Online Banking Explosion Calls for CU Leaders to Re-envision the Branch

When the COVID-19 pandemic struck Michigan hard and fast in March, our credit union took a variety of early action steps with the goal of minimizing banking disruptions, assisting members financially impacted by temporary and permanent job losses, and keeping our 70-plus staff members safe. Suddenly, expanded online banking options, long one of our key strategic focus areas, took on an unanticipated health benefit, and we sent out a strong message to our 20,000 members that the safest way to bank was to use online and mobile banking and webchat, rather than coming into the branch.

While we were hopeful that members would comply, the shift to online banking was dramatic, with 50,000 more online transactions in April than in March – a 38% increase. April was another record month due to the stimulus payments, and the online trend is sure to increase as members adopt the newer technology, including a new mobile application we introduced in July  to further facilitate online transactions. While we have a six-branch network and serve the entire state of Michigan, we consider this new mobile app another branch, with a mobile video teller platform allowing members to connect anywhere and anytime for safe, secure banking. Its initial use – 46 video sessions with members in the first four days of the platform launch – far exceeded our expectations.

As CUs Flourish Online, Let’s Not Forget the Value of the Physical Branch

While we believe that online banking is the future of financial institutions, we also recognize the value in having a physical presence that complements our digital branch. Credit unions have a philosophical, historical entrenchment with our members. They are our owners, but not our shareholders, as with publicly traded financial institutions. Serving members at the local level is part of our DNA. As we increase our investment in digital tools to facilitate banking in the modern era, I believe we need to continue the branch system to help keep decisions local and personal.

Consumers, especially in relatively dire economic times like the present, need a strong financial partner with customized solutions, yet may not be able to find one in a big box bank where decision making is made solely by algorithms and formulas. That is the strength of the credit union. Of course we follow best practices in lending, but we also put a premium on longstanding personal relationships with members whose credit score may be less than optimal, yet who have shown they can repay mortgage or auto loans that are within their reach.

To that end, Michigan Legacy is working with our core processor, CU*Answers in Grand Rapids, Mich., to create a customized credit score based on our members’ historical experience with the credit union, rather than relying on traditional FICO scores. Still in the drafting phases, a typical case might involve a member employed in the food services industry who needs a new car loan. (Note: Our members are disproportionately employed in service sectors that were particularly hard hit by the pandemic, including service, travel, hospitality and manufacturing.) Under the customized, non-FICO system, the member would have a better score based on their account relationship savings, checking, debit card transactions, length of ownership at the credit union and number of loans previously paid in full.

It is relationship-based decision making and strategies like this that make credit unions – even small ones – so vital to our communities. And the presence of a physical branch is a reminder of the other options available for consumers to find a local financial partner simply by walking through the front door.

Re-sizing the Branch for a Digital World

But who can afford the cost of a new or renovated branch? I balk when I see new branches being built that cost upwards of $4 million. Admittedly not knowing the financial position of these credit unions, I question whether this is the best use of owner money. Wanting to invest in our credit union’s future without “breaking the bank,” we made a strategic branching system decision in 2018, well before the world heard the word COVID, to update our branches with a smaller footprint, eventually including some in new locations, the introduction of a new design theme and the adoption of video teller platform also available on our mobile app. The new prototype branch is on target to debut at the current Wyandotte, Mich., branch site in December 2020. The cost, at 800 square feet, will be just under $1 million per branch. This is not an insignificant sum, but it is proving affordable for our $22.1 million credit union.

As our locations partially shut down during the pandemic, we quickly began seeing the value in having 35,000 less square feet of space, collectively, among our branches. The massive shift to online banking also reinforced our belief that members will be very comfortable with the video teller inside the new branch model, especially with staff onsite to provide additional assistance. Yet at no time did I question our branch strategy.

As digital opportunities for credit union services grow, I encourage credit union leaders to be creative in retaining a physical presence in their strategic vision. I am confident our smaller footprint will carry us into the digital future while our branches serve as tangible reminders of our commitment to community and tradition of providing member-focused, tailored financial services at a competitive price.

Carma Peters is President/CEO for the $244 million Michigan Legacy Credit Union based in Pontiac, Mich.