Citizens Bank Insulates Against Economic Turmoil With Focus on Upmarket Consumers
Citizens increasingly wants more business from prime and superprime customers than a single loan or card. This strategy could pay off if consumer credit grows tighter.
By Steve Cocheo, Senior Executive Editor at The Financial Brand
Assessing the genuine mood of the consumer will be a challenge over the next few months. In the wake of the April Trump tariff announcement and all that had come before, Adam Boyd, EVP and head of consumer lending at Citizens Bank, says the best he can do is a split screen view.
"If you watch or listen to the news every morning, you would think we’re in a massive state of turmoil," says Boyd. "And some of the consumer confidence readings have shown some softness recently. There’s certainly some uncertainty."
That’s one screen. However, as head of a major consumer lender, and a leader in home equity credit, Boyd has his finger on an additional pulse: his own bank’s consumer lending portfolios.
"When we look at our actual performance data within our loan book, it doesn’t suggest any meaningful signs of stress among consumers," says Boyd.
He points to home equity credit, where demand is as strong as ever.
"We are actually coming off one of our strongest quarters ever here, in the first quarter, for home equity production," says Boyd.
He manages the bank’s credit card programs as well and sees no meaningful softness there, either, beyond a slight pullback in some discretionary categories such as dining and travel. "That’s been more than offset by growth in staples like healthcare and pharmaceuticals," says Boyd. He attributes some of that to inflation and lagging salaries.
Recession worries abound, and Boyd says he see the odds of recession as higher than they were, but still generally low. "That’s always something that we keep an eye on," says Boyd, adding that these days the news cycle changes from week to week. A substantial rise in inflation levels would also be challenging and impact consumer credit. "But right now, we’re cautious as always, but there’s no glaring signals that things are headed south."
Boyd acknowledges that two things are helping, and will help, Citizens through any period of turmoil.
Two Areas of Focus Set Citizens Consumer Credit Apart
First, for some time now, Citizens has focused on prime and super prime borrowers. Upscale consumers have enjoyed a degree of insulation from inflation’s effects.
"That’s largely been reflected in the overall strength of the credit performance of our consumer portfolio," according to Boyd. While the bank has focused here and there, he says, Citizens hasn’t engaged in any significant broad tightening.
A second, but also related, factor concerns how Citizens targets prospective borrowers. Over the last 18 months or so, the #17 bank has been re-focusing consumer credit on relationship lending, concentrating more and more on people who have — or could have — multiple relationships with the company.
The decision to begin refocusing the bank’s lending on consumers with existing relationships lay behind its decision in mid-2023 to exit the indirect auto lending business, for example. Likewise, the bank began withdrawing from the wholesale mortgage business later the same year. Neither business tends to generate deeper connections with the borrowers — the former relies on face-to-face contact with auto dealer credit departments and the latter relies on loan brokers who deal with applicants. No banker, or bank screen, in sight.
"We have pared back some of our prospect marketing activities and that sort of thing, which is less a credit-box parameter," says Boyd. "It tightens our focus on serving the needs of customers who have brought their deposit relationship to Citizens."
During the bank’s year-end earnings briefing officials spoke of the bank’s retail core deposit strength. Brendan Coughlin, vice-chair and head of consumer banking, said there was "nothing that I see that suggests that we won’t continue to outperform peers on our relative low-cost deposit performance."
In a sense, the stress on relationships is intended to stimulate a flywheel effect. "The more we can drive deep relationships on the deposit side, the more fruitful the audience will be for consumer lending," says Boyd.
The nature of a customer’s deposit relationship with the bank can influence credit decisions under the bank’s approach as well, according to Boyd. He explains that relationship data is weighed in cases where a consumer may not otherwise qualify for a loan, but whose deposit account balances suggest they are more credit worthy than a traditional credit score evaluation would suggest.
It’s not just the size of the deposits that’s valued, but the consumer’s engagement with their accounts, Boyd says.
"We’re looking for things like direct deposit and velocity of transactions," says Boyd. "Those customers are absolutely more likely to bring us additional business."
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How HELOCs Are Faring at a Market Leading Portfolio Lender
Citizens’ home equity line of credit programs illustrate how the bank likes relationship banking to work.
"For home equity, 70% to 75% of the loans we originate are to customers who already have a Citizens’ relationship. For the remaining customers, we almost always get a checking account opened at the time of origination of the home equity line of credit," says Boyd. "So, if you look at the relationship penetration, it’s north of 90% in that product."
Boyd says the first quarter closed up significantly over the year earlier. Origination volume — both in terms of number of accounts and committed lines — "will be up double digits on a percentage basis." Utilization of lines is averaging at about 40% initially, which he says is a hair over industry levels.
Granted, competition has increased in the home equity sector, including entrance by more nonbanks, including fintechs. The latter frequently require consumers to draw on the line immediately, often because the account is going to be sold or securitized.
"If you look at the league tables, certainly for other banks, there has been some erosion in origination volume year over year, and you’ve seen that offset by growth from some of the nonbanks year over year," says Boyd.
He says Citizens can price its HELOC offerings competitively because it funds its products on its balance sheet and portfolios the credits. This also permits the bank to be more flexible on draws, though Boyd notes that, in his experience, most HELOC borrowers want the credit for a specific purpose— home improvements, a second home, or to consolidate higher-rate consumer debt at a preferential interest rate.
Boyd believes that improvements in customer experience the bank has introduced to its HELOC program have helped it compete. When Boyd was interviewed in mid-2023 about the bank’s efforts, it was offering Citizens FastLine, which debuted in 2021. This uses digitization to make the HELOC process faster and easier, and was credited with helping the bank expand market share.
FastLine continues to be offered, along with a more mainline HELOC product, but Boyd says the experiences are becoming substantially the same because both products now use the same rails and processes that made FastLine fast and convenient.
"Those two experiences have converged quite a bit," says Boyd, with both customer groups enjoying the same prequalification portal and the same fulfillment process. "The majority of lines are getting originated very quickly with a high net promoter score, so it’s become more a matter of branding as opposed to a real experiential difference," says Boyd. A small part of the bank’s HELOC production comes through its GoalBuilder, a special HELOC effort for underserved borrowers.
Boyd Still Resists AI Credit Underwriting for HELOCs
One area where the bank’s approach has not changed: Boyd’s continuing resistance to using artificial intelligence for credit evaluation. He insists on human review of credit files and rendering lending decisions for HELOCs.
"I still don’t have any interest in using AI in underwriting," says Boyd.
Some aspects of HELOC processing are automated, but it’s not AI. He says at some point AI could be used for some of the manual backshop chores humans currently handle and for document review. Quality assurance and control could also be turned over to AI someday. He adds that there’s "nothing imminent in home equity" on the AI front.
Read more: Opportunity Grows in Home Equity, And So Does Competition
Relationship Lending Could Drive Evolution in Citizens Pay Product
Citizens’ point-of-sale financing program called Citizens Pay includes a form of buy now, pay later credit, offered as part of the bank’s payment services. As a credit product, Citizens Pay comes under Boyd’s management, as do the bank’s credit cards.
The Citizens Pay relationship is with the merchants through which the bank provides the payment/credit service, Boyd explains. On the consumer side of these transactions, the bank usually doesn’t have a customer relationship beyond that particular purpose, he notes.
"In the end, the customer is typically a customer of the merchant," Boyd says — not unlike the indirect auto and wholesale mortgage situations.
Citizens Pay is an exception to the bank’s retail-side relationship philosophy. Thus far, Boyd says, neither the bank’s credit card nor debit card programs offer any variation on buy now, pay later. He acknowledges that it’s an option more and more banks are adding to their card programs.
"We have some marquee partnerships within Citizens Pay, Apple being the most notable," says Boyd. And in past years, the point-of-sale program has grown quite aggressively.
This emphasis could change in the months ahead.
"As we’ve pivoted to more of a relationship focus, we are looking at ways to leverage the short-term, small-dollar financing business to better serve the needs of Citizens’ consumers, while continuing to maintain strong relationships with those partners that have been high-quality partners over the years," says Boyd.
BNPL in some form would add considerable convenience for both debit and credit card holders, according to Boyd, so the appeal is clear. Many of the nonbank BNPL providers typically serve customers who don’t fall into the prime and superprime customers that the bank aims for.
"If we were having this conversation a few months from now," he adds, "I’d probably have more to share on this front."
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