Credit Union Expansion Through Shared Branching

Sharing has its rewards. Not just in life, but in payments and for credit unions, too.

Consider the shared branching model, which has been taking shape for years and recently passed a milestone of scale. As noted in early August, CO-OP Financial Services’ CO-OP Shared Branching network stands as the second largest network in the U.S., approximately 500 branches behind Wells Fargo. CO-OP said in a release that it boasts more than 5,600 shared branch locations and several hundred self-service express terminals nationwide.

That puts the CO-OP network ahead of Chase and Bank of America, with respective branch counts of roughly 5,560 and 4,860. All told, the company estimates 1,800 of the 6,000 credit unions located across the United States share their branches, while CO-OP also offers CO-OP ATM, a nationwide network of roughly 30,000 surcharge-free ATM machines.

CO-OP Shared Branches allow a member of one credit union to do business across other cooperatives, in effect giving that member access to branches across the nation.

But for the credit unions themselves, there’s the benefit of not having to build out additional physical branches to provide coverage across wider geographies, and the perk of sharing marketing expenses. A participating credit union, if active in the network as an acquirer, reaps revenue as customers make cash and check deposits or conduct other transactions.

In an interview with PYMNTS, Craig Beach, senior vice president of CO-OP Shared Branching, said the idea of a shared branch might seem simple on its face, but the execution is not so simple.

The overarching goal of the collaborative model is a maximized reach to its members. That is important in an environment where credit unions have historically been ranked highly in member satisfaction but low in terms of convenience, said Beach.

“The ability of one credit union, by itself, to do what we have done, collectively, would not be possible,” he told PYMNTS.

According to Beach, credit unions are catching up on the convenience factor. The impetus of shared branching has sought to satisfy the needs of its members, no matter where they may be located. As Beach noted, they may be changing jobs or moving for work-related reasons, and to have that credit union as part of their primary banking relationship would be one less worry on the list.

Members of CO-OP Shared Branching can enter a branch of any participating credit union and transact as if they were in a physical branch belonging to their “home” credit unions.

CO-OP has found that members who are using these branches are among the most profitable for credit unions, including those, for example, who are looking to purchase homes or cars and plan to utilize that union for those outsized transactions.

As the shared branching model has evolved, said Beach, credit unions have maintained their dual benefits of having low interest rates on loans and higher interest rates on savings, as earnings are paid back to members through those rates. These attractions cut across demographics, he said.

It may be no surprise that once the conversation between PYMNTS and Beach touched on demographics, the ever-present question of millennials and the need for flexibility in financial relationships — across both brick-and-mortar banking and bits and bytes — also became a focus.

The younger generation has embraced both digital and physical banking activities. But, Beach cautioned, those who would hastily embrace digital fully need to consider this fact: “We’re basing this model on folks who don’t have the money yet.”

In fashioning a roadmap that might guide credit unions, he pointed to studies such as those by the Federal Reserve, showing 84 percent of banking customers still use branches, even as millennials are more likely than other demographics to use mobile and digital channels. In fact, Fiserv estimates millennials use those digital channels three times more often than other generations.

Millennials, Beach said, “are going to use all channels.” They want to use banking services when and how they want, and the shared branching network exists to do just that. CO-OP Financial Services operates as a credit industry partner for Zelle, the digital payments network which allows members to send money across both bank and credit union accounts. Millennials also happen to be community-oriented, said Beach, with the desire to interact personally at a branch, for example, or through assistance at the teller window or kiosk.

Beach advised that credit unions need to make the branch experience more digital, with digital overlaid on that brick-and-mortar conduit. Authentication is key in mobile efforts, and, “We are in the midst of picking the best solutions for credit unions that we can,” he said.

As it stands today, Beach said credit union participation in the shared network follows “a bell curve pattern,” with credit unions on the lower end with asset sizes of approximately $20 million, and roughly 63 percent at $1 billion and above.

Looking ahead, CO-OP said credit unions are signing on to the shared model at 60 to 80 new credit unions every year, adding 250 to 300 branches to CO-OP Financial’s network annually.

“It doesn’t really matter much about what the credit union’s asset size is, but rather [it] matters more what the strategic direction is,” said Beach. “The credit unions want to evolve the same way the consumers want … They want safety and they want seamless and they want convenience.”

Branches are needed in densely populated metropolitan statistical areas, he said, where rents are high and shared branching makes sense.

Another impetus for growth of the shared model is disaster recovery, according to Beach. One tailwind that spurred growth in the last decade came during Hurricane Katrina and may be re-ignited — at least, in part — by the recent sledgehammer of Hurricane Harvey, which hit in August and where some cooperatives remained open.

Credit unions realized they “had to think about what happens when disaster strikes,” Beach said. In those cases, “You need the infrastructure that shared branching gives you.”