Engaging Gen Z - Crafting a New Era of Digital Banking

Jim Marous (00:00):

Hello, and welcome to Banking Transformed, the top podcast in retail banking. I'm your host, Jim Marous, Owner and CEO of the Digital Banking Report and co-publisher of The Financial Brand.

Jim Marous (00:22):

With their unique preferences, behaviors, and technological fluency, Gen Z and younger consumers are reshaping the landscape of banking products, channels, and engagement strategies.

Jim Marous (00:35):

With this in mind, how do banks connect with and build loyalty among the emerging Gen Z demographic? What technologies, products, and messaging matters? Join us as a true expert in the field, Brendan Coughlin, Vice Chairman and Head of Consumer Banking at Citizens.

Jim Marous (00:55):

Brendan has extensive experience in navigating these dynamic shifts, providing invaluable insights into this very demanding segment of the population.

Jim Marous (01:04):

So, what is so different about Gen Z? Why is it so hard to meet their needs when they're such a massive segment? Every financial institution is asking that question, the challenge is, what do we do about it?

Jim Marous (01:21):

So, Brendan, you're a longtime banker coming up on, I think, 20 years at Citizens Bank. A lot has changed its citizens and the banking industry as a whole over the last two decades. What are the biggest changes that you've witnessed, and how has your bank tried to adjust?

Brendan Coughlin (01:38):

Well, thanks Jim, and looking forward to the conversation here. I appreciate you having me on. I believe this is a bit of a seminal moment for our industry here and every two or three decades you get industry that navigates through such transformational dynamics that it sort of challenges the very core of why we exist and how you compete to win. And I believe that's what we're going through right now as a banking industry.

Brendan Coughlin (02:02):

And Gen Z is sort of leading the charge to push banks into different territory for sure. And it's no secret that our industry's been going through a digital revolution. And COVID exacerbated those trends by a number of years to really force the banking industry to make the easy things truly easy.

Brendan Coughlin (02:23):

But to me, when you think about digital banking, it's much more than just self-serve and using your phone. It actually is challenging the very reason why a customer says that they want to bank with you in the first place. And let me unpack that for a quick second.

Brendan Coughlin (02:40):

So, if you go back 15 years, customers used to pick banks and they would overwhelmingly answer why based on convenience. And to them, convenience was defined as physical presence, branches, and ATMs. Now, when you ask customers why they choose a bank, convenience is a part of it, but is no longer the overwhelming majority.

Brendan Coughlin (03:03):

And convenience, by the way, is no longer exclusively defined by physical presence, it's defined by the effectiveness of your digital capabilities. And it has actually moved from being your differentiator to table stakes. And by definition, if your definition of convenience is physical, you can only have one branch on a corner so it's differentiated. When your definition of convenience is digitally-led, it becomes pretty ubiquitous.

Brendan Coughlin (03:28):

So, the ways a bank's now set up to compete with one another are on mechanisms that are bigger and different than convenience. It's on value creation and differentiation.

Brendan Coughlin (03:37):

And so, this whole digital trend led by Gen Z is unlocking the need for banks to think at their very core as a very different business, where they're here to provide not just convenience and service, they're here to provide tremendous and different value than the bank next door. And so, banks really need to pull up and evaluate how they're doing that.

Brendan Coughlin (03:59):

And it's no wonder why when you look backwards in our industry, there are 5,000 banks plus or minus in the United States, and I think truly, it would be hard to say which banks are transformationally differentiated from one another. A lot of banks are very similar, and that's because they didn't have to be because they were competing on convenience.

Brendan Coughlin (04:18):

And so, it's really pushing us as an industry to truly look ourselves in the mirror and say, "What value am I going to now create that's truly, truly different?" And you can describe that to a consumer, particularly Gen Z, and that's how they're looking at us.

Jim Marous (04:32):

So, Brendan, when you look at the Gen Z, and really, just the younger consumer in general, what core needs and values define them?

Brendan Coughlin (04:43):

Well, look, first, I'd say Gen Z is getting to fairly heavy levels of scale. It's predicted that at least 4 million Gen Zers will open up accounts each year. So, as banks think about how they serve this segment and what they're asking for (to your question), it's important to first acknowledge that this is a meaningful part of our Citizens base in the United States now. And we really have to take this very, very serious and lean in hard.

Brendan Coughlin (05:11):

I would say starting number one, tried and true — Americans tend to describe themselves as not very financially confident or financially empowered, and they're anxious about the state of their finances. And I'm going to pull this thread a little bit more on digitization trends and why it's impacting this so much.

Brendan Coughlin (05:34):

10, 15 years ago, 20 years ago, people weren't all that close to their money. You'd go balance your checkbook on a Saturday, and then you hope that during the week nothing kind of went off the rails.

Brendan Coughlin (05:44):

With digital, not only is it self-serving, but now you have all this data and insight and information that we as banks can deliver to our customers day in and day out, to take that cognitive load away, make them feel closer to their money, make them feel more financially confident, make them feel more financially empowered, all at the palm of their hands.

Brendan Coughlin (06:05):

So, digital to me, is much more than self-service. It's about living your brand promise of making your customers feel more financially fit, help them get closer to their financials. So, Gen Zers number one, are demanding that, they're demanding more than just functionality in their bank. They're demanding advice, they're demanding help, they give us tons of data and information.

Brendan Coughlin (06:25):

How do we then translate that back to them that makes them live their life in a significantly different way? Whether you're spending more money than you did last month, we should tell you about that. Whether your gym membership's coming up on a Friday and you don't have the funds to cover it, so we nudge them to make sure they avoid an overdraft.

Brendan Coughlin (06:42):

All of these things are real time and very helpful to get customers financially fit. So, that's going to ultimately be table stakes on what this Gen Z generation expects from their bank, is more value day in and day out. Then how do you differentiate yourself further? It's going to be in the products, the services, and the value that you bring to them over the course of their life.

Brendan Coughlin (07:02):

So, other than just having a checking out, other than just having a mortgage, other than just having a student loan or a credit card, what is it that makes you truly different? Why do you exist as a bank and how do you bring that to life for them in a different way? And so, banks really need to answer that question in tangible ways that you can't just logo switch and all the banks saying the same stuff.

Jim Marous (07:20):

That's a great point because when you think about it, Gen Z is used to making decisions with a touch of a button, and they pick solutions that way. All solutions, not just financial, but even outside the financial services industry. Well, as you look at more fintech startups, you look at a lot of competition in the marketplace, Gen Z can make a decision to switch without you even knowing they've done so.

Jim Marous (07:45):

So, how do you gain the attention and trust of a generation that basically they can call Venmo their primary bank if they wanted to?

Brendan Coughlin (07:57):

I think that's a very important trend to keep our eye on. And at the end of the day, if you pull back up to what Gen Z really wants, it's connectedness and financial competence and empowerment in that seamless one click away. And so, what I think the FinTechs have done an excellent job of, is really trying to disrupt different parts of the financial services ecosystem.

Brendan Coughlin (08:19):

So, some go after the lending space and they're doing, whether it's personal loans or buy now, pay later. Some are going after some parts of the deposit ecosystem and creating day-to-day banking solutions. Some are going after parts of the mortgage ecosystem, or to your point, with Venmo, kind of peer-to-peer payments.

Brendan Coughlin (08:36):

At the end of the day, what none of those FinTechs really can do is bring it all together for the client in a seamless way. And so, the best defense is great offense in my mind.

Brendan Coughlin (08:47):

And so, if you're a diversified financial institution, and your mission in life is actually the sum of the parts, it's to bring together all of those pieces of your financial services wallet and create value that cuts across all of those point-to-point solutions that the FinTechs are disrupting — that's where retentive behavior can really come to life in a very significant way if you can do it well.

Brendan Coughlin (09:09):

And so, we look at the FinTechs and admire their speed, admire their ability to disrupt. And then I also pause and say, "As a banker, why am I not bringing that to life for my customers day in and day out?" The days of being complacent and just being able to win because you have the right branches in the right corners, those days are over.

Brendan Coughlin (09:27):

And so in order to continue to engage this generation and keep them with the bank, you have to constantly be on your front foot. You've got to be innovating, you've got to be challenging yourself every day. What did I bring to my customer base? What innovation have I created that made their life better from a financial management standpoint?

Brendan Coughlin (09:44):

And the second you don't have a good answer to that is the second they're going to actually get to distracted and move some of their relationship to another spot. So, it's creating a speed and pace of innovation in the banking landscape that I believe is really going to start to separate the winners from the losers in traditional banks. And without question, there's going to be less than 5,000 banks in the U.S if you fast forward five to seven years.

Brendan Coughlin (10:06):

And it is the ones that do this better that will be in the winner's circle and survive and get more scale, be able to invest more for their customer base. But you've got to have that innovation mindset.

Brendan Coughlin (10:18):

But personally, I believe that the banks, if they can do that, are significantly better positioned than the FinTechs who tend to have point-to-point solutions, and you can only disrupt and win in a sliver of their financial life versus being the sum of the parts and connecting those dots across for the client.

Jim Marous (10:34):

So, let's get down to the basics here. Citizens Bank, over the last several years, I've been watching them. We've had you on the show several times, and you're continually transforming banking as it used to be. You've done a lot on the digital space, you've done a lot of the innovation space, but you've also done a lot in targeting the Gen Z customer.

Jim Marous (10:53):

What are some examples of what you've done as Citizens Bank to target and engage Gen Z in the areas of things like products and branding and campaigns?

Brendan Coughlin (11:04):

We've done a tremendous amount, and thanks for the recognition of how far we've come. We went public separating from the Royal Bank of Scotland back in 2013 and '14, and we've been on a bit of a tear to really reposition this bank. And we've had that innovation mindset, and I'd point you to a couple of examples.

Brendan Coughlin (11:23):

Number one, back in 2012 and '13, which is quite a ways away at this point, but it still rings true as an innovation that we've created that's helped us acquire this segment. We got into the student loan business while everybody else was running away from it, coming off the heels of the financial crisis, and the government taking over a lot of the student loan market.

Brendan Coughlin (11:44):

And then we were first to market in the U.S., providing a student loan refinance opportunity. We sort of took a look at it and said, "Geez, well, you can restructure every other part of debt in America." But the way the Federal student loan program was situated, it didn't reward folks for getting a good job getting out of school, landing on their feet and then restructuring to better interest rates.

Brendan Coughlin (12:03):

So, we said, "Well, that doesn't make any sense, let's do that." And so, we've made it a mission to find these opportunities for tangible value creation for this segment. And we've acquired hundreds of thousands of customers through that program, helped us grow our business.

Brendan Coughlin (12:16):

But certainly, not a lot of banks are in that space. So, it's become a very distinctive tool for us to go out and acquire a newly graduated Gen-Zer to come into the firm in ways that we offer distinctive value that the bank next door does not.

Brendan Coughlin (12:29):

We then innovated in the buy now pay later space, which is a little bit of a toxic word these days in our industry. But we did it the right way. We've sort of been moderate and measured on our growth, but we went in and said, "Hey, look, Gen Zers ..." and at the time, the lower aged millennials were really a little distrusting in the card industry.

Brendan Coughlin (12:51):

And they're looking at it saying, "Geez, I can afford a monthly payment, but I'm not sure I can actually afford the full debt as it accumulates. And so, at some point, this product is structured for me in such a way that it's allowing me to get over leveraged."

Brendan Coughlin (13:02):

And that's where the buy now, pay later space popped up, is modernized layaway, modernized installments. I know what the payment's going to be.

Brendan Coughlin (13:10):

And so, we were first mover there, we innovated that in 2015we signed a relationship with Apple. At one point, we were financing upwards of 50% of iPhones across the entire country that were purchased and created what I think is one of the best financial services experiences in our industry. And the insight there was really digging into the millennials and the Gen Zers and saying, "What do they really want and need from a financial services institution?"

Brendan Coughlin (13:35):

And it was a combination of brilliant digital experience, married with great value creation around the product and the terms that we offered. And we created real explosive growth there. And since grown that business to firms like Microsoft and BJ's, and now, Peloton we announced a handful of weeks ago. So, we've really leaned into a modernized payment ecosystem.

Brendan Coughlin (13:54):

I'd say the other thing, aside from products and services is how you market to these customers. They very much are looking at brands to see what you stand for, see how you live and breathe in the communities that you operate in. And they're interacting with brands in different ways.

Brendan Coughlin (14:11):

So, we've totally modernized our marketing packages from just standard television advertising to get the brand out to being on forms like TikTok, a lot of direct marketing, really trying to figure out how to find these customers where they are and allow them to — we're a sponsor of Live Nation, the concert tour in Boston. There's lots of different things that we're doing to position the brand to be where this community is.

Brendan Coughlin (14:36):

So, the combination of that value creation through products and services and being forward-leaning on how we think about customer acquisition and branding has really paid a lot of dividends and we're winning the ground game. We're growing this segment faster than most other banks as a result of all that.

Jim Marous (14:52):

It's interesting, you talk about the credit side of the business, which really is a real bond builder for the Gen Z consumer. But to do that, and to do it deeply, you have to look at credit differently, you have to look at credit scores differently. You have to look at the value of the consumer differently.

Jim Marous (15:09):

What did your organization do to change what I call the legacy mindset of, "Oh, we want only A credit or B plus credit?" I mean, obviously, when you're looking at financing phones, you have to look at credit differently, you have to look at the consumer differently. What do you do internally to really transform the legacy thinking around the value of the consumer?

Brendan Coughlin (15:35):

There's a lot and it's a great question, and there's an enormous amount of innovation that happened in the credit side to be able to think this way. And what I would tell you is not specific to Apple, by the way, we don't really disclose any stats on them. But just our overall credit portfolio as an example on our Citizens pay business, which is our buy now pay later solution.

Brendan Coughlin (15:54):

In some of our relationships, we've got over an 85% approval rate, but our credit losses are about a third of a credit card. And so, we have done a lot of innovative things to ... FICO scores through COVID were inflated by a lot. So, you kind of look at it and say, "Well, I can't underwrite on FICO alone."

Brendan Coughlin (16:10):

And if you're a sleepy banker that's sitting around doing things the way you used to do 10, 20 years ago you're going to wind up with a lot of credit risk in your book right now that you didn't realize you had because of inflated FICO scores.

Brendan Coughlin (16:20):

So, we go look at all the data we have available. We see what credit cards they're paying, their free cash flow, we're looking at their trended FICO scores, we're looking at income, disposable income. Are you somebody that's living on the edge of your paycheck every week? Are you packing some away in savings? Those tend to be incredibly predictive. The things that you buy tend to be incredibly predictive of your credit worthiness.

Brendan Coughlin (16:40):

All of those things allow us to, in a traditional bankers speak, they'd say we could buy deeper in the credit spectrum because you've found a lot of other data and information that give you confidence in that customer that maybe you didn't have if you just looked at their FICO score alone, because they hadn't built up a credit history the way that traditional bankers would get comfortable with.

Brendan Coughlin (17:00):

And so, we haven't taken any more credit risk than any other bank (quite the opposite). We've got a super prime portfolio of credit, but we've been able to approve a lot more people because of the innovation on just understanding what you have available to you with this customer segment and being smarter and not kind of being stuck in the mud.

Brendan Coughlin (17:17):

I'd also say your question was on credit, but the connectedness across credit and deposits is important. A lot of that data comes from the information that we have on their payments and spending through deposits. And so, we've had to be innovative on the deposit product side to say the days of asterisk banking and gotchas around fees, and otherwise, it's over, it's over.

Brendan Coughlin (17:39):

You've got to simplify the platform, make it easy for them to bank with. So, we rolled out Citizen's Peace of Mind, which is our version of a 24-hour grace period on overdraft. We have an engaged customer experience. We never want anybody to be surprised.

Brendan Coughlin (17:52):

Like 85% of our overdraft fees, going back to the financial crisis, are now gone. And that makes our platform really attractive to the younger demographic that tends to live more paycheck to paycheck until they get on their feet. And then we did things like get paid early.

Brendan Coughlin (18:07):

So, on Wednesdays you get paid instead of Fridays. For many customers, that's not tangibly a value for them. For the Gen Zers, that's a huge value. And so, we've really reconstructed our deposit book and our credit book, and it's the sum of those two things that give us a lot of insight that make us confidently be able to prove more folks for credit than maybe some other banks that are looking at it in a traditional way.

Jim Marous (18:29):

It's interesting, I visited WeBank back in the beginning of 2020, and it was interesting because they built their business a lot like you did. They said, when we take the consumer base as a whole, and if we finance phones — and that was one of the areas they went after. And if we managed risk as opposed to avoided risk, we're able to go a lot deeper into the portfolio and get a lot more customers.

Jim Marous (18:53):

As a result, the loses weren't that great, but the overall portfolio was so much larger that as a percentage, they did a lot better. And it seems to be really along the line of what you've done saying, "You know what, we're going to look at risk differently, look at the consumer differently."

Brendan Coughlin (19:07):

We may not generate the $1,000 balances and deposits, but the consumer as a whole and our expansion of portfolio helps pay for that altogether. So, when you look at technology like AI, predictive analytics, virtual assistants, how do they play a role in providing both relevant insights and experiences for the Gen Z consumer?

Brendan Coughlin (19:32):

There's so many different ways that you can start to use emerging technologies to create better experiences for this consumer. And in many ways, we're just starting to scratch the surface on that. When you think about all the data that we have available, as an example on credit underwriting, most commonly, you jump to use cases that are customer-facing where you're providing value or insight to them.

Brendan Coughlin (19:55):

But some of this credit work that we've done, is totally behind the scenes, but we've created machine learning and AI to really digest and analyze a lot of the information that we do have to inform our credit models that ultimately just result in an approval rate that's much higher than we would've without that. So, this computing speed and pace that we are now afforded has really helped us behind the scenes.

Brendan Coughlin (20:17):

In the front of the business, we've done a lot of different things and we're starting to do more and more. So, you think about — we launched a platform called Citizens Insights. And so, now, we're taking all of that data and information outside of our credit context, and we're providing real time insights to the customer on their phone, all day long with all that data and analytics.

Brendan Coughlin (20:39):

And if they want to interact with us on it, they can click on it and chat with us through sort of an AI powered chat bot. And if it gets to a place where we need a human, it just clicks into a human. And so, it's the power of data and analytics then translated to something that's actionable.

Brendan Coughlin (20:52):

I'd say the other thing that maybe is not as talked about in the industry, is the cost-based transformation through some of this stuff can be quite compelling.

Brendan Coughlin (21:01):

And so, going back to our example of buy now, pay later and financing something that's $1,000, if banks didn't make a living doing that in a lot of ways because they were running their business model in a very traditional way from a lending standpoint, and the cost to do that was just too much to justify the revenue of doing small ticket financing ...

Brendan Coughlin (21:19):

You insert machine learning and AI and digital forward experiences on the front end, you could take the cost almost entirely out, and now, you've got a whole business and you're serving a whole new segment because of this technology and innovation that was otherwise unreachable before.

Brendan Coughlin (21:34):

And in many cases, in our buy now, pay later business, we'll just swipe your debit card or credit card. It doesn't have to be a Citizens one at all. That's all you need to do to get underwritten with us. No paper, no signing, no anything, no cost, no people reviewing it. We're just taking the information we get from your credit card, swipe, and you're done.

Brendan Coughlin (21:54):

And behind all that is, to your point, machine learning and AI models that are really helping us to sift this through, to give us confidence to do that. But the cost dynamic there is important because if we couldn't take the cost out, then we wouldn't have a business model that would allow us to lend in those spots.

Brendan Coughlin (22:11):

And so, there's a very big connected ecosystem, and we're just getting started, I think as an industry on how this can really help to modernize the banking landscape. Which by the way, the folks that are able to invest in this stuff more aggressively, tend to be the bigger banks.

Brendan Coughlin (22:29):

And so, you elevate all the way back up big picture and say there's 5,000 banks in the U.S., if these are important unlocks to the future of banking to really put some differentiation and innovation. I think the big banks have a materially competitive advantage to do this faster than the smaller banks which I think we're starting to see in the market share wars right now.

Jim Marous (22:50):

Well, what's interesting too and it goes beyond that, I think — I think it also goes into the leadership category. Your leadership has changed tremendously. You have gotten a lot of very digitally-focused, tech-focused leaders in your organization, and I think that really sets the stage for these transformations and the be able to reach new segments that demand this higher digitalization.

Jim Marous (23:13):

But when we look at digitalization, it's not just about doing things faster and easier for Gen Z, they also want to balance some human connection. How do you do that at Citizens?

Brendan Coughlin (23:25):

Yeah, you're 100% right. And you think about COVID, the shock to the system, not just in financial services, but retailing overall, that you were forced to not interact with physical points of presence. And it's been three decades, our industry's been talking about the death of the branches and when is it going to come? And it's going to come eventually.

Brendan Coughlin (23:48):

Well, if it's not going to come, when you're forced to not go, and then you ultimately kind of go back and reengage with physical presence, I think that tells you something that the balance in our industry, serving humans and digital in a connected way makes a ton of sense.

Brendan Coughlin (24:05):

And the analogy I give folks all the time is when I was — before COVID, I never got groceries online, ever. And through COVID, I had to, because everybody did. And so, I got used to that.

Brendan Coughlin (24:17):

But now, here we are in a post-COVID world, and I've got trained on the convenience of buying my basic groceries, my cereal, my milk, and my whatever. But if I'm having a party and I want to go have a bunch of people over, and it's important to me that I want to get the right steak or the right fish, I'm going to the supermarket and I'm going to pick it out with my own eyes.

Brendan Coughlin (24:34):

That's what Gen Zers and the industry is working through on banking, is that they want the simple stuff to be truly simple and digital, but they need to see the whites of their bankers' eyes for the big moments that matter. And so, we've innovated a lot in our physical channels.

Brendan Coughlin (24:52):

We know that if we do direct marketing as an example, even in digital to a Gen Zer, if we don't have a branch nearby, they're not responding. And so, they don't want to go in the branch every day, but they want to know it's there for them to bank with you. And so, what we've done is we've spread out.

Brendan Coughlin (25:07):

Instead of just having all one size fits all branch formats, we've got eight or nine branch formats now: hub and spoke, big ones with wealth managers and mortgage people, and then we've got mini ones with transaction centers. We've introduced 150, what we call ITMs (intelligent deposit machines) that actually have video towering capability.

Brendan Coughlin (25:27):

We've got cashless branches where you can just go in for advice, go in to do some basic stuff, and it allows us to just keep spreading out to serve more communities than we otherwise would have. Because the fact that there's a branch billboard there that shows the power of the brand and has somebody there for them to talk to is really important.

Brendan Coughlin (25:44):

So, we're committed to retail banking, but it's going to be in a very, very different way, an innovative distribution mindset, different formats, more technology even embedded in the physical stores, so our customers can come in and leverage the bank in a connected way.

Jim Marous (26:00):

So, let's take a short break here and recognize the sponsor to this podcast.

[Music Playing]

Jim Marous (26:03):

Welcome back to Banking Transformed. So, I'm joined today by Brendan Coughlin, Vice Chairman and Head of Consumer Banking at Citizens Bank. We've been discussing the importance of the Gen Z market to banking, and how Citizens’ banking is trying to offer better banking for this very engaged segment.

Jim Marous (26:23):

So, Brendan, Gen Z is known for their commitment to social and environmental causes. It's important for banks many times to align in the same way that the consumer wants you to align. How do you monetize this commitment, and how are you doing this at Citizens?

Brendan Coughlin (26:41):

I think at the end of the day, it comes down to a couple of pretty simple principles that I don't think are necessarily new. It's kind of just do the right thing. And that's what we're doing with our ESG agenda. I agree with you that more often than not, and certainly in an increasing way, the younger demographic is picking a brand for more than just the products and services offered. It's based on the purpose they serve in the community.

Brendan Coughlin (27:08):

And that can be defined quite broadly. ESG is part of it, obviously. What else do we do from a community service standpoint? Are we really committed to the areas where we work and support?

Brendan Coughlin (27:17):

And so, we've got a whole program around that, it's kind of core to Citizens DNA. Always has been. As much as we've changed and transformed the kind of community has been a core tenant of our brand that's very authentic here. We've broken records every single year in terms of how we volunteer in the communities.

Brendan Coughlin (27:33):

The ESG agenda is very important to us as well. And so, we've made a tremendous amount of progress. As an organization, we've rolled out some new products, particularly in the commercial banking side, green deposit offsets and wealth management. We've got ESG funds that allow you to invest in companies that are focused on cleaner energy.

Brendan Coughlin (27:54):

We've really, at the end of the day, in our small business and commercial segment, part of our role as an advisor, if you view yourself as an advisor, not just a banker, is for us to help our companies become greener that we bank and position them for their business model to sustain the test of time.

Brendan Coughlin (28:09):

So, as much as we want to position our own bank, it's incumbent on us as an advisor to help work our business clients through their own transformation. So, their business, they see the value in it and they can compete and win in the same ways that we're looking at it here.

Brendan Coughlin (28:23):

We've also looked a lot at in my business and consumer in mortgage. We've done a lot of things to modernize the programs that we offer to first time buyer programs and benefits and discounts that encourage cleaner energy and upgrading homes.

Brendan Coughlin (28:38):

Our home equity line of credit business does a lot of the same to provide capital out there, to reposition homes, to be more energy efficient and more green. And our auto loan business, which we actually just announced that we're going to shut down new originations, but we were on a bit of a journey to really lean in there and make sure that where we were putting capital out in the market, even though we're not manufacturing the cars, that it's oriented in a way that's really helping to put capital in places that's facilitating a greener agenda, whether it's EVs or otherwise.

Brendan Coughlin (29:05):

And so, we take it very, very seriously at Citizens and not just because it's popular and it's in the mainstream media, but because it's the right thing to do. These are things, this is where our country's going, and we want to make sure we're leaning in in a way that's productive and helpful to our communities.

Jim Marous (29:23):

It's interesting, it's not a social agenda, but the whole concept of what you've done as far as overdrafts and not nickel and dimming consumers, that in the mindset of a Gen Z is a good way to lose a business instantly. Because what happens is, they've tried their best, and if you're not a partner with them, they're very quick to react.

Jim Marous (29:44):

I mean, it's really interesting how getting the Gen Z consumer is very hard, losing them is very easy. And we trip a lot as traditional financial institutions because we have legacy mindsets around what this consumer segment represents.

Jim Marous (30:04):

So, when you look around you and other finance institutions, without mentioning names, what are the biggest mistakes or missed opportunities you've seen in the banking industry around reaching this demographic?

Brendan Coughlin (30:17):

There's a lot of shortsightedness. And if you just pull back and look at overdraft, to your pointif you did a business case on the benefits of having lower overdraft versus the risks, it all pays for itself, it just takes a little bit of time.

Brendan Coughlin (30:34):

And putting aside the right thing to do, if you just ... We're going to be relentless about financial impact, it's a three-year payback to say, "We're going to take less fee income in the short-term, but we're going to improve our customer acquisition, we're going to improve our retention, improve our deepening, all those are good things for the firm long-term."

Brendan Coughlin (30:53):

And you just have to play the long game, and make sure you're building a business that's fit for purpose. And so, that's how we looked at the overdraft innovation that we put in.

Brendan Coughlin (31:05):

And by the way, we've gone up 40 points in our net promoter score, and it's not just because of overdraft, it was a big piece of it, but our digital investments and otherwise, it's really paying a lot of dividends for the firm, long-term to position to be a winner with the younger demographic. So, these are things that are really important.

Brendan Coughlin (31:26):

And so, without mentioning firms, but I would say general statement is that when I see banks that aren't winning, it's because they've got this shortsightedness, is that they're managing their firm quarter to quarter, they're managing their firm without all the tools in the tool shed. That's typically the smaller banks. I actually have a lot of empathy for some of the smaller banks.

Brendan Coughlin (31:45):

For me, if I look at the economics of retail banking, they're under siege. And you've got overdraft going down. You got to get through this change curve. You got to invest a ton in technology, invest more in brand, you got to try to pull away some costs in the branches and reposition your formats. There's a lot going on there.

Brendan Coughlin (32:01):

And in order to make the economics go around in retail banking, you need to have deep relationships with clients. You have to have cross-sell into mortgage and cross-sell into wealth management and cross-sell into things like student loans and card. The smaller banks don't have all those products because those are scale products.

Brendan Coughlin (32:16):

And so, you see a lot of mid-size smaller regional banks kind of still holding onto overdraft because for me, I could take it down closer to zero, and I have to replace it with earning the revenue in more healthy and sustainable and durable ways. In wealth management, mortgage, and credit card, if you don't have those products, you're taking down your revenue and you don't have anything to replace it with.

Brendan Coughlin (32:39):

And soI do think this whole dynamic around overdraft in particular is going to be an accelerant around consolidation in banking, and the breadth and capabilities that you need to win with a younger audience, whether it's technology, investment, brand investment or breadth of products and services all really matter.

Brendan Coughlin (32:56):

But anyway, I would say the mistakes I see, one is unavoidable. The structural mistake of being a small bank and not having the breadth to compete. And then the attitudinal mistake of the bigger banks to be a little too slow moving, not invest in innovation, dismissive of the FinTechs, dismissive of customer trends and thinking that our industry is not going to be in this kind of two to three-year decade transformational moment.

Brendan Coughlin (33:19):

I think they can kind of live through the next couple years at their own peril if that's the mindset that they've got.

Jim Marous (33:26):

It's interesting, I'm almost seeing it — the worst scenario is a combo of both. A small financial institution that continues to look at banking the way we did back in the seventies and fifties and sixties. And it's really interesting because we're seeing some really innovative things being done by some small banks, but it takes a complete mind shift at the top of the organization to say, "We are going to do what we do really well, but we're going to have to do it differently."

Jim Marous (33:51):

We can't depend on we're the friendly bank, or we're your neighborhood bank, you have to do more. You maybe have to look at banking as a service, you may have to look at embedded banking solutions. I mean, we've seen some great stories, but you're right, if you're looking simply at the numbers game, it puts small organizations at a disadvantage unless they think of banking completely differently.

Jim Marous (34:12):

So, when you look at Citizens Bank, one of the things that financial institutions never did very well, but they kind of put their toes in the water, was around social media and influencer marketing. That's really important to the Gen Z consumer. How are you doing things different in Citizens with regard to the way you look at social media and influencer marketing in general?

Brendan Coughlin (34:36):

It is really important, and I think there's a lot of mistakes that banks can make. And I put it all in the same starting point, same category that we have a talent challenge in financial services that folks have been in our industry haven't been long well-known for being the most innovative. They're great at other things, but they haven't been the most innovative.

Brendan Coughlin (34:55):

And what sort of the doctor called for here is innovation and disruption to our industry. And that kind of flows through social media and how we think about marketing as well. And so, folks that don't have that innovative mindset, I've seen folks either just put their head in the sand like an ostrich. I've also seen folks say, "Well, let's do social media." And they just start doing posts on Twitter and Facebook, but it's inauthentic and ineffective.

Brendan Coughlin (35:19):

And so, at the end of the day, you have to acknowledge, I think first, that social media is good for a couple things. One is it has to be a listening post for your customers. So, they want to engage with you there, even if it's a painful engagement. And you can't just have stock brand answers. You're going to have to resolve issues via social media, talk to engage customers one-to-one, and have it feel like it's the same as them walking into a branch.

Brendan Coughlin (35:41):

We have to have that level of service standard through social, because that's particularly the younger demographic demands it.

Brendan Coughlin (35:47):

When you turn your mindset to marketing and using social as a customer acquisition vehicle, you got to recognize one thing, which is they're coming to social usually for either entertainment or news, they're not coming to be solicited.

Brendan Coughlin (36:00):

And so, for you to get their attention, you can't go out and social and think about marketing in the same way you do typical brand TV advertising on network television. You have to get the interruptive and get their attention, and participate in the media that they're in for the reasons they're in.

Brendan Coughlin (36:17):

So, that's where social media influencing becomes important. If they're there for entertainment, how are you partnering up with the right people that are going to be introducing your brand in authentic ways that doesn't feel like a marketing push. The second it feels like a marketing push, the second it's ineffective. So, we've done a lot of things like that.

Brendan Coughlin (36:34):

We've done various different creative strategies in TikTok to where we have various different influencers. We entered New York City, we bought two banks last year, HSBC's U.S. Franchise, an investor's bank. It was a great opportunity for us to introduce a new brand.

Brendan Coughlin (36:48):

We've used Eli Manning as a sponsor. He's been out in social media in a very authentic way talking about Citizens, but not in a marketing way. He's kind of showing, swiping his own card and just subtly getting our brand out there that people they trust, they see our card in their wallet.

Brendan Coughlin (37:03):

So, there's lots of ways to do it, but it starts with, I really do think from a marketing standpoint, a recognition that for you to participate while there, you can't have a traditional marketing mindset. You have to be in the conversation that they want to be in for it to have any chance to be effective.

Jim Marous (37:18):

Finally, Brendan, at the very beginning of the podcast, I mentioned the fact that we're all talking about trying to reach out to Gen Z and Gen Y and the younger consumer overall, but it's really a big difference between talking about it and doing it.

Jim Marous (37:34):

What advice would you give to financial institutions as to where to start? And it may not just be for Gen Z, it may be any segment that they're trying to reach. Where do they need to start?

Brendan Coughlin (37:47):

You have to have a test and learn mindset. Every organization is going to be different, and the world is just so much more fragmented and it's moving so much faster. And so, ways that used to work for us 18 months ago to attract Gen Zers don't work anymore.

Brendan Coughlin (38:03):

And so, when I started in banking, our marketing playbook was pretty standard and we did TV ads and we did advertisements in the newspaper, we changed our pricing, and it made a different. That doesn't work anymore. That mindset, those tactics certainly don't work, but that mindset doesn't work anymore.

Brendan Coughlin (38:19):

And so, where I would suggest people start is less specific on the tactic and more attitudinally in your mindset about how you're running the bank, which is you got to be agile, you got to be fast moving. You have to have performance management that's fast to understand so you can cut bait quickly, be okay with failing and try something new.

Brendan Coughlin (38:39):

And also, realize that you're not going to have any silver bullets. The market's so fragmented that one strategy is not going to have a dramatic effect to everything you're doing. You're going to have to have 30 things that work really well.

Brendan Coughlin (38:52):

And that's what we work through and we're constantly cutting things out. This used to work, it doesn't work. Go away from it. Let's test a new thing. It worked. Okay, we're going to pivot and do something different. It's just very diversified.

Brendan Coughlin (39:02):

And so, that's a culture that's not common in banks to have, we're risk organizations and we manage things slowly and methodically, but you got to have the ability to go fast and you have to marry that control with speed and innovation. And so, that's what I would say.

Brendan Coughlin (39:19):

But digital is obviously a big thing, but it's not always just digital. We're kind of back to some basics of gorilla marketing. Got to be in the community, go out where these folks are, they're not watching network tv.

Brendan Coughlin (39:30):

Go to the concert venues, go to new and interruptive ways where you can get your brand out in a way they've got just cognitive overload. We've talked about whether we should even be doing email marketing anymore. How many people actually read their marketing messages and email anymore?

Brendan Coughlin (39:45):

It actually ... Maybe your reversion back to your mailbox because you used to be overwhelmed with your junk mail, that's going away and now, you're overwhelmed with your email mail. So, where are you going to find ways that you can actually stand out and you just have to have that test and learn mindset.

Jim Marous (39:59):

Brendan, thank you so much for being on the show today. We're going to have you back again, because your organization truly has transformed itself through people and through leadership from, I'll say a rather state organization back in the day when I used to serve in the direct and database marketing area.

Jim Marous (40:15):

But really, it continually become dynamic. And you're right, it's test and learn. It's taking chances, but it also, it's a top-down mentality. So, great to have you on the show.

Brendan Coughlin (40:26):

Thanks a lot, Jim. It was real fun and looking forward to being back soon.

[Music Playing]

Jim Marous (40:32):

Thanks for listening to Banking Transformed, the winner of three international awards for podcast excellence. We appreciate the support we've received since we made this endeavor a success over three years ago. If you enjoy what we're doing, please take some time to show some love in the form of review.

Jim Marous (40:49):

Finally, be sure to catch my recent articles on The Financial Brand, and check out the research we're doing for the Digital Banking Report.

Jim Marous (40:55):

This has been a production of Evergreen Podcasts, a special thank you to our senior producer, Leah Haslage; audio engineer, Chris Fafalios, and video producer, Will Pritts. I'm your host, Jim Marous.

Brendan Coughlin (41:07):

Remember, if you win Gen Z, you win the future. If you ignore Gen Z, they'll never forget.

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