Virtual Reality

Today, 53 percent of consumers wouldn’t even consider switching to a credit union or bank that didn’t have a physical branch nearby. In fact, 51 percent say branch location plays a huge part in choosing their PFI. Yet, 47 percent can envision themselves doing all their banking in an all-electronic environment in the years ahead. That’s what a 2012 survey of 2,700 respondents to Novarica’s  FindABetterBank survey shows.

So, what gives? The reality in 2013 is you need a strong, member-focused strategy that includes equal footing for both physical branches and online banking – your virtual branch.

Branches are here to stay … until they’re not

More adventurous (early adopter) members may be ready to embrace virtual banking, but don’t close your branches anytime soon. It will take awhile for others to catch up. And some members may always want an in-person option, particularly when they face major financial decisions. But we’re not just talking about Grandma. The same Novarica study showed that nearly 60 percent of consumers under 30 can’t conceive of using a financial institution without brick-and-mortar. Yet, 63 percent of people over age 50 are among those who see virtual in their future.

When you think about it, it isn’t surprising that Millennials need options. While they want to move effortlessly from desktop to tablet or cell phone, they want a face-to-face interaction on complex money matters. Perhaps it’s just that adults who are ready to go virtual feel more comfortable with their personal finance acumen.

But for now, we know physical branches are still important to half the adult population – branches that are convenient to work or home. In a 1992 Federal Reserve study, 44 percent of adults responding said they chose their bank based on proximity. Ten years later, 46 percent said the same thing.

Does this mean online channel is just an add-on benefit for information-gathering? Should we let the branch-building begin?

No, the trend away from many and large branches is undeniable. In 2012, there were 27 fewer credit union branches than in 2011. That may seem like a small number, but it’s significant. The Financial Brand’s Jeffrey Pilcher argues that it likely marks the start of a reverse trend because up until last year, more branches were built every year since credit unions were started in this country 100 years ago.

Bricks vs. bandwidth

So, for the midterm, most financial institutions will need to keep some form of physical branches, regularly monitoring traffic and members’ banking behavior. The branch strategy should be to have fewer of them, with self-serve stations and online account access, as well as the option for in-person counsel as needed. But as a sign of the times, “in-person” for many banks means offering video banking  at the drive-in window, while others offer to Skype with their members on their desktops or mobile devices.

Last  year, a Pew Internet survey found that 92 percent of all online adults use search engines to find information on the Web, including 59 percent who use it on a typical day. By the time your members and potential members are ready to act, most already know what you have to offer. I like how Terry Young put it in his book, On Innovation. He says people don’t need you for information; they need advice. And for that, they may want to come into the branch.

But while your branch strategy needs to follow what your members want, your online banking strategy is just as important. Many credit unions give short shrift to their online channel, thinking of it as a convenience “product” when in reality it should be considered a virtual branch. Over time, chances are you’ll see in-person activity diminish as more members prefer mobile or at-home convenience. If your credit union doesn’t keep up with this trend, it will lose out. 

Make your virtual branch an attractive option

Here are some tips for finding the right virtual balance:

• Reset your thinking. Recognize the online channel is more than a service: It’s a “branch,” just like coming into the credit union. More research is coming in all the time showing that consumers who use online banking interact more frequently with their financial institution. And more than any previous banking innovation, a virtual branch really levels the playing field with your bank competitors.

• Make the virtual branch your premier branch. Give your online channel as much attention as your physical branch. When the carpet in a branch starts to wear or the teal paint screams 1986,  you know it’s time to spruce it up. Same thing with your virtual branch. Web Strategist Tim Bunch from CapEd Federal Credit Union in Meridian, Idaho, gave this good advice in an article for The Financial Brand: “When a member visits online banking they are visiting a virtual branch. As they log in, are they greeted with the same level of excellence we demand from other branches?”
  

• Give your virtual branch the tools it needs. Bunch also suggests making sure your online branch offers conveniences such as pre-filled loan applications, targeted marketing capabilities and easy account management. I will add to that switch kits that handle all aspects of changing PFIs, single sign-on to other services, wealth-management tools and secure storage for important documents and papers.
  

• Track the usage of your virtual branch. Just like your physical branch, you should track who uses your online tools, when they use them and how often. You’ll find a wealth of information about member behavior and needs that will make it easier to target their needs.

Smart credit unions are devoting as much time to planning and executing the online channel as they do their branch locations. To be your members’ PFI, it’s not simply a question of bricks and mortar vs. online. Both physical and virtual branches are critical to providing today’s members with the confidence and convenience they want. And that’s reality … for now.