Here’s the headline news from a new report via DepositAccounts.com: Branch closings slowed substantially in Q2.
According to the report: “Branch closures dropped to an estimated 376 in the second quarter of 2020, well below the per-quarter average of 631 from the second quarter of 2017 through the fourth quarter of 2019.”
Should branch skeptics such as myself, who believe many more branches need to close to rationalize financial services for a digital, contactless era, shut up and go home? As far back as 2014 I wrote in CU Times, “branches are an expensive albatross around the industry’s neck.”
Is it time for me to shut up? Nope. In fact, there is mounting evidence that every demographic, including senior citizens who hitherto have been tech holdouts but who now have embraced tech in the Covid-19 era, feel safer using tech than they do going into branches.
The good news for credit unions is that their branch problem is not as severe as that of banks, especially the large regionals and the national mega banks. The latter often have so many branches there are three within a single mile of a customer. Such as myself. There are three Chase branches within a mile (north, south and east) of my home in Phoenix. Talk about over saturation.
Credit Unions Are Over-Branched Too
But a lot of credit unions are realizing in the pandemic that they have way too many branches. Some, with sophisticated analytics, are also realizing the members who utilize the branches are, in many cases, not high profit members and are coming in to perform simple, transactional chores. Nobody is saying the good credit union heart that wants to have social connections with members is beating in the wrong place…
But, just maybe, in the pandemic environment and possible post-pandemic environments, it’s time to take a new look at branches and their roles.
For starters, however, why has the number of branch closings dwindled? Two words answer this: Covid-19.
Enter Covid-19 Confusion and Uncertainty
What Covid-19 has done is shoveled confusion and indecision into bank and credit union boardrooms and c-suites. Who knows what’s coming in late 2021? Who knows when we will actually have an accepted and effective vaccine? Right now is a moment to delay decisions that do not have to be made—and besides, financial institutions can temporarily shutter a branch and that counts not as a permanent closure, but as a temporary closure.
If you don’t have to decide today, the smart move may be to put it off until tomorrow.
The FDIC Shows Its Bureaucratic Fangs
Another reason for the slowing of branch closing: who has the time right now to comply with the FDIC guidelines that say how to close a branch? The agency has a four page document telling how.
Know, too, the FDIC is especially sensitive to community comments on a closure. It notes: “If the FDIC receives a written request by a person from the area in which the branch to be closed is located, and the comments include a discussion of the adverse effect of the closing on the availability of banking services in the area affected, the FDIC must review the substance of these comments.”
The FDIC policy is to look harder if the branch is in a low-income census tract and the branch closure will adversely impact the availability of financial services to the residents. Nobody wants more “bank deserts.”
Thus, the classic bank playbook advises the institution to offload unwanted branches to another institution. And of course no bank is going to offload branches to a competitor (Chase branches will not be rebranded as B of A anytime soon). Enter credit unions.
The Credit Union Branch Assumption
Credit unions are ideal because they are not competitors. Furthermore, at least some are running lean on branch presence and thus may be interested in unwanted bank branches. For instance, in 2015, Regions Bank approached Hope Credit Union to take over four branches in the Mississippi Delta. (Hear the CU 2.0 Podcast with Hope CEO Bill Bynum.)
Shrewd credit unions, we understand although have never gotten official confirmation, often pick up such branches free of charge, on condition they keep most or all of the employees on. What’s in that for the bank? It gets the FDIC and other federal regulators off its back. And it also quiets potentially bad publicity about the closing.
Just one problem in late 2020: most credit unions are gun shy about pulling this acquisition trigger in the Covid-19 era, especially because who knows what’s next? And if what’s next is a shunning of branches, then who wants more of them?
“Just Do Nothing” Is Smart
That’s the smart money bet: why pick up an unwanted bank branch when, right now, it is impossible to predict what member members will want six months from now? My guess is most will have become accustomed to digital banking and will realize there is no need to make regular branch visits. But who knows?
So, banks have every reason to delay formal closures—and that appears to be exactly what they are doing.
Credit unions have every reason not to take over unwanted branches from banks.
Thank Covid-19 for the stay of execution of many hundreds of branches.
And stay tuned until mid to late 2021 to see exactly where the bank closure shoe falls.
To be sure, there is no telling what the future holds. And in times like these, that can be particularly unsettling—especially for less experienced credit union leaders.
And, while it’s clear that there’s never been a situation quite like this in our lifetimes, there have been other, similarly difficult issues to navigate. The good news is that many very successful, very experienced credit union and fintech leaders have found success through other turbulent periods.
And those leaders are willing to lend their experience. The CU 2.0 Credit Union–Fintech Mastermind is the place to find and leverage that experience. Plus, it’s a great place to forge meaningful relationships that will support you and your credit union for years to come.