Technology is allowing credit unions to change the way they use their branches – and even operate in a smaller space — but those cutbacks aren't necessarily saving them any money.
"Costs changed on both sides of the equation, not just one side," said Lea Ammerman, chief operating officer at Michigan State University Federal Credit Union.
Despite shrinking its branch sizes from what they were 10 years ago, the $7.45 billion-asset credit union sees the same three-year return on new branch investments as it had before, due to higher costs for retail space, construction and higher salaries paid to the fewer employees who perform more tasks.
In its current branch model, the East Lansing, Michigan-based credit union's branches have shrunk from some 8,000 square feet to between 2,600 and 3,500 square feet. The line of eight teller stations has been replaced by two employees, a cash recycler, sit-down furniture for more personal conversations, community boards and interactive tabletops with information and games.
That space optimization has coincided with other strategies afforded by new technology, like AI-powered chatbots for customer service. This allows employees to perform multiple roles, as well as to take a more hands-on approach to help members solve problems that are too complex for self-service.
MSUFCU isn't alone. Credit union branch sizes have gone from an average of 3,000 to 4,000 square feet to 2,000 square feet — and as low as 'micro branches' of just 25 square feet, according to said Glenn Grau, senior vice president of sales at PWCampbell.
"People aren't coming into branches as much because electronic transactions are up," Grau said. "That means that people are coming into branches for different reasons than just cashing a check … they have a problem they need to solve."
Despite more aspects of traditional banking going digital, credit unions have
There were 20,694 branches among federally-insured credit unions in March 2023, according to recent data from the National Credit Union Administration. This total is 87 more than in the same period year-ago, with 770 institutions planning to build new branches or expand existing ones.
Another 24 branches have been added among all active credit unions since May 31, including those that are non-federally insured, pushing the total branch number to 21,080 — 26 more active branches than in December 2022 — according to data provided by S&P Global Market Intelligence.
But the fluctuating costs of construction and real estate have changed how they build.
"The cost of materials and labor are volatile, especially since COVID," said Ashley Incardone, growth manager at DBSI, a design-build firm for financial institutions, who added that branches are being built smaller, at lower costs and in shorter time frames to limit the impact of changing construction prices.
"Financial institutions are opting for design-build firms over using different companies for each part of the projects," Incardone said. "This allows for more control over costs and timelines."
The resilience of physical spaces in a higher-cost environment is driven in part by the community-based competition that credit unions face, said Incardone, who added that institutions competing with neobanks and challenger banks are investing more into digital spaces.
"What we've actually found this year is that credit unions are starting to invest more in differentiation elements, or experiential elements, beyond just design and technology," Incardone said, noting that she has seen more branches invest in personalized scent, digital signage and even playlists.
Incardone and Grau said that the majority of their business is in refining older spaces by selling off parts of them or providing office spaces for other business areas.
"The majority of the branches are over 30 years old, and they're just not set up to do business in today's environment," Grau said. "[It's important] to still utilize that space and not let it mothball."
For its part, MSUFCU has plans for growth in new markets and in the areas it already serves in Lansing, Traverse City Grand Rapids, Oakland County and metro Detroit, Ammerman said.
And when a branch is located within 30 miles of any of its 343,813 members, those members bring in more business. "When [members] do come in, we really want to take the opportunity to build a relationship with them," Ammerman said.
Because of budget constraints, Grau cautioned that credit unions need to be deliberate about where and how they will expand in proportion to how many members they expect to serve.
"It's just such a big expense for credit unions that they need to make sure that they do their homework and put their best foot forward when they move into a new market," Grau said. "Facilities are expensive and they can't afford to make a mistake."
