A growing number of fintechs and banking startups in the U.S. and other countries is targeting Generation Z, and even reaching into the younger Generation Alpha, children born after 2006.
In the U.S., roughly 25% of the population is under 19. In Europe teenagers and younger kids comprise around 20% of the population. This represents a tremendous market, but typically incumbent banks don’t aim many products and services at Gen Z because they aren’t currently profitable. This contrasts with more financially mature Millennials.
Newcomers are outflanking incumbents. The legacy institutions’ lack of interest created a two-fold market niche for challenger banks and fintechs: serving the current “pocket money” needs of young people and building the loyalty of today’s youngest customers for the coming years.
73% of American parents provide a regular allowance to their children, a total of $41 billion per year, according to RoosterMoney’s Kids Allowance Report. Part of pocket money is earned from domestic chores. Parents say their goal is to teach children about financial literacy, involve them in useful activities and help them to form healthy spending habits. The parents lived through the Great Recession and want to inculcate thrift. Indeed, in comparison to older generations, Gen Zers tend to save almost as much as they tend to spend right away. When they spend, it’s typically on food — mostly sweets, eating out, video games, toys and books. Most Gen Z consumers prefer in-store shopping rather than ecommerce. However, the older they grow, the more online transactions they make.
While Millennials are tech-savvy, Gen Zers are true digital natives. They are reinventing customer experience by being willing to get everything at the tap of a mobile screen.
But most traditional banks aren’t ready to offer banking in this way to these consumers right now. They may be missing a major opportunity. Consider these points gathered from current research reports about U.S. teens:
- 48% use apps to manage their finances and 10% use apps to send and receive money.
- 47% of 16-17 year olds use mobile banking, and 71% of 18-19 year olds do.
- 15% are fully responsible for their finances and 15% are mostly responsible.
- 23% used a parent’s or guardian’s credit card to make an online purchase.
- Already 26% say their allowance is wired into their bank account.
- Most have little involvement with legacy banks. 1 in 3 don’t have bank accounts, though another 1 in 3 have had one since they were 12.
- 17% have never been in a bank branch. While 38% would prefer in-person banking, 62% are comfortable with online financial services.
Historically products like youth savings accounts have been a loss-leader, with the hope of establishing an early relationship. However, offering pocket money apps can offer potential ways for traditional financial institutions to make money now and in the future. Monthly fees on apps, or associated cards, in programs we’ve reviewed range from $2 to $10. Parents will pay for good functionality, like instant money transfers, and educational content. Apps can feature different levels of parental control, shared reports, a dashboard for paid household chores to get more pocket money, and more.
And remember, kids grow in the blink of an eye. Down the road the company that invests in pocket money banking now can establish itself as that child’s primary financial institution after they grow up.
Devising Financial Apps for Gen Z and Gen Alpha
Few know that German neo-bank N26, one of the most successful fintechs today, started as a pocket-money card for kids and teens. The card was accompanied by the “Papaya” mobile app, rolled out in a beta version. However, the startup soon chose to focus on Millennials rather than Gen Z. Later, in 2016, one of N26’s executives called a pocket-money card “a crazy idea.”
Is this idea still crazy in 2020? French startup Pixpay would disagree. In 2019 the company raised €3.1M to launch a digital banking product for kids and teens aged 10-18. Pixpay will offer users a mobile bank account, a plastic card, and a convenient app to deal with transactions and savings. The product will support Apple Pay and Google Pay and provide a lot of opportunities for parents, who can set limits, control spending and reward children for completing their household chores.
App founders consider pocket money a great opportunity to start a business around. It also inspires families to educate their children on financial management more actively. Benoit Grassin, a Pixpay co-founder, told Sifted that he believes the main problem for parents is not how much to give, but how. As society steadily becomes cashless, dealing with coins and notes already feels old-fashioned.
Gen Z fintech Mitto, based in Spain, is another great example of aspiring fintech apps for Generation Z. The fintech offers parents e-wallets to instantly transfer money to their children. It also provides tools to educate and support children in digital finance. A debit card is paired with a mobile app. 150,000 Spanish users have already signed up, and 80,000 are waiting to register abroad.
Pixpay and Mitto are not the only fintech players out there to understand that Generation Z wants something different: super fast, convenient and informative. Here is a sampling of what is available, followed by a series of steps that traditional players can follow to fight back.
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Go, Henry is a card-and-app fintech company for 6-18 year-olds. Launched in 2012, today it issues a fancy custom card in collaboration with Visa with the “Go, [Accountholder Name]” designation, and provides a nicely designed app. Both card and app feature unique parental controls and spending notifications. The service costs $3.99/child per month.
More than 500,000 users already use Go, Henry, and the company has ambitious growth plans. Go, Henry is the U.K. leader in this market.
In 2019 Revolut announced a brand-new product to target kids and teens aged 7-18. Revolut is planning to launch a child-friendly interface early in 2020.
Revolut Youth will grant parents almost full control over their children’s cards via their own Revolut accounts. After the user turns 18, they will be seamlessly transferred to the main service. In this way Revolut implements the “get them young” concept.
This financial product provides a comprehensive banking solution that leads into adulthood needs. This is a strategically important step, which can help avoid a big problem of some competitors, like for instance, Go, Henry. Their target audience is highly likely to give up using the product in adulthood because they hardly offer something more than a pay-tool.
Other challenger banks, like Starling or Monzo, perhaps are waiting to see what potential it has before creating products for teens under 16. Read on for their efforts.
Kard is a major Paris-based player, which entered the teen fintech market in 2018. The youth bank targets customers 12+.
Being launched after Revolut, Kard differentiates itself from the competitor by interacting directly with teens rather than with their parents. Its founders decided to invest in the future and focus on growth, as users will soon become financially independent and loan-paying adults. Users register a free account and get a physical Mastercard.
The founders consider it a great advantage that users can share expenses with friends in the app like U.S. residents can do via the Venmo app. Kard hoped to hit 80,000+ by the end of 2019, and is aiming for a million users by 2021.
In terms of monetization, the product is aimed at early revenue. Three factors make this possible: paid customized features, insurance, and teen spending data — an extremely valuable asset.
Scott Gordon, Kard CEO, and co-founder considers not targeting parents a great competitive advantage, yet he acknowledges that it’s also a big risk. However, he believes that most parents are reasonable enough to give their maturing children a little independence to become financially educated.
As far as regulation is concerned, Kard decided to make it the following way: users download the app, and their parents fill out the three-minute know your customer form on their behalf. Thus far, four out of five parents approve children’s accounts and provide their teens with financial autonomy and an opportunity to receive funds.
Step has entered the competition for the share in a pocket money pot. The company was founded in 2018 by C.J. MacDonald, a co-founder of mobile gift card app Gyft, and Alexey Kalinchenko, formerly associated with Square and Token in senior tech posts.
The company offers mobile-based banking services for teens. In an interview with TechCrunch, Step CEO MacDonald said he sees the app target audience as the “pre-banked” youngsters and their parents.
The goal of the company is to become a teen’s first bank account and first spending card. The app will even provide teens under 18 a chance to sign up for accounts without parental consent. However, those accounts will have limited functionality.
To launch the app Step entered into a partnership with Mastercard, Evolve and Stripe. The deposits are protected by FDIC using accounts offered through Evolve Bank & Trust. The institution also provides ATM support of Step cards, which is free from customer fees.
The Step approach to business differs from competitors: they use a “freemium” model, aiming to grow with their users. While the company had not launched its accounts as of early 2020, it already reports over half a million potential users on its waitlist. Something that helps is a referral program, at $1 per each invitation.
This U.S.-based fintech offers a financial education platform and a debit card. The company’s positioning and orientation towards parents becomes clear due to its slogan: “The tools you need to raise financially-smart kids.” The monthly fee is $4.99 per family.
The app allows earning money at performing household chores and helps set savings goals. Parents control the PIN number, ATM access, specify withdrawal limits and receive notifications about their kid’s spending. Also, they can whitelist certain stores their kids can shop at.
Other features that are beyond the debit card part is an opportunity for parents to set up an account for children to save money and collect interest. Here’s a twist: The interest is specified by parents and comes from their bank account, not from Greenlight. However, it helps young customers understand the way the system works.
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In 2018 Russian challenger bank Tinkoff launched a separate product for users age 8-14. The offer includes a card paired with a mobile app to provide young customers with an attractive and highly functional tool to manage their pocket money and savings.
The bank stimulates children to actively use the card by offering the Tinkoff Junior loyalty program: 2% from each online purchase and 1% from other purchases are returned to the account as bonus points. The points can be redeemed on online shopping, eating out, video games and more. Parents can open a children’s account online and choose one of the customized card designs. The card service, transaction alerts and ATM money withdrawals (an equivalent of $300 each month) are free.
Tinkoff Junior supports contactless payments via Apple Pay, Android Pay, and Samsung Pay. Young clients can watch financially related content selected according to their age in Tinkoff Stories. And they can get information from the chatbot and bank managers right in the app.
Young users also get promo offers from the bank’s partners, make online payments and P2P transfers. At the same time, parents receive notifications about transactions, can use the “Where is My Child?” feature, and offer their children financial rewards for completing tasks.
Launched in 2017, Current has approximately 400,000 active teen users. The fintech provides a Visa debit card and a mobile app to teach teens how to make the appropriate financial decisions.
Teens can earn by completing chores, pay or request money from friends, and make donations. The product supports Apple Pay. Parents can set automated allowances, create and approve tasks and receive real-time alerts about transactions.
Current charges no transaction, transfer or overdraft fees. Also, it sets no minimum balances or transfer amounts and has no account activation fees nor inactivity fees. The yearly subscription cost is $36.
Launched in 2018 in Spain, the fintech Rebellion shows impressive speed of growth. The minimum sign-up age is 14, but the service provides a lot of features, which may come in handy to users after their 18th birthday. The majority of consumers are 16-25 years old.
In addition to Google Pay and Apple Pay support, as well as immediate money transfers, Rebellion obtained a banking license and now offers International Bank Account Numbers. That helps make transfers and payrolls easier, thus enabling users to transfer such income as scholarships, pocket money or salaries into the new accounts hassle-free.
Beyond Spain, Rebellion is scaling up to reach customers in other European countries.
The Gimi app-and-card fintech for teens was founded in Sweden in 2015. It has become a popular financial tool as this Scandinavian country moves towards cashless finance. Gimi provides an educational product for young people, their parents, and guardians.
There are two options for using the service: Gimi Beginner and Gimi Master. Gimi Beginner is a free and useful educational tool that teaches personal finance management. The app is most popular with children starting from 7 years old.
Gimi Master is a premium Gimi package, equipped with features, a Prepaid Mastercard connected to the app, and parental controls. The Gimi Master fee is not listed on the site, but can be found in the app settings.
Many other banks and fintechs are offering teen cards or apps. They include Pochta Bank, Rooster Money, FamZoo, Tip Yourself, Finnest, and Pockee. In 2018 Monzo and Starling launched accounts for teens from 16 to 18 years old, and Monzo may even lower the signup age to 13 in the coming years.
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The Challenge of Building Banking Apps for Kids and Teens
The main challenge for banks and fintechs is to think of a highly functional solution that would look “cool enough” for teens and at the same time would be completely legal and give parents and guardians the control over expenses and transactions. But there are other challenges, including:
1. Developing the educational part in order to teach financial independence in an easy and gamified manner.
2. Planning onboarding procedures that include participation of parents, including controls.
3. Devising an adjustable design and a feature set, which considers user age.
4. Ensuring security standards, like establishing tunneling security protocols, understanding the limitations of legacy technologies and investing in testing vulnerabilities.
5. Entering partnerships with a payment card association, a bank or other companies.
6. Doing the research. Field research helps find out more info about the market and users. It includes asking children and their parents about features they would prefer, the minimum age that is suitable to start learning personal financial management, and readiness to pay monthly fees. At the same time, it is important to see what type of apps are appealing and useful to children and teens.
7. Analyzing the competition. It helps to analyze the deficits of your competitors to see if adding those missing can improve your entry.
8. Building user journeys and drawing a user flow map. , both for the children and for their parents.
9. Starting work on the UX design and the wireframes. This includes planning layouts and transitions.
Critical are design feature considerations unique to serving younger people. Ensure that the buttons are within the finger-reach for children. It’s a smart idea to make the interface adjustable considering the user’s age. The expectations of younger children can be very different from those of teens.
The author wishes to acknowledge the assistance of Mr. Marcel van Oost, fintech agent and advisor, in putting together this article.