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Xbox loans on Citizens Financial's holiday shopping list

An arrangement announced ahead of the 2019 Christmas shopping season could boost Citizens Financial Group Inc.'s already rapidly growing other retail segment.

Citizens Bank NA, in partnership with Microsoft Corp. and Amazon.com Inc., will be the U.S. financing provider for the Xbox All-Access program, which offers an Xbox One gaming console bundle with a 24-month subscription to a service that provides online access to a library of games and, for a limited time, the ability to upgrade to a new console due to become available in the 2020 holiday season.

Subject to credit approval, Xbox All Access customers can obtain a 24-month line of credit at a promotional zero-percent annual rate to participate in the program. The credit lines have a minimum balance of $479.76 prior to consideration of taxes, shipping and other charges.

The nature and term of the credit line is similar to the iPhone Upgrade Program that Apple Inc. unveiled in September 2015 in partnership with Citizens. That program allowed qualified Apple Store customers to choose one of the current generation of iPhone devices and get the opportunity to obtain a new iPhone annually. Currently, the program is available for various iPhone 11 devices with a 24-month, zero-percent Citizens Bank installment loan with payments of at least $35.33.

Period-end loans in Citizens' other retail segment surged over the past four years to $4.09 billion in the third quarter of 2019 from $976 million in the same period in 2015. During the same time frame, loans associated with the bank's more traditional credit card business expended to $2.13 billion from $1.63 billion. The year-over-year growth rates in the other retail segment have declined in recent periods to as low as 20.1% in the third quarter of 2019 from more than 50% as recently as the year-earlier period, but they still remain above those associated with segments such as card, automobile and education loans.

Citizens Chairman, President and CEO Bruce Van Saun said Dec. 10 during an appearance at an investor conference that upon his arrival in October 2013, the bank's credit card balance was "relatively small" for an institution of its size.

"But if we wanted to grow, we had to decide which portfolios could we grow. Credit card is a tough one to grow," he said. "It's very crowded, very costly, and [there is a] three-year payback. And so with returns where they were, we didn't think we could really go that route to try to get people to switch" through the sort of promotional offers typical in that business.

Instead, Van Saun said, "we looked for other ways to expand in consumer unsecured, which would get us a comparable risk-adjusted return to a credit card portfolio without incurring all the upfront account acquisition cost that it would take to grow in credit cards."

The Apple arrangement "really hit the nail on the head because we had to make some upfront investments in technology to build something that really worked for them," he continued. "But ultimately, once they turned the switch on, there wasn't that same kind of marketing expense that goes with acquiring customers through credit cards. So we're making a good equivalent to a credit card return there."

The new Xbox program is fundamentally similar, Van Saun said, in terms of the kinds of returns Citizens expects to produce. Plus it provides a "leg up" in giving additional exposure for various other Citizens consumer banking products and services.

"We can use our data and the digital capabilities to ... anticipate what [installment loan customers'] needs are and lower our account acquisition costs as opposed to digital direct marketing to people who don't even know us around [the] country," Van Saun said.

Consumer electronics companies, including Microsoft and Apple, have used a wide range of financing options to help drive sales.

Microsoft piloted the Xbox All Access program in 2018 in an offer limited to qualified customers through a Dell Preferred Account with WebBank. Those financing partners continue to offer various financing arrangements to Microsoft Store customers who purchase Surface devices, Xbox One X consoles and certain other products, including a Surface All Access program.

In addition to the Citizens Bank iPhone upgrade program, Apple offers promotional financing in partnership with the likes of Barclays Bank Delaware and Goldman Sachs Bank USA. Certain Apple Store purchases on the Barclaycard Financing Visa are eligible for interest-free promotional periods of up to 18 months; the much-discussed Goldman Sachs-issued Apple Card offers 3% cash back on purchases from Apple and a no-interest monthly installment feature to finance iPhone purchases.