SEATTLE—Data analytics is also now playing a much larger role in how credit unions pick their branch locations and design their space.
The savviest credit unions are relying on data as opposed to making decisions based on management’s intuition, according to design/build firm Momentum.
“The number-one thing when choosing a location, obviously, is to understand if there is market potential,” said Mark Alguard, senior director for strategic services at Momentum. “Is there a book of business you can compete for? So often smaller-sized institutions locate a branch based purely on a gut call, or a board member or CEO preference. But until you use data to understand the market demand for certain products and services and the dollar value within a geography, you are not making a sound decision. You also have to understand the competitive intensity, and whether the market is growing or contracting.”
Momentum conducts extensive research before advising CUs on a location, relying on demographic, market growth and Census data—and more, according to Alguard.
Mimic The Market
Alguard said credit unions that are the most successful in extending their bricks and mortar reach do so by selecting areas that reflect data characteristics of markets in which the credit union is already successful and competing effectively.
“We call it impact ratio,” said Alguard. “We find characteristics in a market that correlate to areas in which the credit union is successful. We are predicting the credit union’s ability to compete in a new market.”
What credit unions are seeking in a market is often different than a big bank, noted Alguard, which makes it possible for CUs to enter a market in which there are many large competitors.
“What the big banks are typically looking for is the mass affluent, the low-cost relationship,” explained Alguard. “CUs typically are looking more broadly at a market, so they might be able to find value in pockets of people that banks may overlook, and slide into a crowded market.”
Alguard gave the example of a credit union client in the Northwest that proved to be very effective at “neighborhood banking,” serving a smaller community with a lot of walk-in traffic.
“We located them in a big, growing area loaded with big banks and heavy competition,” said Alguard. “But the data showed that this credit union does well on the neighborhood level, and we found a small town amid all of this competition and their new branch has taken off.”
Alguard also pointed out that what the data reveals can impact the focus of a branch. For example, if a large number of small businesses are in the area, the credit union will benefit from stepping up its member business lending program at the office.
Moreover, data should also influence how the branch is designed, Alguard said.
“The credit union should have data around transactions and the blend of interaction types at existing locations—transaction vs. advisory/problem solving,” explained Alguard. “Transaction trend data and the demographic characteristics of the location will also help predict transaction volumes. If traditional transactions are predicted to be high, a more traditional teller line or a self-service technology approach is appropriate.”
With lower transaction volumes it makes more sense to have a universal staffing model—staff who can handle a wider array of interactions, said Alguard.
“With a universal staffing model it makes sense to have pods or other transaction zones without barriers. The keys here are the lack of barriers and more mobile technology that allow staff to move throughout the branch with members freely,” he said.
Data around demographics, member preferences, and the CU’s “target member/persona” should dictate the type of branch experience that will be most engaging, said Alguard.
“In the case of one credit union we work with, the target member is looking for a higher-quality, personalized and consultative interaction. The branch experience is then designed to be much more focused on the member, but also reflective of the virtual/mobile experience,” said Alguard.
Alguard explained that this same credit union builds relationships with members online, and strives to have such high-value mobile delivery that members never need to come to a branch.
“The video screen in a location is meant to help create an immersive experience where the branch is reflective of what the member is familiar with,” he said. “In the case of this credit union, while the branch feels very connected to technology, there isn’t any self-service tech in the branch. The data shows their target member is looking for a personalized interaction.”
Numerous studies have indicated that while more transactions are being offloaded to mobile devices that branches are still in demand, but more for consultation and high-value transactions, such as loans, than daily, routine transactions.
“There is a credit union in the Northwest we work with that has tripled its asset size in 10 years but averages the same number of branch transactions today as it did a decade ago. There is a reason that physical branches persist, and that is because people want personal interaction,” said Alguard.
With the purpose of branches changing and more transactions heading to e-channels, credit unions cannot afford to open a new office without digging into the data first, insisted Alguard.
“The physical asset is expensive, and then the cost to staff it is expensive. So to step into a new market it’s not about breaking even,” Alguard said. “Not using data analytics first often means lost opportunity. Your competitors are continuing to grow and take share while you are spinning your wheels in the wrong location.”