Next-Level Growth: “Phygital” First – How Credit Unions Can Transform Branches into a Platform for Omnichannel Engagement

The traditional branch is being reimagined as a platform for engagement rather than just a physical location. In this episode of our Next-Level Growth series with Cornerstone Advisors, People First Federal Credit Union’s Steven Mertz shares the blueprint for digital transformation for credit unions through the lens of “digital-first” branches. They explore how micro-branches, video banking, and unified communication stacks allow credit unions to provide a seamless, omnichannel experience across all 50 states.

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Transcript

Elizabeth Gujral, Cornerstone Advisors (0:07):

Hello everyone. So, today we’re going to be digging into a really interesting topic, and that is on Digital First Branches. And it’s really important to think about this topic today as we think about how much more digital our lives are becoming online. And I think it’s presenting some really interesting questions for credit unions right now. I mean, for one, how do we reimagine branches and our member experience as not just as a place, but really as a platform for engagement? And then how do we blend, you know, that high-touch service that we want to provide to our members with these future generation high-tech tools? And then really how do we like design experiences that are intuitive and efficient, so not just for the membership but then also for the back-end operations as well. And Steven Mertz, the Chief Executive Vice President of Growth and Strategy at People First Credit Union, is here joining me today to talk through a lot of these topics. So, Steven, thank you so much for spending some time with us today. And before we jump into my massive list of questions for you, tell us a little bit about yourself and your role at People First.

Steven Mertz, People First Federal Credit Union (1:10):

Sure. Thanks, Liz. Thanks for having me. Steven Mertz, EVP Growth and Strategy at People First. Been with People First for a little over four years now, but I’ve been in banking for over 20, which has gone quickly, which is a good thing. But, even in that 20 years, that evolution of what we do and what we do to serve members has really been really evolved, and it evolved at a pace that right now feels like breakneck speed, but, you know, we’re still working to help members as much as we can.

Elizabeth Gujral, Cornerstone Advisors (1:50):

Great. All right, so my first question for you, and it might be a little bit of a simple one, but what is a digital first branch? Is it just the online experience or how is the credit union thinking about it?

Steven Mertz, People First Federal Credit Union (2:01):

Yeah, so we think about it really in two different ways. We do feel that physical branches in a retail space makes sense, but we think about the physical location as well as a platform as you had mentioned in your opening. So we looked at it two different ways. Right now, we opened our first, non-staffed physical branch about a year and a half ago. So that branch is a very small location. It is maybe 250 square feet, serviced by a few different providers. So, we have ITMs in there for folks to do transactions. And then we have a kiosk area, which uses our platform to open accounts or to do loan applications, but it also has our digital branch platform built into it as well, which we actually run out of our contact center, in Pennsylvania.

So, it’s really a blend of kind of everything that we do. And then our second piece that we opened, in the beginning of the year is actually our what we call our Digital Branch. So members can come into a digital lobby, decide what they want help with, click a button, pull up the screen, and it’s a very much Zoom-like experience that allows our our universal bankers to, through video, help members either open accounts, service accounts, apply for loans, anything really that they need to do. They can even deposit checks through that digital branch as well. So, they have a lot of options available to them to do that.

So, you know, we viewed that about two years two and a half years ago, we expanded our charter, actually converted to a multiple common bond, and added 250 underserved census tracts that span throughout Pennsylvania into West Virginia and Ohio. Knowing we didn’t have physical locations there, we wanted to make sure that we had a way to help those members, and potential members, in those underserved markets. So, it’s really a two-pronged strategy. And as we go, we’ve identified areas where we want to open physical branches, but deliver digitally within those branches.

Elizabeth Gujral, Cornerstone Advisors (4:34):

Right, so almost like people-less branches, which is interesting.

Steven Mertz, People First Federal Credit Union (4:37):

You got it. Yeah. People-less branches, but there’re still people there, right? So, they touch a screen, you have a People First team member, who is really able to help them do anything they need to do.

Elizabeth Gujral, Cornerstone Advisors (4:48):

That’s really interesting. So, when we think about the actual digital branch, it’s part of the digital banking suite or a website that, I as a member could log into and I have access to really your contact center staff, your universal bankers in order to, apply for a loan, open up an account, and get the support that I need, right?

Steven Mertz, People First Federal Credit Union (5:07):

Yeah, yeah. So, they just go right to our website. They could, they can book an appointment in the digital branch if they want a specific time, or they can go right into the digital lobby and wait for a team member to be available to help them, at any time.

Elizabeth Gujral, Cornerstone Advisors (5:24):

Nice. So, what led to the credit union thinking about creating this strategy? Where did the idea come from?

Steven Mertz, People First Federal Credit Union (5:32):

Yeah, so, you know, a lot of conversation around, we’re in a market, or what I would call our legacy market, is Lehigh Valley in Pennsylvania, so Eastern Pennsylvania. Very, saturated market with banks and credit unions. A lot of folks coming in. We have the Chases and Wells and PNCs of the world that are coming into the market. It’s a great market, but we also know as a credit union, we need to be serving folks who don’t have those options available to them.

So that what led to the change of the charter and adding the underserved territories, and then, we wanted to make sure we had the best possible way to reach all of those potential members. And that’s really where it evolved from, is to, continue to grow People First, but to continue to grow, and serve folks who maybe don’t have the options that many folks in our legacy markets have.

Elizabeth Gujral, Cornerstone Advisors (6:40):

Right. You actually, you answered my next question, which was around, what kind of members and prospects do we want to reach with these digital first branches? And I think you hit on a really good point that when we’re looking at underserved populations, do they always have the time to go to a branch? Do they have time to call? Or do they need support outside of like normal hours? So, by providing this digital branch, you can kind of meet them when they need to be met. Does that make sense?

Steven Mertz, People First Federal Credit Union (7:07):

That’s correct. When and where, right? That’s the big thing. What we know in our underserved territories is that they tend to skew more towards lower to moderate income as well. And we have certainly affordable financial products that those members can be taken care of with. You know, we still offer free checking.

We find in these markets actually that our auto loans, we do a lot of auto loan refinancing in many of these markets, because, they don’t necessarily have the options when they go to a dealer or when they purchase a vehicle, and we find that they’re paying extremely high rates on on their auto loans because they didn’t have options available to them when they bought the vehicle. So we do a lot of refinancing. We know in those markets the vehicle is the primary method to get to work, to earn the income. So those things have been extremely important, as we’ve begun to roll them out.

Elizabeth Gujral, Cornerstone Advisors (8:12):

Yeah, and I know that you’ve mentioned that your target market for this or the primary beneficiary has been the underserved market. But have you noticed other segments of your membership really engaging with the digital first branch as well?

Steven Mertz, People First Federal Credit Union (8:26):

Yeah, absolutely. Our legacy market loves the digital branch also. There’s many times where it’s like, “I don’t feel like leaving the house today, and I need to do this,” right? So, we give our members the option to to really self-serve and do it themselves. So, we partnered with Blend a few years ago, and rolled out our online loan application and digital account opening services.

We’ve really expanded that, and we allow a lot more folks to actually open accounts. So our members can self-serve whenever they want, wherever they want, mobile first experience, everything’s available to them. But if they get to a situation where they want a person, right? We’re People First, right? They want a person, we’re there for them when they need it. So, however they want to interact with us is what we’re trying to provide.

Elizabeth Gujral, Cornerstone Advisors (9:26):

Yep. How, where, and when. So, my next question for you is, has this initiative led to any new products being developed at the credit union, or has it made the team realize like, oh, maybe this is a gap in our product suite, we need to be thinking about this, maybe this is a service that’s missing? Or what kind of insights have you guys gained from rolling out the digital branch?

Steven Mertz, People First Federal Credit Union (9:48):

Yeah. One of the things we hear consistently from members is, the ability to save and actually earn on that saving is difficult. It’s difficult to get started. So, in late 2023, beginning of ’24, we developed a new product called the Smart Saver Account. That Smart Saver Account is actually a reverse tiered savings. So the folks with lower balances and they’re starting to save actually earn more than folks with the larger balances.

So, it’s tiered backwards, to encourage folks to start saving and seeing the benefits with interest earned in those accounts. And then, they can evolve into a money market account, which is more of a more standard traditional way to earn a higher yield. But that account has really exploded and taken off for us. And we have a ton of positive feedback from our members and from our team members. Our team members like talking to members about it, setting up automatic savings plans, getting them into that habit of saving for themselves. But that product was one that we just fairly recently rolled out which has really expanded for us.

Elizabeth Gujral, Cornerstone Advisors (11:03):

Yeah, that’s exciting. A couple of my other questions are really around like operations and technology and marketing. And one of the big ones was, when you’re rolling out a digital branch, it’s not business as usual. So, I’m curious what kind of what were the operational organizational changes that you had to make and change in order to set the structure up?

Steven Mertz, People First Federal Credit Union (11:26):

Sure. Yeah, that was certainly a challenge for us. From a technology standpoint, we worked to identify a platform that would allow us to integrate our entire communication stack with, into one platform so that we could create an entire contact center team that could answer the phone, they could do video calls, they could do text or chat. So, our contact center team is integrated into the Eltropy platform, and that allows them to really bounce around between all of the ways that members decide to contact us or they want to communicate with us.

Whether it is picking up the phone or sending a text and saying, “Hey, I don’t understand this transaction.” We have one team that can fulfill those needs for the member. So, there’s many times, actually, our digital branch, physical digital branch, we like to call it, that we opened where a team member might help someone through an ITM and do a deposit transaction. That member might turn around and finish the deposit transaction, hit the button to talk to a team member on the kiosk, they may very well get the same exact person to help them with whatever their question is there as well.

So, having one unified platform that we can put in place and put in our contact center was huge for us. Additionally, what’s helped a lot with new member onboarding and new accounts has been our partnership with Blend. That allows us a real omnichannel. So, our contact center uses the Blend platform to process accounts and applications. If a member gets stuck, our contact center or anybody can pick that application up and help the member and say, “Okay, I see what you’re struggling with here. Let’s work through this with you.” So we really try to unify all our platforms. And our partnerships with Blend and Eltropy have been a huge example of how that works.

Elizabeth Gujral, Cornerstone Advisors (13:28):

I think that’s it’s such a great example, too, because I think when people are thinking about, and credit unions recently been thinking about digital first experiences, it’s not unheard of for a lot of folks to forget about the still that that people aspect that we still need if they’re going through the process of opening up an account or they need help. We still want to have physical humans available in order for them to get them through the process.

Steven Mertz, People First Federal Credit Union (13:53):

Yeah, and that’s our brand, right? We’re People First. So, we are always going to provide a person that’s available for them. They may not be physically standing in front of you, but you can get access to a People First team member, very quickly.

Elizabeth Gujral, Cornerstone Advisors (14:08):

It’s someone, it’s someone to talk to.

Steven Mertz, People First Federal Credit Union (14:10):

Yes, absolutely.

Elizabeth Gujral, Cornerstone Advisors (14:13):

So, what was the marketing communication strategy when you were launching the digital branch? I mean, what did that communication plan look like?

Steven Mertz, People First Federal Credit Union (14:22):

Yeah, so, what we did was, you know, we really, and we do it still, it is hasn’t stopped, but, we use a a lot of Google Analytics and Google Ads and social media as well to talk about, how we can benefit a member, what that benefit is. And then instead of directing them into a branch, we direct them to the digital branch, and we tell, we communicate with them to say, “Hey, we’re here for you, no matter where you are,” right?

You know, we have existing members. Probably one of the biggest use cases early on, with the digital branch was our members who moved out of the area. We have a lot of folks in Florida. We have a lot of members in North Carolina. We have members in all 50 states, actually. But, those members now had a way to much more easily see a team member and say, “Hey, I’m trying to figure this out,” and share a screen and, “Hey, what do I click here or how do I do this or what’s this?”

So, we message it to existing members and say, “Hey, if you’re not able to come to a physical branch, we’re still here for you. You can still see our people and talk to people.” And then for new members, it’s really saying, “We can be here whenever you need us.” We’ll be right in front of you, we will guide you through this process if you’re not comfortable doing it yourself. So that was really the communication strategy, is what can we do for you? Whether it’s a free checking account or it’s an auto loan refinance. You want to take care of it on your own? Here you go. All the tools are here available for you, but, we’re here to still help you.

Elizabeth Gujral, Cornerstone Advisors (16:13):

Right. And I’m going to throw a term out there. I don’t know if you’ve heard it, and I will not take credit for it. But something Cornerstone has been using a lot is we call it “Phygital experiences” (Physical Digital experiences).

Steven Mertz, People First Federal Credit Union (16:24):

Exactly, exactly. I actually haven’t heard that term, but I was thinking about that term as you’ve been talking. Yeah, I mean, that’s exactly what we’ve created, and, we never use that term, but that’s exactly, delivering our team members to members through a digital experience in person, right? It’s just a different way to view it.

You know the next evolution is even our physical branches, traditional physical branches, the next evolution is really, they’re very busy, and there’s often times when members come in and there’s a wait. We are working to have the ability for them to actually walk into an office, hit a button, and pull up a team member. So, you don’t need to wait. You can do that here. You could do it in your car. You could do it in your house. But if you walked into a branch, we can still help you without you having to wait. So, we’re delivering those into our traditional physical branches as well.

Elizabeth Gujral, Cornerstone Advisors (17:23):

Have you found any segments of the membership still prefer that in-person traditional teller line? Have you seen any like pushback from the membership, or is it just all segments? I’m curious if a lot of folks have been like really excited about the digital branch, and others are still like, “meh.”

Steven Mertz, People First Federal Credit Union (17:38):

Yeah, no, we have a very traditional membership base. We were founded out of a manufacturing business, 75 years ago. We’re actually celebrating 75 this year, and, you know we still have a lot of members who are like, “I just want to come in,” and that’s okay, we’re fine with that, that doesn’t bother us.

But what happens often times is our teams will show them the ITM. Let’s do a transaction, do a transaction, walk up, actually show them it’s a physical person, who is a People First employee. They’re a People First team member, and we’ve converted so many people who are like, “Oh, this is so easy. I don’t need to stand here and wait for a teller, or a universal banker, I can just walk over here.” Transaction takes the same amount of time regardless of if you do it here or do it over here, and they just get so much more comfortable with it. So we’re converting people, but certainly, we still have folks who, they want that in-person experience.

Elizabeth Gujral, Cornerstone Advisors (18:45):

Right. So, what’s the future branch strategy for People First? Are we still establishing new branches in new markets? Or if we are, are they just going to be those 250 square foot offices that you were mentioning, which are just like those people-less branches? Or what’s the what does the physical presence look like in the future?

Steven Mertz, People First Federal Credit Union (19:03):

Yeah, so, the really the strategy is to follow along some of our underserved market territories and start to get actual physical locations in place, but they’re people, not people-less, they’re people-minimal, we will call it, right? So, that’s really the strategy as we go forward.

We do know members still want to see people. So we will still establish a physical location, but we’ll be delivering a lot of those services from a digital standpoint. But we’ll still have, we’ll likely have people in there. We opened three branches last year, and it was a mixture of all three, right? We still had a traditional branch that we opened. We opened the people-less branch, digital, and then we opened one that is, has people but doesn’t have a teller line. So, we’ve put a mix through depending on what that market looks like.

Elizabeth Gujral, Cornerstone Advisors (20:07):

Yeah. And since you’ve started this strategy and rolled out the digital branch, have you seen, or has the credit union seen any, quantifiable impact, either to an increase in cross-sell of products, an increase in, member satisfaction, or operational efficiency? What kind of measurements have you been tracking for the impact that it’s had on the credit union and the membership?

Steven Mertz, People First Federal Credit Union (20:29):

Yeah, definitely membership growth has been significant. You know, five, four or five years ago we didn’t really have much membership growth. We were kind of stagnant. We were locked into a very small territory. We had two counties, so it made it difficult really to drive membership growth.

Since the charter conversion and the change to the digital branch and putting these new platforms in place, we’ve seen fairly significant growth from a membership standpoint. I think last year we’re at 4.5% membership growth, so it’s good for us. Yeah, over 75,000 members now, and continuing to grow. Loan growth honestly has been phenomenal. Last year, I think loans were up 17%. The year before that, I think it was 10%. So, this year again, we’re targeting 8% and we’re almost already there. So, really, doing some phenomenal work, to engage members better. I think because we have the ability to deliver the service wherever and whenever, they’re looking for it.

Elizabeth Gujral, Cornerstone Advisors (21:40):

Yeah, you just answered my question. I was going to ask you how do you think the digital branch experience and platform has really helped with that loan growth, but it seems like, yes, if I’m a potential member, or I’m a member, and I need a new loan, if I get stuck on something, I know I have someone to talk to, and it’s an easy I mean, it doesn’t seem like, I mean, you see this issue all the time, well, we do, that, someone applies for a loan, and they only get halfway through an application, and then that person’s never, that potential member is never reached out to again. So, it seems like you guys have a really great way to keep engaging with the membership to get people not just to the door, but through the door as well.

Steven Mertz, People First Federal Credit Union (22:16):

Yeah, no, absolutely, and it’s important. So, like our partnership with Blend has been phenomenal, on the lending platform side. Blend will do an NPS survey within the application process, consistently scoring very high ranks, on the lending process and the loan application. So we’ve seen really great satisfaction from that standpoint.

One of the things that I didn’t mention earlier is because of all the increase in the digital side of account opening and those types of things, we put a robust onboarding process in place, where we’ve built out some extremely complex workflows based on how a member engaged. So, even if we don’t talk to them right away because they’ve self-serviced, they’re getting consistent communications early on, how do I use my account? How do I use my debit card? How do I get in online banking? How do I make my payment on my loan? Those types of things. So, they’re getting consistent communication from us. That’s a step that we spent a lot of time on to make sure we’re engaging those members much earlier in the process. So, our members are very thankful for the processes we have put in place to really help them, whenever they really need to be helped or wherever they want to be helped.

Elizabeth Gujral, Cornerstone Advisors (23:42):

Yeah, I’m curious. The strategy has been really helpful for the credit union’s growth. I was just thinking, too, I wonder what the impact has been on your competitiveness to like the fintechs like the SoFis and the Chimes out there that don’t have that phygital experience in their digital only. So, I’m curious if you have any thoughts about competitive advantages, especially against the fintechs of the world.

Steven Mertz, People First Federal Credit Union (24:07):

Yeah, for sure. I mean, we have this conversation often. I wish I had the marketing budget of SoFi and Chime. Yeah, it’s through the roof. part of our marketing budget is our physical locations as well, right? And they don’t have that consistent stationary in a market or a community, which is an advantage for us. What we want to make sure is that we are, with our digital experiences, we’re consistently at scale, or at quality with our larger competitors, right? Whether that’s a PNC traditional bank or, a Chime or SoFi or anybody like that.

So, we’re constantly looking at our products and services to make sure that we have a competitive market there. The other piece, and I didn’t touch on, is we actually have guided investing built right into our mobile app now, through a partnership. So, a member can go right in, they can see their banking, they can start their digital, their guided investing account, they can invest every month. So, a lot of that is, is how do we compete with a SoFi? How do we give you the same experience and that ability, that SoFi might have, or a Robinhood or a Chime or something like that. So, we’re very competitive from a product and service standpoint, we believe, and we continue to evaluate that consistently, to make sure that we’re staying at least at pace, if not better, then our advantage is people, right? So, and we’ll take that advantage every day. We know our people are our advantage.

Elizabeth Gujral, Cornerstone Advisors (25:48):

Right. It’s in the name, People First. Yeah, so what do you think is, I mean, if you had to, you’re meeting with one of your peer credit unions, and they’re asking you, “How do we get started with a digital branch?” What would you tell them? What piece of advice do you wish, like, you knew before you got started?

Steven Mertz, People First Federal Credit Union (26:06):

I think the biggest piece of advice is, really mapping out that, member journey or, what, a member is going to ask for. You have to talk to your members first, and that’s very important. Because you go down, you start to do things, I know this is something that we struggled with a bit. We started with the ITM side, and it was, “Wait a minute, but we need to be able to do this. Wait, we need to be able to do this in the digital branch. We need to be able to do this.” So, really looking at that whole journey and saying, “Okay, these are the pieces and how, what platforms and partners can we put in place to do this?” I think what’s been huge for us has been able, being able to find partners that help us not only in the digital, but also in the physical, right? So, that’s been important for us because it allows us to scale a lot better.

Elizabeth Gujral, Cornerstone Advisors (27:04):

Right, because otherwise we have this patchwork of technology partners and vendors, and I can’t imagine what that would be like.

Steven Mertz, People First Federal Credit Union (27:09):

And that’s what we started with, right? That’s what we started with, and it kind of got to a point where we said, “Okay, we have to stop here. We need to make sure that we are putting a unified kind of a unified foot forward.” So regardless of where a member interacts with us, or wants to open an account or do a loan, it’s the same experience for our team members to deliver to the member, and the member sees no difference.

Elizabeth Gujral, Cornerstone Advisors (27:34):

Right, and that’s the goal. All right. All right, my last question for you. What do you think is on the horizon for the next evolution of your digital branch?

Steven Mertz, People First Federal Credit Union (27:40):

That’s a good question. I think, right now it’s the expansion piece. We’re at scale, right? So, we’re just, we’re just working to scale all of those things up. We’re consistently looking at our digital banking experience and how do we enhance the digital banking experience? Giving people the, our members, the ability to do anything they need to do so they don’t ever really have to call the contact center or go into our physical or digital branch, right? So that’s really, where we’re focused. We’re really focused right now around member experience and scale, and how do we scale that experience that we, that we’ve created.

Elizabeth Gujral, Cornerstone Advisors (28:26):

Well, I think you only have exciting things on the horizon over at People First. So, thank you so much for your time. We really do appreciate it, and I’m definitely going to be checking in soon to see how all the fun initiatives you’ve got, how they end up.

Steven Mertz, People First Federal Credit Union (28:39):

Sounds good. Thanks, Liz. I appreciate the time today.

Elizabeth Gujral, Cornerstone Advisors (28:42):

Thank you. Bye-bye.