By W.B. King
Even before COVID-19 began disrupting in-person business transactions, NorthPark Community Credit Union had closed one of its three branch locations. On St. Patrick’s Day 2020, the remaining two branches were “temporarily closed.” And after 21 months, in November 2021, that status was changed to “permanently.” The credit union, however, wasn’t closed for business — far from it.
“We researched this [virtual] idea in 2018. We had three branches. In 2019, we were able to close our first branch,” said NorthPark Community Credit Union CEO and President Carma Parrish. “The second branch was down to less than 10 members a day coming into the branch.”
Do You Know You Can Do This Transaction Virtually?
The $45 million Indianapolis-based credit union services roughly 5,000 members who live or work in 19 counties located in central Indiana. The idea of going virtual, Parrish said, wasn’t a quick or easy decision.
“We educated our members on how to do virtual branching, voluntarily getting them to want to do it before being told they had to do it. This was achieved one member at a time,” Parrish explained. “Quite simply, every member who walked into the branch was asked the exact same thing: ‘Did you know you could do this transaction virtually?’”
One by one, Parrish said her team began seeing members stop coming into the physical branches. During this time period, she stressed the importance of her team using the words ‘transaction’ and ‘virtual’ when dealing with members. “We wanted to downplay that this was simply a transaction and to continuously reinforce it was virtual, so they’d accept our 'virtual branch' announcement.”
The only way the plan would work, she added, was if the credit union’s employees, especially the frontline, member-facing team members, were on board and ready to implement the required changes. At the time, the credit union had 11 employees. Today, there are 17 team members.
“We first made sure to discuss how virtual branching would create career advancements for our front line,” she said. “Once virtual, we would no longer need tellers so they would be promoted into other areas of the credit union.”
During all-staff meetings, which took place weekly, friction points by department were identified, as well as the needed virtual solutions, she noted. In total, five tellers would move to different roles, including positions in the loan and marketing departments.
“Key transactions and processes with no current virtual access were then handed to the development team to find and implement solutions,” Parrish said. “One-by-one we figured them all out.”
Before the formal November 2021 announcement, employees were trained to “not share the long-term strategy” with membership that all three brick-and-mortar branches would remain closed after the pandemic. Part of the reasoning, Parrish said, was waiting until the board and senior leadership were confident that the strategy would be successful.
“We are cashless, excluding the two ATMs. We do everything virtually from account openings, loan closings, document sharing…other things changing is that we went to 100% paperless in March 2021,” Parrish said. “And in our ‘DoorDash’ society, in March 2022 we decided to take virtual branching further by going directly to our members when an ‘in-person visit’ is necessary and to build our brand.”
The CDFI Effect
NorthPark Community CU’s effective switch to virtual was made possible, in part, by becoming a certified Community Development Financial Institution (CDFI). To ensure a smooth certification process, Parrish and her team worked with the Tacoma, Wash.-based CU Strategic Planning. Over the last two years, the organization has assisted more than 170 other credit unions.
“NorthPark started their certification process with us in April 2020 — right at the beginning of COVID lockdowns. We gathered all the data and wrote the application in two months and submitted it to the CDFI in early June,” CU Strategic Planning CEO Stacy Augustine told Finopotamus.
“This was a little longer than our usual turnaround, since we were collecting data from the credit union right as all financial institutions were adjusting to pandemic operations,” she added. “North Park received notification of its certification approval in October of that year.”
In order to become CDFI certified, Augustine said a credit union must meet the following criterion:
Have a primary mission of promoting community development.
Provide development services in conjunction with lending (e.g., services such as financial education that help consumers better qualify for loans).
Serve and maintain accountability to one or more defined target markets. (A target market can be either a historically distressed investment area, a low-income population, or vulnerable or underserved populations that have historically been denied credit or lack adequate access to capital.)
Be a legal, non-governmental entity at the time of application, with the exception of tribal governmental entities.
“Most credit unions fit these requirements in spirit, but as with all government programs, we have to document all criteria to the government’s required standards,” Augustine noted.
“Credit unions with an interest in becoming a community development financial institution might also be interested in speaking with the NCUA about whether they’re qualified for a Low Income Designation (LID),” she continued. “If a credit union already has a Low Income Designation, it’s a good sign that they’re probably eligible to become a CDFI. Credit unions that haven’t received a LID from the NCUA shouldn’t despair though — there can be a variety of reasons why you weren’t able to meet the NCUA’s standards for the designation.”
Once Parrish and her team determined the required technology and products were in place to serve members, the next step, which falls in line with CDFI’s mission, was to see if virtual branching also made sense for the communities the credit union serves.
“Our advisory board, consisting of leaders of local not-for-profits and municipalities who work with the same Low-Income Target Population (LITP), described four reasons why this initiative and the subsequent full switchover to virtual branching would benefit the unbanked and underbanked individuals we serve,” Parrish noted.
The four advisory board criteria points are:
Afraid of being told no.
Certified CDFI institutions are also eligible CDFI Program Financial Assistance (FA) awards of up to $1 million, which can be used for loan loss reserves and capital reserves, as well as certain eligible expenses associated with providing development services, lending and other operations, explained Augustine.
“There are also smaller Technical Assistance awards, which are generally for capacity development for CDFIs that aren’t quite ready for the obligations that come with an FA award. Neither award is specifically for tech initiatives, but we’ve worked with a number of credit unions who have used the funding to grow and sustain technology-focused strategies; NorthPark’s virtual branching strategy is a great example,” Augustine noted. “Other CDFIs have benefited by implementing initiatives like ‘branch in a backpack’ – secure systems that will allow member service reps to meet and conduct transactions with members at community partner locations, convenient hubs or locations accessible to rural members.”
NorthPark ROI Model
Parrish said that most colleagues are “stunned by how little it takes for virtual branching” and instead often complicate the process by overthinking.
“While we have some bells and whistles, it doesn’t take much in the way of products to eliminate a large percentage of your branch transactions,” she said. “An upgraded ATM can reduce your foot traffic by 85%. A quality call center can reduce another 20% with account issues.”
One area where Parrish has seen significant savings is with its cloud-based phone platform. “We use Captivated and we were able to keep the same number and use it for voice, text, and video chat.”
When the credit union’s advisory board greenlit the virtual branch concept, Parrish said three metrics were put in place to measure the viability of the strategy:
Number of member complaints.
Number of and profitability of closed memberships for virtual reasons.
New direct loan volume.
Since the program was launched, Parrish said there have been less than 20 member complaints. In total, 34 accounts were closed, but she noted the profitability of these accounts was negative.
With regard to new direct loan volume, she said: “There was an 80% increase in 2020 over 2019, another 30% year-over-year increase 2021, and another 60% increase year-over-year in 2022. We are on target to double what we booked in 2021.”
She continued. “We saved more than $200,000 in operating expenses from March 2020 to November 2021 and softened the potential blow of announcing we were staying virtual by giving a $65,000 profit-sharing dividend back to our members.”
What will become of the three closed branch locations? Parrish said good things are in the works.
“Our vision is that other not-for-profit organizations we partner with in our community, who serve many of the same individuals as our credit union, will have the opportunity to make use of our offices free of charge,” she said.
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