Citizens Bank has inked exclusive Xbox and iPhone financing deals - and wants to do more. Here's why it's looking to partners like Microsoft and Apple to drum up new customers.
- Citizens Bank has inked an exclusive partnership with Microsoft to offer gamers financing on consoles through the Xbox All Access program. t
- "We're going to continue to partner with other merchants and retailers like Microsoft and Apple to expand the business that way," Brendan Coughlin, president of consumer deposits and lending at Citizens Bank, told Business Insider. t
- This alternate route into consumer credit could give Citizens a way to sell other products to a new customer base, and adding more such partnerships is a priority for the bank. t
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Citizens Bank has inked an exclusive partnership with Microsoft to offer gamers financing on Xbox One consoles, and the regional lender told us that finding more of these types of deals is a priority.
The move shows how traditional banks are being pushed to think outside of their physical locations when it comes to growth. Digital offerings that go head-to-head with challenger banks are another option - but the installment partnerships can also offer smaller banks a well-known brand's name recognition.
Xbox All Access works similar to the financing plans already on the market for cell phones, where customers pay off the cost of the device in installments. Citizens has also been the partner bank for Apple's iPhone Upgrade Program since 2015.
"It couldn't be any higher in our strategic planning roadmap to invest and explore expansion in this space," Brendan Coughlin, president of consumer deposits and lending at Citizens Bank, told Business Insider.
The All Access program includes a monthly subscription to Xbox's online gaming and Game Pass library. The 0% APR, no-fee financing option will be available first through Amazon, though Coughlin noted that ultimately the goal will be to offer the financing program at all Xbox retailers.
"We're going to continue to partner with other merchants and retailers like Microsoft and Apple to expand the business that way," said Coughlin. "For the short-term foreseeable future, you'll hear more on merchant partnerships."
Given the loans aren't earning income, Citizens charges something called a merchant discount rate, which is a charge to merchants based on payment method. Merchant discount rates are also applied by credit card companies for processing payments.
"Banks win because it's a profitable relationship, retailers win because they're getting more sales, and the customer wins because they're getting 0% free financing," said Coughlin.: Microsoft is bringing back its all-inclusive Xbox One subscription deal, and it includes an upgrade plan for the next-generation Xbox
Alternate avenues for growth
Citizens has a credit card business, but it's not as sizable as other players, Coughlin said, and the hope is that this alternate route into consumer credit could bring Citizens more banking business.
"This is an attractive space for us to acquire new customers," Coughlin said. "Our hope is the work we've done with them will put us in a position to be in the considered set to earn their wealth business, their mortgage, their credit card, and their deposits loyalty."
Given Apple and Microsoft's reputation for innovation and their far-reaching customer bases, these partnerships could help Citizens expand its reach.
According to a Federal Reserve report, Citizens Bank is the 16th largest commercial bank by assets in the US . The regional bank has roughly 1,000 branches, mostly in the Northeast. JPMorgan Chase, by comparison, has 5,000 branches across the country.
High-profile partnerships are one way for Citizens to tap more people to lend to, though the challenge of acquiring new customers doesn't stop there.
With competition from both incumbent consumer banks and challenger banks like Chime, Citizens has spent heavily on technologies and rolled out new products to keep and win new customers.
During a second-quarter earnings call, Citizens Bank CFO John Woods noted the bank's investment in "expanding digital strategies across the company to reach more customers" and "reinventing the payment experience at the point-of-sale (POS)."
This summer, the bank said it would be spending $50 million on upgrading its digital capabilities.
"As consumers go less and less to a brick-and-mortar, banks need to innovate ways to acquire customers," said Coughlin.
Another alternative to credit cards
Citizens' installment loan offers the financing option up front, as opposed to offering a discount with a retail credit card at checkout.
"We believe that this value proposition of point-of-sale financing is a much more modernized version of co-brand credit cards," Coughlin said.
"If done in the right way, it can significantly disrupt that market and, ultimately, can significantly accelerate sales trajectories for more modern retailers that adopt this trend quicker."
Citizens does not offer a direct-to-consumer point-of-sale financing option, but Coughlin said that capability is definitely top of mind.
"We certainly want to have the capability, detached from merchants as well," he said.
Direct-to-consumer financing fintechs like Affirm and Afterpay establish partnerships with retailers to offer point-of-sale financing at checkout. The fintechs also have their own apps where shoppers can set up financing from Affirm or Afterpay at any merchant.
"This is a capability and a business that has an enormous amount of legs, and it can be a disruptor to how consumers think about their cash flow and their payments over time," Coughlin said.