Associates paper, “The Cooperative Solution to Convenience: A Report on Shared Branching,” when properly executed, participating in shared branching as both an issuer and acquirer enhances a credit union’s value proposition. The report centered on three key peer group segments: credit unions in excess of $35 million in assets that do not participate in shared branching, shared branching credit unions that are both issuers and acquirers, and shared branching credit unions that are only issuers.

“Credit unions that do shared branching, particularly those that participate as acquirers, may see higher than average growth in their balance sheet due to their members utilizing the credit union more often,” the report stated. Critical balance sheet growth metrics include loan growth followed by share growth and asset growth. To this end, issuer/acquirer 12-month loan growth was 275 percent higher than issuer only; and 12-month share growth was 34 percent higher at issuer/acquirers compared to issuer only. Finally, asset growth was 29.2 percent higher at issuer/acquirer compared to issuer only. 

With 7,150 members, 15 full-time employees, one branch and an asset class of $89 million, Conservation Employees’ Credit Union has been serving its members in and around the Jefferson City, Missouri area since 1955. In an effort to remain competitive and relevant to its members, President and CEO Louie Delk explained that after some trepidation, the credit union recently joined the shared branching movement.

“We have been looking at shared branching for more than four years. Initially, we had two concerns: we did not have data processing support and our Board felt that our members would not respond positively to the shared branching transaction experience,” said Delk. “After we changed to a new data processor, our Board revisited the idea. Missouri Credit Union Association (MCUA) staff helped to walk us through the process. Implementation was really inexpensive and pretty easy. Our membership has really embraced the new access to multiple brick-and-mortar locations.”

Conservation Employees’ Credit Union went live in April 2012 and Delk said transaction volume has “exceeded expectations.” He was most surprised by the number of calls he received from parents, who were in the process of sending their children off to college and in search of a new credit union due to the location.

“Probably have had more than a dozen contacts where parents have said that they were going to help the kids find a new credit union, until they realized that their current accounts could be accessed through a shared branch—great for member retention,” he said. “And, we are retaining those members, who are going to be getting car loans in just a few years.”

As is the case with Conservation Employees’ Credit Union, shared branching represents a cost-effective way to increase the physical footprint of a credit union without the investment in actual brick-and-mortar structures. And as Delk rightly pointed out, shared branching can contribute to membership and loan growth while keeping operational costs down, particularly those associated with running a branch. So while there may be expenses associated with offering shared branching to members, the potential to offset those costs in the long term is strong.

“Shared branching is an incredible way of extending additional convenience to your members, not to mention generating additional non-interest income. If you cannot provide that convenience, somebody else will,” said Delk. “Participating credit unions see it as a way of extending convenience and service to members, and/or a way of generating additional non‑interest income."

To read the entire white paper, click here

To learn more about shared branching, visit the MCUA Shared Branching page.