ATLANTA -- The financial services market is so over saturated, institutions in some areas are faced with three choices: fail, merge or adapt.

John Hyche, principal at consulting firm Level5, calls this scenario "The Tipping Point." The lead strategic consultant in a firm that also manages construction, real estate, architecture and branding, Hyche said he's seen evidence of The Tipping Point across the country, as he reads trade publications, discusses the industry with colleagues, and works with clients.

The highly competitive environment doesn't have room for everyone, and institutions that lack savvy employees, efficient operations and a unique market position are unlikely to survive.

"Once upon a time, credit unions were very fraternal," Hyche said. "Everybody had a clear and non-competitive field of membership.

"Then gradually, credit unions adopted community charters, and the next thing you know, you hear about credit unions acquiring each other, which used to be a banker's term."

Increasingly sophisticated credit union strategies aren't entirely to blame, Hyche said. Big banks purposely overbuild in new suburban developments to get a monopoly on convenience. Small banks address competition with VIP-level service, innovative technology and strong community ties. De novo banks and non-banks that provide financial services, like insurance and investment companies, crowd the market even further.

Over saturation has resulted in fewer members per branch, forcing retail locations to produce more with less to break even.

"Way back when, 5,000 customers was considered a nice metric to gauge sufficient population to support a free-standing branch," Hyche said. "Now, we're seeing more and more branches with a population around 3,000."

The competition is great for consumers, who demand everything from the latest Internet banking technologies to safe deposit boxes.

However, when consumer demands for amenities are combined with increasing costs for construction, real estate, energy and employee compensation, a slim-to-none interest yields and fewer potential customers, the numbers just don't add up, Hyche said.

Thankfully, there are adjustments credit unions can make to survive the competitive landscape.

The consultant's advice includes directives to reduce operational costs, deepen relationships with members, and convince members their relationship with the credit union gives them a financial edge.

He pointed to $110 million Innovations Federal Credit Union as a successful adapter. The community charter credit union is headquartered in Panama City, Fla., which Hyche identified as an extremely competitive market.

CEO David Southall has made some difficult, major changes at Innovations since taking over as CEO in 2004.

"There was no sales culture at all; in fact, my board chair referred to the credit union as 'Sleepy Hollow', and that was the truth," Southall recalled. "Tellers would grumble when members walked in, because it meant they had to do something."

Uninspired clock-watchers are a prime example of operational inefficiency, and though "cleaning house" is often emotionally messy and can attract lawsuits, Southall said credit union managers have an overriding obligation to successfully manage member assets.

In a branch setting, Hyche recommends cross training employees to fulfill all branch functions, which adds value to compensation dollars. Additionally, branch employees must transition from order takers to sales representatives, and embrace a sales and service culture.

Multiple relationships help make up for a lack of available customers, and keep the member sticky.

Finally, credit unions must emphasize ways members are better off with them than at another institution, speaking to them as if they were private banking or wealth management customers.

"While the experience must be positive and the 'wow factor' is important, improving the financial well being of the customer should be a goal," Hyche said. "When this goal is reached, and pointed out to the customer, there should be some resulting traction in gaining positive word-of-mouth," Hyche said.

Though he believes the Internet will eventually replace most branch functions, Hyche believes it is at least a generation away, and said he thinks brick and mortar will still survive, though for a different purpose.

"Just because a kid can master X-Box, doesn't mean he knows to handle his financial affairs online," Hyche said.

He theorized branches may develop into education and service centers, a place where customers can speak face to face with a representative to clear up a problem with their account, or receive financial counseling on the eve of an important decision.

"Customers will still need to talk to somebody when they can't find the answer in the FAQ section of your website," he said.

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