Amid the enthusiasm for all things AI, the role of physical branch networks is not entirely overlooked, but many financial institutions are not placing it as high on the priority list as they should.  For Canadian credit unions, the stakes are especially high.

Even though many consumers – including Gen Z – continue to emphasize the importance of retail locations for new member acquisition or personalized financial guidance, all the data and surveys out there reinforce the dramatically different role that branches play.  For over a decade, digital channels have been the main source of “walk-in” traffic that banks or credit unions have historically relied on to engage consumers and attract their business.

Canadian credit unions are in a tight spot as they grapple with sustaining a local presence (frequently in small communities) while investing in new digital capabilities.  With an average of ~$160M in deposits per branch across the system, perhaps $250-300M in urban markets, credit unions remain at a significant productivity disadvantage compared with average deposit levels closer to $500M per branch for large banks.  Differences in branch productivity levels contribute to roughly half of the efficiency ratio gap between large banks and typical Canadian credit unions, about 15 to 20 percentage points.  Narrowing the difference by a fraction could free up $150-200M in annual systemwide capacity to invest in new capabilities.

Looking ahead, Canadian credit unions need to address four key areas to reshape the role of the branch, transform distribution economics and sustain their relevance to members.

1. Reset long-term investment objectives based on what is achievable and affordable

Retail efficiency ratios in the mid 40s haven’t exactly compelled Canada’s big banks to radically rethink their branch models (those pesky challenger banks increasingly will).  However, for credit unions operating with efficiency ratios in the 80s or 90s – that is, most of them – sustaining status quo branch networks consumes much of the financial and organizational fuel needed to power advancements in member experience.

We are long past the point where it is viable to keep adding and sustaining new channels and layers of engagement without making more dramatic investment trade-offs.  Leaders need to adopt a clean-sheet mindset, asking what is our non-negotiable spend on digital, and what does that mean we can afford to support traditional, assisted channels.  This seems intuitive, but the reverse is often true since many budgeting and decision-making processes are hardwired to preserve what has always been done.

In early 2024, Desjardins announced plans to reduce its service centre footprint by 30% over a three-year period “to find a balance between the evolution of our network of service centres and ATMs and the investments required in digital channels”.  Each credit union will have its own balance, with the accelerating pace of mergers and overlapping branch footprints increasingly factoring into the equation.

Choices that involve branch closures are not made easily or without consequence but it’s best to approach these decisions with a long-term plan, with more runway and options to navigate major workforce transitions and minimize disruption for members.

2. Accelerate and enable the transition to new branch formats and roles

When industry advisors discuss branch modernization, they promote design concepts like express banking centres, financial advice hubs, multi-purpose community engagement spaces, branch activity zones, or branch relationship coaches and experience guides.  It all sounds great, and the thinking is generally sound, but it is all way easier said than done.  For credit unions, it’s hard enough as is to hire and develop capable branch advisors who stick around for more than a year or two.  Unfortunately, solving today’s problems doesn’t give credit union leaders a pass on navigating tomorrow’s challenges, too.

As branch transaction volumes declined irreversibly, a concept that gained traction quickly among North American banks centred on tellerless branches and hybrid branch roles.  This approach often hinges on a universal banker role designed to flex across service, sales, and support (a teller, sales consultant, digital banking concierge and financial planner/educator all in one).  A simple and efficient staffing model, more relationship-oriented, faster and more personalized service.  Some banks have achieved success along this path, but it has been far from easy. In practice, the universal banker model faced major implementation hurdles and has been a work in progress for 10+ years.  It has proven difficult to deploy “generalist” models given the need to restructure roles, retrain staff, reconfigure branches, implement enabling technologies and bring consumers along for the ride.  Many hybrid staffing models have lacked enabling tools, resources and design elements, leading to heavily burdened, multi-faceted specialists who are juggling more balls than they can count.

However, the Universal Banker model may still have legs, thanks in part to technology advancements.  Virtual meetings with remote specialists are far more routine, novel teller machines offer expanded service capabilities, digital banking solutions are increasingly intuitive and easy to adopt, and emerging AI-assisted tools are supporting or simplifying in-branch roles in a way that alleviates the need for expansive knowledge on product, process and policy.

For example, America First Credit Union implemented a comprehensive redesign within its network of 120+ branches supporting 1.5 million members in the U.S. southwest.  New or redesigned branches incorporate open-concept design, Interactive Video Tellers, and tech-enabled private meeting rooms alongside a shift to generalist Universal Service Representatives (with video on demand tellers on the way).  While these changes drive operating costs lower, AFCU is clear that the branch redesign is critical to their “Members come first” strategy and has enabled the credit union to expand or densify its physical presence in underpenetrated geographies with greater efficiency and success.

Whether hybrid staffing models or advice-only branch formats makes sense, the right solutions will vary based on each credit union’s overall footprint, member base and individual micro-market profiles.  Credit unions need to map their networks comprehensively, in a data-driven way, comparing factors such as branch proximity, local traffic and transaction intensity, and member advice needs or growth potential.  More qualitative or values-based factors matter, too; for instance, overlaying considerations around banking access and inclusivity that larger banks may not overtly consider.

3. Create stronger and more efficient connections between self-serve and assisted channels

“Omni-channel” emerged as a banking buzzword about 15 years ago in North America; while the concept is just as relevant today, the intent has evolved in line with consumer preferences.  Historically, the focus was on migrating routine transactions or functions to self-serve channels, then funneling customers back to the branch when they need help with complex needs.

This approach generally applies but it can reinforce a branch-centric view of the world and be overly simplistic or rigid.  For instance, credit union members seeking investment advice are likely to arrive at a web page inviting them to book a branch appointment as the first – and often only – way to engage in a more personalized, interactive experience.

Progressive banks have shifted from branch-centric to mobile-centric propositions, even when it comes to more complex needs.  They are not just delivering disconnected online tools and calculators then steering customers to branch-based advisors.  They are designing engaging experiences that lean on mobile as an interaction hub, often as a first and ongoing point of engagement, while empowering customers to shift more dynamically between assisted and self-guided points of interaction.

For instance,  J.P. Morgan introduced Wealth Plan, a digitally enabled money coach.  Customers typically start their planning digitally to explore their goals, then transition to an advisor who can view their digital profile and provide tailored guidance based on context and info customers have already shared.  Post-meeting follow up is primarily through digital channels; customers not only track their progress in real-time but also use the tool’s goal simulator to do their own scenario planning.

Eliminating points of friction and showing members that you “Know Me” over time, across all points of interaction requires a level of data and workflow connectivity that is not straightforward.  Assisted and unassisted channels require real-time access to consistent, complete customer information, branch-based employees need the ability to receive, respond to and initiate digital prompts, and cross-channel workflows need to reflect and respect member preferences with greater nuance.  The task facing credit unions is to inventory and prioritize member experiences, then map and re-imagine end-to-end journeys in a way that allows for more, faster and easier transitions across points of interaction.

4. Explore more systemic and creative approaches to rural network coverage

Canadian credit unions operate more branch-intensive networks owing in large part to their stronger concentration in small, rural communities where big banks have more actively pruned their networks. As such, a discussion about branch network optimization cannot ignore the challenge of rural network coverage given credit unions’ commitment to maintain financial access and inclusivity.

Fortunately, several organizations (Bank of Canada, Financial Consumer Agency of Canada, Public Interest Advocacy Centre and Innovation, and Science and Economic Development Canada) have researched this topic.  Other jurisdictions, like Australia, have engaged in significant public discourse on this topic, too, to inform our dialogue closer to home.  Unfortunately, the research in Canada and experience elsewhere shows there are few easy or obvious answers.

In Australia, a senate committee review generated a range of potential systemic solutions including government funding support for rural access, greater oversight on branch closures, novel delivery models (e.g. partnerships with Australia Post), penalties or levies for major banks, and better digital connectivity.  Most of these remain concepts yet to be tested.

In our backyard, Koho’s recent partnership with Canada Post demonstrates how Fintechs are supporting banking access by reducing the need for physical branch presence.  For their part, Canadian credit unions need to debate and decide how impactful and viable public partnerships or policy-driven interventions might be, and what role they should play in driving the dialogue on these.

In the absence of strong public intervention, credit unions can pursue individual or collective initiatives to maintain their local presence, including adapting ‘lite’ branch models, redeploying some local staff into roles that support the wider membership, deploying mobile banking units (like Desjardins or Innovation Federal), or pooling resources to serve individual communities through shared infrastructure or services.  No solution will be perfect or complete on its own.

Final thoughts for credit unions seeking to transform their branch networks

First and foremost, credit union leaders need to challenge their teams to anticipate and make choices based on future members needs, prioritizing what will matter most tomorrow.  It’s surprisingly easy to preserve the status quo in the name of member-centricity.  Commitments to preserve physical locations often resonate with voting members and employees.  Longer-term, however, members will vote with their feet – and increasingly their thumbs – when it comes to choosing the credit union or bank that best suits their needs.

Second, credit unions should pick their spots carefully, thinking “ambitious but achievable”.  Transformation playbooks at large banks provide interesting case studies but frequently encompass a wide range of design elements that would be difficult for most credit unions to digest all at once.

Third, getting the right strategic and operational design is crucial but success hinges on change management capacity and capability.  It’s easy to underestimate the complexity of the task at hand, the time required to instill changes among employees and members, and the capability or resourcing needed to support a major transition.  Spending the time to measure twice and cut once on the transformation plan itself will be time well spent.