How credit unions in California, Hawaii are rethinking branch models

Credit unions are modernizing their branch networks by incorporating smaller, more efficient designs and creatively managing real estate.

Institutions in high-density markets such as California and Hawaii are seeking to meet the needs of members who prefer brick-and-mortar offices for complex financial needs while being fiscally efficient. Moreover, they are rethinking how legacy locations and new facilities can cater to younger demographics.

Kinecta Federal Credit Union in Manhattan Beach, California, announced May 11 that it completed the construction of a branch — a rarity for the credit union — after beginning the planning process for the 5,000-square-foot, ecologically-friendly office roughly four years ago.

“We don’t do many [de novo] developments primarily because viable locations are just not available” and typical real estate opportunities in Southern California are spaces situated in shopping centers, said Keith Sultemeier, president and chief executive of the $6.6 billion-asset Kinecta. 

Sultemeier explained that to help offset the costs associated with occupying a 35,000-square-foot property, the credit union sublet spaces to local businesses such as a veterinarian clinic, Dunkin’ and a sandwich shop.

“We had well over 100 businesses submit letters of intent, and we narrowed it down based on what they were willing to pay — as well as if they could continue to pay over time — and what we thought the community members would enjoy most,” Sultemeier said. “When we pick locations with high traffic, a lot of that revolves around daily consumer needs. … Most of the branches we do in Southern California are in shopping developments to help anchor the location. Since the new location had no anchor, we had to create one of our own.”

Banks in the U.S. have continued to shutter locations as consumer activity shifted to digital channels during the height of the COVID-19 pandemic, with a reported net 2,927 closures last year according to S&P Global. Additionally, some have recently begun launching or overhauling virtual-only institutions. 

During that same period, credit unions continued on with prior plans for expanding branch networks.

But despite initiatives to breathe new life into antiquated offices, many credit unions still struggle with determining how best to restructure the branch footprint to streamline traffic flows. A number of them have turned to outside help for new strategies.

Nate Baldasaro, co-founder of the Portsmouth, New Hampshire, design firm The Element Group, explained that many institutions navigating a branch revamp struggle with how to effectively incorporate newer technologies while also hiring staffers willing to learn how to use them.

How credit unions in California, Hawaii are rethinking branch models

“In the credit union world, due to the differences in marketing depth and capabilities, you’re not going to go toe-to-toe with Bank of America, Wells Fargo and JPMorgan Chase and all that on the technology side . … [For credit unions] their big point of difference is the personal communication and the personal assistance that they can give members,” Baldasaro said.

Outside of the use of architectural design and newer technology to streamline branch operations, relocation to more compact and efficient locations is also a viable option as well, Baldasaro said.

With many credit unions having longtime locations as large as roughly 6,000 square feet, “the struggle is how do we come to this idea of what is an efficient branch, that we can meet all the needs of the members and do it justice,” Baldasaro said. “So it’s that blend of great technology, great human capital and trying to figure out what is the correct size footprint to do it in so that they can grow if they choose to, or expand across a region that they want to be in very efficiently.”

Through partnerships with third-party firms, credit unions seeking to revitalize their satellite offices can best determine which tools are worth investing in depending on the communities they cater to.

Hawaii State Federal Credit Union in Honolulu partnered with Element back in 2019 to help develop and open two new locations and has been working with the design firm to further expand its branch network across the island. Since January, the credit union has added two offices in Safeway grocery stores and plans to add three more this year.

“We were in the 3,000-plus-square-foot range for branches, and in Hawaii, finding that type of space in really good locations is very difficult,” said Aaron Vallely, senior vice president of retail experience and operations for the $2.3 billion-asset Hawaii State. “With Element’s assistance, we’ve been able to really scale down to a little over 1,700 square feet. … When you walk in, you don’t feel like you’re in 1,700 square feet, and they really maximized every inch in that space.”

Despite the tight space of grocer-based micro branches — less than 500 square feet — tellers equipped with tablets instead of desktop computers will be able to help offer members the same services available at larger locations, Vallely said.

“[Since] we don’t have the physical desk spaces that we have at our traditional branches, everything is done on a tablet. … New account applications, loan applications and even basic processes to engage with a receipt printer or an official check printer, are all networked,” Vallely said. “We find that the building and development of those relationships [between staff and members] has been extremely important to our success.”

As credit union and bank executives continue efforts to fine-tune their core platforms and other digital services, many still face the question of how best to utilize physical spaces for meeting the needs of consumers and increasing market share.

“Even though people aren’t coming in [as often] for those traditional reasons, it’s just tough to increase market share without a physical presence, because members want to feel like you’re part of the community, and it’s difficult to do that without a physical presence in that community,” said Glenn Grau, senior vice president of sales for the Pittsburgh-based design firm PWCampbell.

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