Citizens Financial Group, Inc. (CFG) Earnings Call Transcript & Summary

Thank you. We're going to get started now. I said earlier, Nancy Bush is not here this year. And she was the only 1 that laughs at my jokes the last couple of years, so I'm going to instead go to a fun fact. Currently, there are 233 active insured banks with Citizen or Citizens in their name or in their name at one point in their history. Incredibly, there are 856 inactive banks that had Citizen or Citizens in their name during their history. So this kind of highlights the number of financial institutions in the U.S. So today, we're here to talk about Citizens Financial Group. Citizens is the 14th largest bank in the U.S. with close to $190 billion in assets, a market cap of $21 billion. Estimated revenues in 2021 of $6.6 billion, with almost 1,000 branches spread across 12 states and a couple of pending acquisitions. Company's revenues are well diversified with 30% fee income, 70% net interest income, thereabouts. In the third quarter, the company posted ROE of 9.7%; return on tangible common equity, 14.1%; ROA of 1.1%. Stock trades at 0.95x book, 1.45x tangible book, 10.9x 2022 earnings and has a dividend yield of 3.2%. So we're really thankful today that we have Brendan Coughlin, Head of Consumer Banking. Brendan joined Citizens Financial Group 15...

17 years ago.

17 years ago, time flies. 17 years ago. Brendan is responsible for both national and regional banking included -- including retail banking and distribution deposits, credit and debit card, consumer lending, mortgage, business banking, wealth management and Citizens Access. So we're looking forward to a really interesting update on a lot of initiatives that are underway at Citizens. Thank you.

Great. Thanks. Good afternoon, everybody. I guess there's a lot of Citizens banks in the U.S. but only one you should really pay attention to. A lot going on in our industry and certainly a lot going on at Citizens, and in particular, the consumer bank. So I want to give you a pretty comprehensive update of all things consumer banking, where we are, our journey and some of the key things we're doing that we think can drive very distinctive growth for Citizens as our consumer banking industry transforms right before our eyes to a digital-first model. Let me hit a couple of key points, give you a little bit of background, then I'll get into some of the forward-looking strategies we've got to really further accelerate growth of this franchise and lever some of our emerging capabilities and real distinctive parts of the company. You all, I'm sure, are aware of our journey, I mean, since our IPO. We've been through a tremendous period of change and the consumer bank is dramatically repositioned. We've laid out a number of initiatives, which I'll hit on today. They're going extremely well and tracking to plan. We are really investing and repositioning our business model to digital-first and we're well on track for that. We've got some distinctive parts of our lending business, in particular, that I would put up against any bank in the U.S., and a dramatically repositioned deposit franchise from the last time we were in low rates, which I'll share about. And I'm going to talk a little bit more about 3 or 4 very key initiatives that we've got at the bank that we believe have real potential to drive breakout performance for this franchise over the long term. We think we've got a lead in some cases and a competitive advantage in others, and I'll share some details with you on that in a second. First, just a little bit more background. Citizens is a bank that has gone through as much, if not more change than any bank in the top 20 over the last 7 or 8 years since we went public. Emerging from the ownership of RBS, we've dramatically repositioned the bank, made a ton of investments, and the bank is really starting to fire on all cylinders. So I won't go through every last bit piece of the slide, but let me just give you a couple of high points, the from and the to. When we went public, we were a traditional foreign-owned bank. We were having struggles growing. Our customer experience was subpar. We've completely changed that dynamic. We've got top quartile household growth. Our message is winning in the market. Customers are voting with their feet. We're growing share faster than most peers. And our customer experience is rapidly improving, so it feels like a very different bank. We're a very traditional, honestly, sleepy regional bank. We had a regional presence that was very brick-and-mortar-focused. And here we are 7 years later, dramatically repositioned, a national franchise, great growth potential, a lot of digital-first businesses, one of the first to market with a digital deposit platform. All of our lending businesses, for the most part, are digital-first and rapidly growing across the U.S. So we're breaking down the shackles of brick-and-mortar tying us to where our revenue opportunity is. And really our ocean to fish in is now the broad United States, and we're working on how to integrate that, which I'll share. Our lending capabilities, I think, is really one of the -- at the enterprise level, one of the bright spots of this franchise. We've made massive investments here, and it's one of the most distinctive parts of Citizens, whether it's our market-leading position in student loans, our emerging capability in buy now, pay later, which we actually started in 2015. Obviously, it's a hot topic for our industry now. This is a space we've been in for a while, well-controlled credit, strong growth with some of the world's biggest brands and a massive investment in mortgage, both organically and through acquisition that really helped us with distinctive revenue growth to really show the diversity of our business model at Citizens through a variety of rate cycles. We had exceptional PPNR through COVID. Most companies did, but I think distinctively, Citizens did, in large part, by the investments we made in the mortgage business. Our deposit franchise, I think about where we were prior to going public, which I'll share some stats, but it just is a totally different platform. We're rebalanced completely to low-cost deposits, which is driven by customer health and primacy, which is, in my mind, one of the strongest bellwethers for future growth for retail bank is the healthier low-cost deposit base, which is built on the strength of your customer base, which I'll share. Big investments in wealth. And then you can kind of see some of the financial improvements below on the profile of the consumer bank. So big picture, I look at all this and say, we've dramatically repositioned the bank. We're poised for our next phase of our journey and we have a lot of momentum. We have a running start here at the franchise, confidence in execution and a track record that's been demonstrated since we went public. Our next page here, just a little bit of a recall. What are we trying to do here in the consumer bank? Really, our vision is to be our customers' trusted financial partner through their life's journey. That seems like a platitude but it's something that really runs deep to the franchise to be an advisory-based firm, not a transactional firm. And we really have -- while we're a network bank and we focus on all the communities we serve, our investments and where we put our strategy tend to skew mass affluent and affluent in terms of the customer base, and we have an outsized share in those customers which provides a great opportunity for cross-sell. We've talked about a couple of initiatives publicly in the past and which we're still very committed and focused on. End-to-end digitization. We have a full program to fully digitize the bank and develop a mobile-first platform across our franchise. That's going quite well as part of our TOP 6 program. We've already delivered upwards of $50 million just for this program alone in in-year benefits in 2021 and that's projected to scale. We're making major investments in national, which is a combination of finding new revenue streams, but also a full tech modernization and replatform of the bank, which I'll talk about. And we're really starting to focus. We've gone through a great growth period. We're connecting all the dots now across our businesses to be much more customer-centristic and develop a philosophy and a strategy around deep customer relationships. Not only does that sound good, it actually provides great financial opportunity for lower-cost acquisition, lower credit charges, lower cost of funds. If you get that business model right, the rest tends to work. I'm going to share a little bit about how things have been going. So this is a bit about our distribution strategy and what we've been up to. What you'll see, if you look at our net branches, is that we're closing branches at a bit faster clip than the average U.S. regional bank. And that's by design, and it's led by our confidence of our emerging digital capabilities, that you need less physical points of presence, the transactions come out, they go mobile and what's left is a branch network that's repositioned towards advice. So we're ripping that expense out and reinvesting it in the franchise for future growth. And what you're seeing on the top right is it's working. Our customers are engaging rapidly with a digital-first model, which is giving us more and more confidence that we can take a more aggressive swing at the bat around pulling fixed expense out and replacing that into the franchise through marketing, through digital capabilities. And a lot of banks, you'll see the digital engagement metrics moving. Really, the money conversation to me is at the customer level. Are you getting more customers and are you driving scale? And what you see here is that we're winning. We're getting a huge uplift in digital origination. So our customers are engaging with us. They're buying things from us digitally. That's a reflection of our effectiveness of our marketing and our data and analytics. And you look at the customer growth. This is a very distinctive part of Citizens. The green bar actually has top quartile customer growth across the U.S. as it relates to brick-and-mortar franchise growth. Household growth is very, very strong. The dramatic acceleration is coming outside of our footprint. You see this breakout performance where this company went from, call it, 3 million customers to now well over 6 million customers in a short period of time. That provides an enormous revenue opportunity here and now for the customers that we're growing but deepening going forward. So our distribution strategy really is starting to work and work at scale. And in some ways, we feel like we're just getting started. We've made massive investments for the future of this franchise. This is not a company that's sitting on our hands. We're very committed to a customer-first model. And across all of our distribution points, which we're very, very committed to, omnichannel being the lead, mobile-first but consistent experience all the way through the channel stack, we've repositioned each and every one of our channels. So we're about 60% of the way through our mobile transformation, which is to essentially build a branch in your pocket, that anything that can be done in the branch can be done on your phone. We made a major investment in technology to replatform about 18 months ago. It's going quite well and now we're building capabilities. Our ATM channel has been completely overhauled. We've invested in the technology, the infrastructure, and our customer experience scores have leaped us up the league tables well above average in ATMs. And now we're starting to test some innovative things like ITM, where we're doing virtual tellers to replace brick-and-mortar with an in-person sort of hybrid human experience where you can actually interact and buy things through ATMs, not just get cash and deposit money. So we're really innovatively thinking about our distribution, all with the lens towards repositioning our expense base so we have enough financial wherewithal to play offense with marketing and digital. And in our branches, if you're successful in digital, your branches next need to look differently. You need to have different people. They need to be more impressive. And we've made massive investments. They are self-funded through Project TOP to reposition our branches to be impressive-looking and the type of place you want to come into for a mass affluent or affluent customer to get that kind of advice from a bank that you'd require. So we find our customers are now coming in a couple of times a year versus every Thursday or Friday, and the experience that they need to have is quite different from what it might have felt like 5 years ago. So a handful of points on here around other advancements we've made to drive our customer experience scores north. We've got quite a bit of momentum here. I wanted to spend just a second on Citizens' peace of mind. There's clearly a lot of debate in the industry around the future of overdraft charges. It's been a line that's been under pressure across our industry for an awful long time. And so we made a call, we just launched in October a very innovative and top of peer set aggressive move in overdraft reengineering. So what peace of mind is it's essentially a way to have a 24-hour grace period with your consumer. So if they overdraft, we're going to give them a full business day to cure, put deposit back in their account and avoid that overdraft charge to get sort of back on their feet. So we built a full advisory service around that to really be helpful for our customers. And what I'll tell you is from a financial standpoint, it's an absolute no-brainer if you take a sort of a 3-year lens on it. Of course, we lose some overdraft fee income in the short term but you gain that back in spades with customer engagement, lack of attrition, operational cost reduction and cross-sell and deepening. And we're already seeing -- we're only a month in, our call center volume is down 25% for overdraft customers, so the operating expense is coming up, our engagement is up. It's too early to tell around customer attrition, but all the early indicators are quite positive. And from a financial perspective, the timing was just good for us because overdraft had been deflated artificially through COVID and all the stimulus. So basically, what this movement will do is it's opportunity cost of the bank, not reinflating the overdraft line, so we expect it to hover right around where it is now for the foreseeable future as we take that opportunity cost, reinvest it back into the franchise to play offense on long-term customer centricity, NPS, lower OpEx and better deepening and cross-sell. From a distribution strategy perspective, being a regional bank at our core and then having a national bank that we're building digitally, the way we're looking at distribution is in 3 chunks. And it's based on density. So our traditional regional footprint of having a dense market where you're driving deep market share and primacy, no changes there. We're a mobile-first model, deeply committed to the brick-and-mortar, but repositioning that to advice and thinning it up. We've got some thin markets, some of which we bought, some of which we had. We're going to put a digital-first layer in and really try to reimagine the future of distribution and create a lot of various different ideas and pilots on how we go to market from a marketing perspective. Think about Washington, D.C., a market we just bought with 10 branches. There's a lot of creativity we can go to that market with to say we've got a relatively thin platform but a digital-first layer in and really try to find a model that allows for less physical expense and more marketing and digital expense and get real customer growth. So we've got a lot of thoughts and strategies on that. And then lastly, a digital-only distribution model, which is other parts of the U.S. where we're not yet aiming to be the customer's primary bank, we're aiming to be one of their lead financial partners. So get very, very good at doing life event banking, mortgage banking, student loan banking, Citizens Pay, et cetera, home equity banking. We're building a platform around young professionals. Our product set, whether it's student loan refinancing, student loan in-school payments, home equity, mortgage, all of those lend themselves to young professionals. And so we're integrating those capabilities and competing in a digital-first way to try to bring those products and services together to create a real banking platform versus monoline product competition in the marketplace. Last thing I'd say on this slide is just below. Our technology strategy is well underway to modernize the company. And when I think about the investments we're making, we're replatforming part of the regional bank. We're building a mobile-first national bank, but we're doing it in such a way that in a couple of years' time, we're going to have 1 forward-leaning digital-first cloud-based technology architecture to the organization where the regional bank and the national bank converge into 1 platform. And that's where we expect a bit of a financial transformation around our technology architecture. So that's underway as well supporting our distribution thinking. Lots to talk about on loans and deposits, given stimulus and economic backdrop, but here's what I'd tell you, a couple of key messages on how we're doing. On the deposit side, you can see some data here. It's a little bit of a longer runway intentionally because that's, I think, the right way to look at the health of our franchise. When we first went public, it was in an equally low rate environment. You see our cost of funds in the consumer bank at 26 bps. We're at 6 bps today, and that's by design and with a lot of hard work. And so what drives deposit transformation like that? An enormous amount of work on growing customers, growing households and driving low-cost deposits. How do you get low-cost deposits? More customers who put their direct deposit with your bank and consider you primary. What comes after that? If you're their primary bank, you're more likely to get their home equity, their mortgage, their wealth relationship. And so these are great bellwethers for the franchise on long-term revenue, but we also have supreme confidence that the franchise from a deposit perspective is in a position to have a much better controlled deposit beta when rates start going up. Much heavier penetrated on low-cost and low interest-bearing deposits, which very obviously has a lower beta. So we feel really confident this franchise is well positioned to, at a minimum, be in the pack in terms of deposit betas where the last up-cycle, we were pretty far outside the market, which all provides opportunity for the future performance of this franchise. On the lending side, given the diversity of our business model, what you've seen from us is outsized growth in the consumer space versus all of our peers. And we think that will continue. You can see the annualized growth rate over the last handful of quarters. We had hoped it would be more. And what I would tell you is our originations platform is firing on all cylinders. We posted record originations across every asset that we originate in the market. In fact, some of our businesses are jumping up the league tables quite quickly. We think we're actually #1 in the country on home equity lending. Every single asset, with the exception of personal lending, grew last quarter on the balance sheet, which is a very different message than you're hearing from others. And I would tell you, that's despite the backdrop of the enormous amount of stimulus and elevated paydowns that we're seeing that are holding us back. So on a quarterly basis, we're seeing, call it, an average of 2.5% to 3% spot loan growth despite all those headwinds we're facing on the amount of stimulus and liquidity in the market. And we believe the originations pacing has great legs to continue. Time will tell as the stimulus burns off on when the headwind disappears and we can actually further accelerate loan growth, but we feel very, very good that in the short to medium term, the pace of loan growth that we're getting now is sustainable, and you'll continue to see outsized loan growth from Citizens, given the diversity of our business model, our competitive position in student, our growth in Citizens Pay and the strength of our mortgage business. So anyway, we feel good about that. I want to move a little bit into some of the distinctive parts of our growth story looking forward and where we're uniquely focused and I think we have a competitive advantage against our peers. The revenue opportunity for the following 4 initiatives that I'll share with you is quite big. We think over the medium term, it could be as large as $1 billion in revenue, potentially larger on an annualized basis. And I'll walk you through some of these, I'll give you a little bit more context. So number one, we just bought HSBC and Investors Bank. The integration work is going quite well, and we're getting very confident in our ability to snap in those franchises and then start to grow them. So what gives me confidence that we can grow these franchises going forward? Well, first of all, in the deal model that we put together for these franchises, we did not assume a lot of revenue uplift. The math worked on its own of buying deposit-heavy franchise in HSBC, a lending heavy franchise with Investors, putting them together, the relative low premiums, the deal math went around and they were financially accretive on day 1. So we didn't need to load it up with revenue, but our eyes are set on a bigger price. And we've got a team of folks aggressively working to reframe these franchises and position them to compete and win, particularly in Metro New York. What I'd tell you is you look at the little Harvey Ball assessment. The strength of the capabilities that Citizens has is markedly better than the strength of the combined franchises that we're buying. And that's a good thing because there's a huge amount of revenue potential. For us to deepen with those customers, provide home equity, provide student loans, provide our mortgage capabilities, provide our wealth platform into these customer bases is quite significant. I would also say the productivity coming out of the brick-and-mortar franchise on what we're inheriting is a bit underwhelming, but that was embedded in our deal model. So we've got a lot of confidence that our playbook around marketing, data and analytics, the track record that I just shared with you about us driving outsized household growth, that is all available to us in these new markets and can drive a material uplift in revenue for us over the medium term if we can execute and compete to win in these franchises. Obviously, it's a very competitive market. New York City, in particular, all the big banks are there. But keep in mind, a lot of the banks that we compete with and win against today also operate in those markets as well. And so we've got a demonstrated track record of taking share from some of those players and we expect that to continue. I would say, roughly, we think the acceleration of revenue that can happen in these markets is plus or minus twice the rate of growth that we typically get out of the Citizens' franchise on what we're inheriting. So we're really excited about the capability that we can bring to the table and, over time, really drive up some of the revenue potential. Next one really is our Wealth business. We've talked a lot about this in the past. I really believe our Wealth business is trying to -- is beginning to hit its stride. So you can see on the top left, the growth rate that we have over the last little bit of time here on AUM from $14 billion to $22 billion, 50% growth rate over a couple of years' time. And what you're seeing from us is, call it, about a 15% fee income growth rate on an annualized basis in the past, and our inflows are significantly accelerating. Our AUM inflows are up 2.5x versus what we saw last year and approximately similarly from what they were in the years past. So what's driving that? We're making some major investments. First of all, I've completely restacked the leadership team. Our new CEO of the Wealth Management Group was the CEO of TIAA Wealth Management and Insurance and has run a much, much larger and more mature shop, that was really built on financial planning, long-term advice. So we're making the pivot from bank broker-dealer to deep embedded financial planning-led wealth business. That's the long game, but we're making great inroads and we're starting to see the AUM line really gear up. When you look at the opportunity in the franchise, you can see this pie chart on the left. Despite the growth, our Wealth business is approximately half the size it should be on a per capita basis versus our peers. So we think we've got the right capabilities built. We certainly have the opportunity in our customer base. Our customer base leans mass affluent and affluent, and it's all going to come down to execution, and we're starting to see those signs of the strategy working. So this is -- and we've been very public about us going out and also trying to supplement with M&A. I don't think we need M&A to continue to get double-digit annualized growth rates out of the Wealth business, but we'll certainly be on the lookout for those to further accelerate it from an underlying double-digit growth to hopefully something much bigger. So we've got a lot of confidence in this. Obviously, Wealth is highly accretive for our ROTCE and a big part of our story to hit our medium term and then hopefully exceed our medium-term outlook over time. Citizens Pay. A lot to do in this part of the industry. We've got a lot of momentum here. We were first to market in really building this business out in 2015. You can see some of the growth rates that we're seeing with this business in the past. The market is growing at about 20%. On the bottom left, we're really starting to rack up a lot of wins with big impressive brands. This business is -- has been successful in winning relationships with the world's biggest brands in the U.S.: Apple Microsoft, BJ's and so on and so forth. But this last year has been a moving year for this business. We went from 3 or 4 partnerships to over 20, well on our way to over 30. We've got a couple of more in the pipe for later this year, including 2 more Fortune 500 companies that we're going to work with from a Citizens Pay perspective. And we're levering this as fuel to grow the national digital bank as well. So I've got confidence that all the early indicators are here to really start to grow this business. It's obviously a place we're being very careful on from a credit perspective, and we can talk more about that either in the Q&A or after, but we've got a lot of good underlying momentum. It's really competitive. The biggest risk to this business is that the fintechs are bidding away a lot of these deals and driving the price down. And I've been very public to say we're not going to chase this thing off a cliff. We're going to keep our financial discipline. This is a business that's going to have ROE accretion to the top of the house. And if it has to moderate our growth, so be it. But we think there's a spot for us to play and win. We've got a demonstrated track record of that, and we still see the momentum building in the business. Lastly, our national digital strategy, making sure I'm at the right page here. This is a spot that probably has the greatest long-term benefit for the franchise to break out. So I already mentioned what gives us -- so what gives us the right to win here? First of all, we don't have a standing start, we've got a running start. The national franchise is growing at a clip that's much, much, much faster than a regional bank. And what we have here is the sum of the parts are going to equal greater than them individually. So we're bringing together the breadth of our student loan business, our mortgage business, our Citizens Pay business, Citizens Access and deposits, putting a customer experience wrap around -- against young professionals and trying to really drive distinctive customer acquisition growth and deepening and the potential is quite large. So over the short to medium term, we see it as a new revenue source for the franchise. Over the longer term, think about the tech transformation and how that can really transform the bank's efficiency ratio as we build a modern cloud-based core with a digital-first UI that can reverse merge back into our regional bank and ultimately replatform the bank in a way that allows us to be much more aggressive over the long haul around taking down branches and competing in a consumer direct digital and marketing-led way. So that's a 3- or 4-year path to get to that full tech transformation. But in the short term, what you'll see is a steady pulse of new capabilities put in the market. You can see a little visual on the bottom of this page. Later this year, we're going to announce a storefront where all of our products and services, mortgage, student loan refinancing and our deposit platform is snapped into this integrated value proposition by which we will build from it over the course of 2022, including accelerating our scale by putting the HSBC direct online bank into this platform to further accelerate growth. So we've got good momentum here, and we're confident about both the short-term ability to execute and the long-term potential. So just wrapping up, just hitting on a couple of points. Look, I think we're executing really, really well. I think it's the strength of Citizens. When we say we're going to do something, we do it. And we've been executing really, really well over the last 7 years. We've shown the ability to dramatically reposition the franchise. We're now -- our foundation is very, very strong. We're entering the next phase of our journey. We've got the right DNA, and we have enough irons in the fire for distinctive growth that's very different than what you're seeing from our peers, that we have got a lot of confidence that we can continue to drive outsized revenue growth, outsized loan growth, continued growth on fees with wealth that will ultimately lead to improvement in ROCE, continued operating leverage, continued customer household acquisition and a reposition to a digital-first, winning franchise in the consumer space that can sustain the test of time. Again, these initiatives that we're looking at, we believe, have the potential for, distinctively, $1 billion or so in revenue growth over the medium term. And some of that's embedded in our medium-term outlook. And if we execute incredibly well, has potential to be even more than that over the long term. So with that, I'll wrap and we can go to some Q&A, John.

Thank you. That was great. I think I will throw out -- I have a number of questions. I think I'll throw out a few and then open it up to the audience to make sure that everyone has time to get in some questions. I guess the first one is that you mentioned a number of revenue opportunities, New York, New Jersey market, wealth, the National Strategy Systems Pay. Appears to be a meaningful revenue uplift which you addressed. I guess, what gives you confidence in achieving that uplift? And how does that relate to the medium-term targets?

Yes. Look, I think we're still holding firm on our medium-term targets. We had to deliver those before we think and would guide to anything higher than that. I've got confidence from -- but I do think there's -- if we execute incredibly well against those over the medium to long term, there's enough revenue potential in those initiatives that ultimately would suggest that potentially over the long haul, we can drive our performance even higher. But we got to execute well, so we're going to keep our head down and make sure we can get through delivering our medium-term targets first. But there's a lot of low-hanging fruit. I mentioned New York and New Jersey. We built in almost no revenue uplift into our deal model. So just getting the branches that we're buying to 80% of the productivity that we typically get from a Citizens branch should provide a lot of revenue growth that's not embedded in our underlying financials. Similarly with wealth, staying the course of just continuing to execute, we're already showing. You can see it in our quarterly results: steady, consistent progress and a built-in annuity stream of fee income that really continue to build out the diversity of the franchise. Citizens Pay and National are the ones that have more risk but a lot more rewards. And we're going to stay disciplined but aggressive in those spaces on how we want to reframe the franchise. I would look at those as much more transformational but much more long term in terms of how we're thinking about the positioning of the franchise over time.

You mentioned the acquisitions in Greater New York City and the opportunity. And I guess, what are the aspirations of the bank in terms of what you could be there and how do you achieve those? And how do you have confidence considering that market is heavily banked already?

Yes. Well, I think a couple of things. So day 1, we're going to be a top 10 bank in Metro New York, when we have both of the franchises snapped in and integrated. In fact, we're probably at about 8 market share. So we're in a position of relative strength despite, honestly, the lack of TOP and peer set productivity coming out of them. So when you look at that and say, all right, across the board, every product capability, every service capability that Citizens offers is better than what we're buying, that gives me a lot of confidence that if we just execute on what we've already demonstrated we can do in other markets, we can win. We already have some customers in New York. We know our student loan product resonates with people in New York. It's a young professional market. One of the most -- one of the things they want to do the most is refinance their student loans. We're uniquely positioned to take share, use that product to bring them into a brick-and-mortar network. It's one of the things that we haven't been able to do to our full potential is cross-sell on some of those businesses, partly because we didn't have the brick-and-mortar franchise to round out the relationship and now that we'll be there.

You talked about the national digital strategy. I guess I had 2 questions. I guess, first, were you suggesting that at some point, the core of the bank will basically be the core -- the existing core of the digital banks?

Yes.

Everything else would be -- okay. And...

Yes. So we're in pilot mode of a full cloud-based modern banking platform. So moving away from old mainframe -- and banks really have 2 choices if they want to be a winner in the long run. Well, they've got 3 choices: do nothing, and that's dangerous; open heart surgery and fully modernize your regional bank by unplugging all kinds of things. The problem is when you put in a new modern cloud-based core, it's more complicated than open heart surgery because all the veins and the arteries coming into the platform. The new platform is not wired that way. So I've seen a lot of folks stubbing their toe on core modernization is because, fundamentally, you got to reengineer the whole bank. The third one is the path we're going, which is build a new greenfield with the national bank and allow us to continue to modernize at the top level, the customer experience level and the regional bank, and then pour it all over. And that will really -- has the potential for a real step change in performance for the franchise. So that's the goal. Realistically, that's 3 or 4 years away before you can fully build a tech stack that's ready to port over 3.5 million customers.

How does the digital -- the national digital strategy complement the regional banking operations?

Yes. So from a technology perspective, we're not building them in a bubble. We're looking at the 4-year out vision of one national bank fully integrated. What we're doing in the regional bank is we're digitizing processes that don't necessarily require a full reengineering of the mainframe core. So all the things that we're doing on the regional bank are portable over as we blend these 2 together. And on the national bank, we're starting at the bottom of the stack. Big investments on breakout transformation on the underlying technology and capabilities. As we think about products and services that support both of those parts of the franchise like student loans, we're not going to build 2 student loan companies. We're going to integrate our products in a similar fashion in the regional bank and the national bank, so it makes it easier to bring it all together. So they're very supplemental. We look at National as a giant new revenue pool for us to fish in, where we have a running start, a demonstrated track record of success. But by integrating it together, you got a better chance of getting cross-sell and taking marketing acquisition cost off the table and driving quicker profitability.

Okay. Last one for me was what are your thoughts on why buy now, pay later has become so popular in recent years, and where do you see the industry going.

It's really tech and digital advancements that's made it so popular. I mean, look, buy now pay later, layaway, retail financing. I mean, these concepts are not new. It's the new kind of sexy thing people are talking about now, buy now, pay later. But first of all, I'd say buy now, pay later, it's a really wide market. You've got everything from credit card issuers doing buy now, pay later on an existing card to paying forward, it's not even underwritten whatsoever to what we're in, which is more traditional retail financing through buy now, pay later, which is sort of small ticket financing, $2,000, $3,000 transactions over 12 to 24 months. And why it's so popular is because consumers are telling us that credit cards, while they like them and they use them, they find it to be more risky for them, and they get themselves overlevered because you're paying minimum -- especially younger customers. You're making minimum payments. And so the concept of making installments through a very slick digital experience is a good one. And if it's integrated into the retail buy flow of the merchant, and if the merchant is coughing up some money to subsidizing it, now you get a responsible structured product married with a subsidized interest or 0 interest. That's really where the magic happens, and we're seeing that. But we're staying really disciplined. And we're not going to veer into a part of the space that feels unproven or risky or not sustainable. And I think that the innovation that this can take some of the credit card market is very, very real and very, very true, but it's got to be done in a thoughtful way.

All right. We can open up the questions.

I have a couple of questions about the mobile app. So firstly, I'm interested in how are you competitively positioned in the mobile app? How far behind the sort of best-in-class do you think you are? And then more of a sort of industry-level question is, how much of a threat are mobile wallets like Cash App or Venmo?

Yes. So mobile app, 2 years ago, I would have told you we are far behind both capabilities and infrastructure. We made a massive investment to modernize our mobile app and we've more than caught up to peers. So we're now somewhere in between what I would call peer average and top quartile in the peers in terms of the amount of capability and how engaged our customers are with the mobile app. And that's really only with 12 months of usage of the new platform. So we think we're in the early innings of getting to kind of near best-in-class there. But we have some work to do. 60% of our branch transactions today can happen in the mobile app. We want to get that to 90%. We think over the next 12 months, that will happen and we'll have a very, very robust capability on mobile. But the tech platform is very, very real, and we've been developing at a much, much faster clip. Venmo and other mobile wallet apps, how much of a competitive threat is it? I don't view them as much as a competitive threat right now to cannibalize kind of traditional banking services. But there's a lot of thinking that needs to go in and how banks protect being able to control the payment stream and the flow of funds. And we're spending a lot of time on that, whether it's investments in Dell, whether it's investments in real-time payments, funds availability. The reason to go to a Venmo is because your bank can't provide something that's simple and easy on how you move money back and forth. And so long as we can deliver that, you don't have to worry about being disintermediated in the payment flow, which the revenue stream for payments isn't what I'm really, really worried about. That's not the biggest part of our business. It's the customer behavior dynamic. If you lose control of the customer, then your deposit revenue and stuff starts to go down. So we're not seeing any signs of that. Our customers are engaging with everything we're putting in the market. So yes, it's clearly a place we're spending time, but I'm not losing a lot of sleep that they're disintermediating the banking system yet.

And just on the first part of the question. Apart from just proportion of consumer bank customers who use [indiscernible] what are the key metrics you look at to kind of judge engagement?

Yes. So primary banking customers, how often they log in, the types of transactions they're doing. We've got a metric that we built, custom metric called digitally-engaged customer. We've got sort of a top tier like a power user metrics. And so we've got waterfall metrics that show how we're getting our non-digital users to digital. We monitor for what I would call front book, new customer originations, walk-out working, how many are engaged in mobile day 1? It's going to take a while to convert back book customers that aren't used to mobile to get them engaged in that type of banking. But when you bank with us now and you start a relationship, we're positioning ourselves as mobile-first. And the day you walk out of the branch or online, you're going to be up and active in using your mobile app. So we look at all those metrics, and they're all rapidly, rapidly increasing. It really comes down to frequency. We want to make the mobile app a destination that people go to on a daily basis. The more engagement you have and the more frequent they come back, the less risky to leave and all those metrics are going in the right direction.

We have one more quick question.

So just one big picture question. So you've been extremely bullish, right, your presentation around growth with the deals. What are the risks? Like is it fintechs would only to account for profitability? Is it CFPB changing guard, which could impact consumer banking? Just tell us the 2 or 3 risks that could be raised about these growth plans.

Yes. Look, I think the fintechs are one, and I am not worried that the fintechs are smarter or have a better capability to develop digitally than we could. My worry about fintechs in [indiscernible] particular, but also potentially with National Banking [indiscernible] I had an Irish [indiscernible] My fear is that the fintechs are not necessarily driving towards short and medium-term profitability. So a lot of these either are structurally unprofitable, maybe never profitable, but certainly, their profitability window is quite long. And we're going to build our capability, I think, as good as they could. But our ability to grow is going to be governed by our financial discipline of needing to have reasonable payback. So that's certainly a risk if the market, maintain real frothy and payback periods are 7, 8, 9, 10 years away for fintechs. Could we lose some momentum? I think that's a very real legitimate risk. The National Bank, to me, is about levering Citizens Pay to cut the corner on marketing. We don't want to go do a stadium deal and spend hundreds and hundreds of millions of dollars in marketing to build a brand. So how do you get customer acquisition? So you build a base that you can cross-sell on? I think the mitigant for that, what you saw in the presentation is that we've already gained 3 million customers over the last 2 years nationally. So you have a demonstrated track record without that huge brand halo to be able to do that. Our ability to succeed requires that to sustain and be able to build customer bases without writing these gigantic checks that have huge payback periods around brand and marketing without brick-and-mortar. I would think those are the 2 biggest. I've got a lot of confidence in our ability to grow well. I would like to accelerate that with M&A. The market with M&A is pretty frothy with wealth too, so we're going to stay disciplined. And if we do a deal, it's going to be because the math pencils out and works for us. We're not going to overextend ourselves. So that could be a mitigant around speed and pace of how we accelerate our wealth business if we can't find something that makes sense.

We really appreciate Citizens and Brendan being here, and I guess you might be able to get him in the hallway for any questions that weren't answered. Thank you.

Thanks, guys.