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How Citizens Financial used an iPhone plan to create a nationwide digital bank

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By Steve Gelsi

Citizens Financial Group Inc. launched its Citizens Pay iPhone upgrade plan in 2015 as an early form of the buy-now-pay-later concept that’s in vogue in the payments space.

The idea was to take the Citizens /zigman2/quotes/205410375/composite CFG -2.24% brand as a credit provider and combine it with Apple’s /zigman2/quotes/202934861/composite AAPL +0.23% iPhone to help customers avoid waiting in line for hours in the crush that typically happens when a new iPhone is released.

“We helped introduce a digital-first way of buying iPhones so people could get in line digitally,” said Brendan Coughlin, executive vice president and head of consumer banking for Citizens Financial Group. “That program put us on the map nationally.”

The effort helped make it a coast-to-coast digital bank under the Citizens Access brand, even though it only has branches in the Eastern U.S. Citizens now counts three million customers in its regional bank branches, and more than three million in its national, non-branch customer base.

The Citizens Access digital bank unit is part of a seismic shift toward mobile financial services as banking technology has moved to the cloud from its origins in mainframe computers behind bank walls.

With lower barriers to entry to offer financial services, everyone seems to want to get into the banking game.

Goldman Sachs /zigman2/quotes/209237603/composite GS -2.43% may be known as a white-shoe investment bank for M&A, but it’s also been gaining traction by offering traditional retail bank services under its Marcus brand. 

Starbucks Corp. /zigman2/quotes/207508890/composite SBUX +0.76% would qualify as a major bank just by counting the amount of money stored on its customers’ loyalty card accounts.

Also Read: Starbucks has more customer money on cards than many banks have in deposits

Apple offers myriad financial services on its platform — more of which it reportedly plans to bring in-house.

Walmart Inc. /zigman2/quotes/207374728/composite WMT +0.96% has been talking about growing its consumer financial services offerings for years.

While giants Wells Fargo & Co. /zigman2/quotes/203790192/composite WFC -0.99% , JPMorgan Chase & Co. /zigman2/quotes/205971034/composite JPM -2.15% , Bank of America /zigman2/quotes/200894270/composite BAC -2.21% or Citigroup /zigman2/quotes/207741460/composite C -2.87% continue to operate the most branches, the financial services battlefield has moved to the internet, with national and international dominance pretty much up for grabs.

As the saying goes, you have to fish where the fish are. And the fish that banks want mostly swim around on their mobile devices to download apps from Zelle, Chime Financial Inc., Square Inc. or SoFi Technologies Inc. /zigman2/quotes/222838146/composite SOFI -4.33% .

The opportunity to create a dominant, national digital bank that provides online services continues to drive both lenders and fintech rivals to spend billions on technology and marketing.

Although major challengers such as SoFi and Square often get described as neo banks, all banks in a sense are now neo banks.  

“What’s happening is banks are becoming utilities for money movement and regulatory purposes and other brands are taking the customer relationship,” said Kathryn Petralia, co-founder of Kabbage, a lending platform acquired in 2020 by American Express Co. /zigman2/quotes/203805826/composite AXP -2.00% . “Consumers doesn’t care which bank is in the bank account. They’re just working with Chime. Over the long-term it’ll erode the customer relationships enjoyed by the big banks.”

Banks also face greater infrastructure challenges and processes to deal with regulators.

“It’s not that they don’t want to do stuff, it’s just harder for banks,” Petralia said. “Fintechs are regulated for the product they offer. If you’re in money transmission or payment processing, you have regulations for that. But you’re not regulated as widely as a bank is. Most are doing just one thing – and then they progressively add one more service at a time.”

To compete, traditional banks continue to pour money into technology, partner with fintechs or sometimes acquire or own them either by themselves or with a group.

Bank of America Corp. /zigman2/quotes/200894270/composite BAC -2.21% , Truist Financial Corp. /zigman2/quotes/200481602/composite TFC -2.07% , Capital One Financial Corp. /zigman2/quotes/204480509/composite COF -2.64% , JPMorgan Chase & Co. /zigman2/quotes/205971034/composite JPM -2.15% , U.S. Bancorp /zigman2/quotes/206934678/composite USB -2.52% and Wells Fargo jointly own Early Warning Services LLC, which runs the popular Zelle digital payments service, for example.

The COVID-19 pandemic accelerated the trend. About one in three consumers said they started using digital payment tools in the past six months, according to a late 2021 survey by JPMorgan Chase on banking attitudes.

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