2006 Promises Continued Expansion and Innovation for Shared Branching

ARLINGTON, Va. – For shared branching leaders, 2006 may be when their founding idea – that members of one credit union be able to conduct transactions at another CU’s facilities – finally arrives in the CU industry mainstream. With roughly 1,700 credit unions nationwide participating in one of the three nationwide shared branching networks, the concept has penetrated about 20% of the nation’s credit unions. But, thanks in part to 2005′s hurricanes, shared branching stands poised to add significant numbers of CUs to its roles in 2006. “I really think this is going to be year when a lot of credit unions which have been on the fence about shared branching are going to come off the fence and decide to do it,” said Carroll Beach, CEO of the Atlanta based Credit Union Service Corporation, the largest of the three shared branching networks. “The hurricanes on the Gulf Coast and their devastation have brought home to credit unions that shared branching needs to be a part of their business continuity plan.” In the wake of hurricanes Katrina and Rita, credit unions across the impacted area either relied on existing shared branching participation or, in some cases, began participating in shared branching to keep serving their storm-dislocated members. Shared-branching efforts after the storms even won an endorsement from NCUA Board Chairman JoAnn Johnson, explicitly urging credit unions to consider joining a shared branch network to serve their members in emergencies. “We encourage credit unions to evaluate the benefits of joining a shared branching network, because many of the credit unions that were able to regain operations and serve their members, were able to do so through shared branching,” Johnson said. Beach reported that 19 credit unions had gone online with shared branching after the hurricanes and that five more waited to do so. The other two shared branching networks, the Financial Service Center Cooperative and the Service Center Corporation, reported similar interest from CUs seeking to add shared branching to their business continuity plans. CUSC will even roll out a disaster recovery product in 2006 that will help credit unions incorporate shared branching into their business continuity plans, Beach said. SCC, the oldest shared branching network which is now a wholly owned subsidiary of the Ontario, California, based CO-OP Network, also looks forward to increased growth in 2006 but anticipated some difficulty as a few of its shared branch centers come under more financial pressure. The majority of SCC’s shared branching transactions take place in so called stand alone centers, even though those centers make up only 15% of the network’s nearly 300 total facilities. SCC builds or rents and staffs the stand alone centers, which were the original shared branching model, and then opens them to use by members of all shared branch participating credit unions. But the centers are expensive to build and some have had their markets cannibalized by other credit unions which have placed their own branches nearby, according to Jim Hanisch, senior vice president with CO-OP network. “It’s probably completely natural for a large credit union to figure out that if there is a successful stand alone center in a given location that it might be good to put a branch nearby,” explained Hanisch, “but that can be difficult because it can have the effect of cannibalizing the market for that branch.” But Hanisch stressed that the problem was not a major one and that SCC anticipated strong growth from credit unions using the outlet model to join SCC. In the outlet model participating credit unions use their own branches for shared branching transactions and the network is spared the cost of setting up and staffing stand alone centers. FSCC, the shared branching network based on the West Coast, anticipates adding almost 200 outlets to its 260 participating credit unions in 2006 but said it may add even more thanks to its shared branching kiosks that it began offering in 2005, according to Sarah Canepa Bang, FSCC CEO The kiosks, which cost between $50,000 and $60,000 depending on how they are configured, allow a shared branching participant to offer its members all the transactions of a traditional shared branch, but in the amount of space usually taken up by a high end ATM and without the additional staff cost. “We haven’t really forecast how many of the kiosks we are going to place in 2006,” Bang said, “but we anticipate there will be a good number. We have received a lot of interest from our member credit unions about it.” Innovation to Continue FSCC’s kiosks are a good example of the innovation that all three shared branch executives estimated would continue into 2006 as well. “The kiosks are part of that,” Bang said, “but so is the 24/7 call center we offer, along with the gift cards, and the loan help. Every place where our credit union members want to keep in touch with their members, we want to help them do that.” Beach agreed with Bang that continuing innovation to meet credit unions where they are is the name of the game for all the shared branching networks. CUSC’s biggest step in that direction was when it developed its Next Generation Switch, a proprietary switch that carries much more information for shared branching transactions and which cuts the cost of the transactions by 60%, Beach said. Currently, 300 of CUSC’s 690 participating credit unions are using the switch and CUSC has the goal of bringing the rest online with the switch in 2006, though Beach said the pace of the conversions was sometimes out of CUSC’s hands. “A lot can depend on whether a processor can get certified on the switch,” he said adding that CUSC’s other innovations for 2006 included offering relationships to Loanliner.com and the Loan Link Center to participating credit unions. The relationship with Loanliner.com will allow any shared branch credit unions to auto-populate its Loan liner applications through its shared branch connection. The relationship to the Loan Link Center will let shared branching credit unions to connect to the Center for loan and call center products without having to add any more connections or data. Just by participating in shared branching on the NGN switch, those two become possible, he explained. No Consolidation Planned But while all three networks plan to keep innovating and growing in 2006, all three agreed that no consolidation was planned in the year ahead. “We keep talking to each other and cooperating and there are probably lots of places where there could be efficiencies gained in delivering shared branching,” said Hanisch, but no one is really talking about merging at all. CO-OP and FSCC signed a cooperative agreement about a year ago that some had seen as being a precursor to a merger between the two, but both Hanisch and Bang said that the agreement had merely formalized a lot of informal cooperation that had already taken place. When asked about whether he could see any consolidation coming in the industry, Beach just laughed and asked if the industry would be better off with only one weekly periodical. “We think competition is good and we support it,” Beach said, “from our perspective, we look forward to working with the CO-OP and FSCC to bring shared branching to as many more credit unions as possible. We have to remember that our competition is with the banks, more than with each other.” [email protected]