With the excitement around buy now, pay later, Citizens Bank stands out among a small number of banks with an offering in the space. The firm has been providing point of sale financing since 2016 and has issued over $6 billion to more than 5 million accounts. Citizens Pay is expanding in the U.S. through more partnerships with merchants in new verticals like health and fitness retailers and home contractors.
I’m joined on the podcast today by Eric Schuppenhauer, Citizen’s president of consumer lending and national banking. He shares some more insight on Citizens Pay and how the bank is positioned in the space. We discuss trends in the industry and what’s propelling consumers and businesses to adopt this form of payment. Lastly, Eric delves into his expansion strategy for the firm and the bank’s plans to further embed its services into its partners’ businesses in the future.
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The following excerpts were edited for clarity.
Citizens Pay
We’re very excited about the launch of Citizens Pay. This is not something that we’re new at — we’ve been in this business, the point of sale merchant space, since 2016. What Citizens Pay enables us to do is to provide a solution to customers that allows them to go to any merchant as we go forward and provide that ubiquity of experience.
So while we’ve really honed our product to date on helping merchants grow their business, this is just another way for merchants to be able to grow as well as customers to be able to use another form of payment beyond credit card.
Using BNPL
We’ve learned that customers don’t really want to open up a next credit card and take on more debt. They want to have better transparency of the capability that’s provided. And a lot of times, that’s through a point of sale solution. And that point of sale solution is not just an online experience, although it actually has its founding components in an online environment. We’re finding that it’s very powerful in physical stores, too. .
What’s new now is we’re developing direct consumer capabilities with the tools. So let’s say, for instance, you buy a product like the Microsoft Xbox subscription service, which we we support through our capabilities. Then you want to go buy that next thing — you have the ability on Citizens Pay to use it in another instance, say in any other thing that Microsoft makes available under Citizens Pay. You see an open line with this capability to be able to go anywhere, and do anything with your financing option.
Payment habits
We see all demographics using Citizens Pay. So while it does skew to a younger audience, because they’re more digitally native, we’re seeing that, especially with COVID-19, a lot of people are starting to use this capability. They’re finding it more as they’re shopping online. And it’s just easy, it’s understandable. And it’s seamless, in terms of how a customer can just utilize it to make a larger ticket purchase.
From a merchant standpoint, it’s a win, as well, because then you’ve got customers potentially upsizing their cart, which is a win-win-win for the customer, because they feel like they’ve got really clear terms, an easy experience embedded in the product experience, as well as the ability to buy a little bit more than they would have otherwise. The merchant wins because they sell more product. So it’s a fantastic product all the way around.
Differentiation
What’s distinctive about Citizens providing this is that it’s one of the only banks in the space. The bank bring liquidity, the funding capability to provide a lower cost than many of these other plans. We also have a tremendous amount of credit and fraud capability. The slick front ends are one thing. It’s the capability that sits beneath for you to be able to run this in a really high quality way, to make instantaneous decisions that are also safe.
We think about this with a customer first mentality. If you put the customer at the top of this thing, all the other stuff is fantastic in terms of bringing that solution forward. And we think it’s distinctive. And it will continue to set us apart as we grow. We wish all the others a lot of good luck. I think there’s a huge market standing up here. Some estimates put it at $250 billion total addressable market inside of the U.S. and and that seems like very substantial. I think we all have a lot of room to compete in.
More banks entering BNPL
We’ve seen a lot of banks indicate that they have an interest. I would say credit fraud models have to be a tad bit different than just pure credit card. And that’s one of the things banks are concerned about — whether they’re going to cannibalize some component of their card base. Some banks have actually started to venture in based on taking some component of their card business and leveling the payments for their customers, taking it off the revolving line and putting it into a more fixed line. We think folks will tiptoe around this area. We’ve got a pretty solid foothold.
Expanding BNPL lending
Citizens Pay is still relatively small compared to the size of some of our other lending, mainly because it’s small ticket purchases. So even though it might allow somebody to upsize their cart, the reality is that it’s still for smaller tickets from a dollar standpoint. In terms of number of units, it’s very substantial. It’s probably one of our highest unit originations in the bank on an annual basis. And we’d expect that it’s just going to grow exponentially from here as we add new partners to the platform.
We have some pretty big launches that we’re preparing to announce this year, where we would anticipate that the number of units will grow and grow and grow.
Consumer lending
We entered the point of sale space in the 2015-2016 time period when nobody was in it. And we decided, let’s venture there. When you take a look at the Citizens story more generally, we also did that in a couple of other areas. We went into education refinance, and while you had a couple of fintechs in that space, we decided we would play, too. We decided to double down on mortgage in a time period when a lot of banks were fleeing mortgage. It was being dominated by fintechs — we thought we could do it better and smarter and cheaper as we go forward.
Embedding into consumer lending experiences
We’re trying to try figure out how we become much more in touch with how our customers want to live life and be there with them. That will take us right back to the subject of this podcast, which is how to embed yourself in the products and services and the experiences that customers love. And I think that’s a winning strategy.
The powerful part is first understanding who’s your target segment. And how you want to be there for them. Then, you pick the places where you can compete, through partnerships and other capabilities where customers are already going. You don’t have to lead them to you. You go live where they are. And you know, some of the powerful brands we’re doing business with in the point of sale space are powerful entries in. But we’re also looking for those moments that matter. How to embed yourself in the products and services that people use is going to be a large part of our national strategy as we go forward.
Dumb pipes
You want to be the entity that creates the distinctiveness. That’s absolutely the focus of this — when you create this phenomenon that you’re there for them, I think there are other platform plays that get set up. As we think forward, we have the powerful things we need to do in the here and now. But the future component is extremely exciting. You cover this quite a bit, which is what’s before us is not as powerful as the things that we will seek to learn and understand. Everything unfolds.
I say to my team all the time, what we don’t know is more powerful than what we do know at the moment. We have to be very thoughtful about taking a few bets, maybe more than a few. Some will pay off and some we’ll end up scrapping.
Organizational change
Yeah, it runs deep. It starts with our CEO, who is very visionary in his own right. The head of our consumer bank, who was the founder of our POS business here in in Citizens Bank back in 2015-2016 and the great relationship we have with Apple and Microsoft. And then throughout the entire organization, there’s a drumbeat of continual invention.
One of the things that holds a lot of organizations back is the state of their tech. We’ve hired and have a whole new capability of quickly prototyping into the marketplace, bringing things to market through API’s and micro services, unbundling a lot of the core legacy technology that holds a lot of people back. It’s in the heart of our organization, technology sits side by side with our product managers. It also relies heavily on your data environment. And so we brought some great talent in from a data perspective, because a lot of organizations are held back by data structure and the ability to do what we’re talking about.
And so it runs deep, and it’s a mentality. We don’t have the luxury of just making these bets and hoping that they’ll pay off. We have to have some level of believability here. So we do a lot of testing from a believability factor before we take to market.
Citizens of the future
In many respects, we are a fintech inside of banking in the way we think and the way we operate. And it’s proven out by the big bets we’ve taken to date that have really paid off big for us. We have to continue pushing those forward, like point of sale and the Citizens Pay launch. Those are things that we started five, six years ago. And those are the things that will propel us to be able to make the next set of bets as we go forward.
I think we’ve got the proof points that we’re pretty good at picking our places to go into the white space in the market and making it come to life. We’ll get a couple of things wrong. But hopefully, we’ll get more right in this test set of bets. I hope people know us as a really forward thinking company as they come to know us as a national brand. That’s empowering.