ARLINGTON, Va. – Quietly, unrecognized by many in the credit union industry, the three corporations that make up the bulk of the industry's shared branching network are continuing to revolutionize the way credit unions serve existing members and attract new ones. "For many, shared branching has flown under the radar," said Sarah Canepa Bang, CEO of Financial Services Center Cooperatives, "but we have been growing under that radar and are becoming an ever greater force. We have over 1,000 outlets participating in the shared branching network nationwide," she added, "and when you get that big you become a factor as a delivery channel." Based in San Dimas, California, FSCC represents the fastest growing of the three shared branching organizations, having tripled the number of branches participating in the shared branching network in the last three years. "We definitely have adopted a strategy of going after larger credit unions, credit unions that have branches that can participate," Bang said. "We definitely don't shun small credit unions and want them to participate too," she added. "But in order to be an effective force you have to reach a certain minimum size." FSCC has 200 primarily Californian credit unions participating, but 440 branch outlets. Bang explained that the idea of shared branching has caught on particularly among California credit unions that have recently expanded to community charters and who faced very expensive branching requirements. "Enabling members to use an existing branch outlet in the network has allowed some of our credit unions to add areas that they might not otherwise have been able to add," she explained. Almost self-consciously modeled on the ATM and EFT networks, shared branching executives agreed that the concept of shared branching is simple on the surface but increasingly complex to implement. Essentially, in shared branching, credit union members are able to conduct transactions at any of a shared branching network's branches in addition to their own. That effectively means that a credit union member in Michigan, for example, can make deposits, withdrawals and transfers between accounts, make loan payments, buy travelers checks and money orders and obtain other financial services while traveling on vacation or business in many other parts of the country. "It effectively gives our credit union members a nationwide reach that they could rarely attain on their own," said Dan Balagna, CEO of Service Centers Corporation. Based in Southfield, Michigan, SCC is widely acknowledged to be the grandfather organization in the shared branching effort, dating its first shared branch to 1975 and the concept of shared branching to the 1960′s. (See Sidebar on page 43.) Despite being a wholly-owned subsidiary of the CO-OP Network, based in Ontario, California, the organization has maintained that its heart and the core of its work has remained in expanding shared branching, an effort that has meant overcoming a number of different hurdles. Obstacles to Growth Despite the ideal of cooperation behind the ideas of both credit unions and shared branching, Balagna said that getting credit unions to have a degree of comfort about sending their members to other credit unions for service has been a significant obstacle. Despite a policy that states that a credit union that solicited business from another credit union's members "would be subject to significant penalties," Balagna reported that some credit unions have been slow to risk that possibility. In fact, SCC has a policy in place that allows some of its member credit unions to opt out of taking part in the national network while still participating in the local network. He estimated that 125 of SCC's 300 member credit unions take that option. The second obstacle is how the participating credit unions will be able to talk to one another. Differences among processors and platforms and difficulties overcoming those differences led SCC to develop its own proprietary switch for its credit union members' data communications in the early 1970′s, a switch which Balagna explained SCC still uses, albeit in a significantly updated form. Currently, FSCC and Credit Union Service Centers, based in Atlanta, Georgia, rely on an outside vendor for communications among their member credit unions, but in late April CUSC announced that one of its largest member credit unions, the $2.3 billion Delta Employees Credit Union, also based in Atlanta, had been certified on CUSC's Next Generation Network, which will expand their members' capabilities and lower costs. The costs of shared branching are the third obstacle to more credit unions getting involved. Even with a proprietary switch or other communications arrangements, the differences of processors and data management still have to be overcome, and the ability of a credit union's New York based member to make a deposit in Miami doesn't come free. "In general, I think the more layers of processors and patches that you need to overcome, the more expensive it can be to get involved," Bang said. The executives also noted that, just as in the ATM world, the credit unions that service the transactions of other credit union's members, particularly expensive ones like deposits, collect interchange fees for those transactions that are negotiated by the three organizations at the national level but which can vary widely within organizations. What about Consolidation? The level of expense involved in shared branching, as well as its apparent success in providing nationwide services, have led some observers to question whether the credit union industry really needs three separate shared branching organizations. Isn't some degree of consolidation, much like the consolidation that took place among EFT networks, inevitable for shared branching as well? Significantly, none of the big three executives saw consolidation as a likely event, at least in the near term. First, while the national shared branching network has passed the milestone of 1,000 outlets, the executives pointed out that just over 1,000 credit unions have gotten involved, and that leaves a lot of room for continued growth and expansion for each of them. Second, the leaders noted that shared branching is not yet as much of a commodity as ATMs and EFTs have become. "There are still some pretty big differences between the three organizations, differences rooted in the credit unions they serve," noted Craig Beach, vice president of marketing for CUSC. CUSC is the largest of the three organizations, with 545 credit unions involved, and has adopted an approach of working with the state leagues as its organizing principle. This is somewhat misunderstood, Beach explained, since CUSC does not necessarily sign agreements with every league or necessarily obtain the participation of every credit union in a given league. But he acknowledged that CUSC's growth has been characterized by working with the leagues, particularly in the Southeastern region of he U.S. For FSCC, the local approach has been significantly important since it rapidly became clear that the other two organizations used approaches that just wouldn't work for California credit unions, Bang explained. Both SCC and CUSC used stand alone branches, actual brick and mortar structures, as part of their strategy. "We took a look at the cost of land and buildings in Southern California and figured out that building new buildings was not going to be cost effective," she said. Instead, FSCC became the only one of the three that uses only existing credit union branches as network outlets; an approach Bang said was dictated by the region's economics. Balagna conceded that a level of friendly competition exists between the three organizations, but he maintained that a unity of vision has meant that each organization has focused expanding shared branching generally more than on competing with each other. "Everyone has more than enough to do," he noted. -

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