LONDON (Reuters) - When John Hibbs’ daughter Xanthe received
her first bank card in the mail, the six-year-old spent the next week Googling
how to buy a horse.
John Hibbs and his daughter Xanthe pose in an undated
handout photo obtained by Reuters on November 17, 2020. John Hibbs/Handout via
Hibbs and his wife Kate had got Xanthe a newly launched
children’s debit card from UK digital bank Starling, one of a number of new
offerings from fintechs aimed at children and teenagers.
“The earlier we can start the learning process of using a
card, the earlier she can learn that you can’t just go out and buy a horse,”
said Hibbs, who runs a charity.
While traditional banks have long offered basic savings
accounts to children, fintechs say they have spotted an opportunity to offer
better, slicker apps to tech-savvy kids and teenagers, who they say have been
Starling’s Kite card allows parents to transfer money to
their children’s account, set spending limits and receive notifications of
their purchases. It rivals similar products from gohenry and Monzo in Britain
while in the U.S. fintechs Greenlight, Step and Copper are trying to capture
the youth market.
JPMorgan Chase & Co JPM.N also recently entered the
space, introducing a children's account in partnership with Greenlight.
The companies say they aim to give children a taste of
financial freedom and education, while letting parents track and block
spending. They hope to capitalise on the digital payment and ecommerce boom,
and hold on to new customers into adulthood.
“It’s a play on profitability to get lifelong customers,”
said Kavita Kamdar, who heads JPMorgan’s children’s venture Chase First
JPMorgan’s partner Greenlight has grown from 500,000 to 2
million parent and children customers in a year.
“I think the startups are in a position to take junior
accounts away from the high street banks,” said Sarah Kocianski, head of
research at fintech consultancy 11:FS. “But they have to strike a balance
between being appealing to kids and appealing to parents and goodness knows how
you do that.”
Companies must also be careful in keeping data secure and
ensure children and parents understand what they are giving consent to,
POPULARITY TO PROFITABILITY
Atlanta-based Greenlight, which costs $4.99 a month
including debit cards for up to five kids, allows parents to create in-app
chore lists for children and tie the work to perks. It also lets parents set
and pay interest on their children’s savings.
“A couple of big macro trends drove the adoption of
Greenlight,” Timothy Sheehan, the company’s chief executive said. “The decline
in use in cash and the adoption of the smartphone, not only among adults but
U.S. digital payment apps such as PayPal Holdings Inc's
PYPL.O Venmo and Square Inc's SQ.N Cash App, which have become a common way for
consumers to send money to each other, do not allow users under the age of 18.
This boosts the appeal of new apps targeted at those too young for popular apps
but old enough to spend money.
“This is a demographic that doesn’t have a bank account,
they still have money underneath their bed and we are providing them access to
the digital economy,” said Eddie Behringer, chief executive of Seattle-based
teen banking app Copper.
Analysts and investors question whether the youth market is
getting overcrowded, given youngsters are not cash-rich.
“A lot of money is going to these firms, but do they make
money?” said Ian Kar, the founder and chief executive of consultancy Fintech Today.
“Teen banking is not very profitable yet.”
UK-based gohenry, which was founded 8 years ago, offers
accounts for children charging parents 2.99 pounds per month.
Alex Zivoder, gohenry’s chief executive, said the company is
on track to make a profit within a few years, despite its pretax loss jumping
by three quarters to 5.8 million pounds last year as it invested in expansion
including in the U.S.
Zivoder said the company made an underlying profit in the
second and third quarters of 2020.
Rivals do not worry him. “The market is huge,” he said.
“If you think of how many parents there are in the US and
UK, will they be happy with one solution, one product?”
For neobanks like Starling, where children and teen accounts
are an added product line, analysts see the service as a way to generate
additional revenue. Apps solely focused on the younger demographic may find it
Starling’s Kite account, which costs 2 pounds a month, has
been “flying off the shelves”, said Helen Bierton, the startup’s chief banking
officer. She declined to disclose figures, noting products like Kite are part
of its strategy to reach profitability by the end of 2020.
Teenagers and children may not have much disposable income,
but startups are banking on their growing spending power. Gen Z, the generation
currently between the ages of 8 and 23, represents around $150 billion in
spending power in the U.S., according to McKinsey.
San Francisco-based Step, which hopes to build a bank for
the next generation, plans to initially make money through card interchange and
then offer more financial products as customers grow older.
“Every brand wants to reach this new generation,” said Step
founder and chief executive CJ MacDonald. “They are not rich, but they still
spend billions of dollars a year.”
Ben Galbraith, a Palo Alto-based father of eight, has used
Step with his five older kids for the past 10 months. He used to keep track of
allowances, spending and frequently lost cards with a spreadsheet.
“Moving it into an easy-to-use app gets rid of all that
stuff,” Galbraith said.
His oldest daughter Jackie, an 18-year old New York
University student doesn’t mind her parents having a real time view of her
spending. As an added perk she can use Step to ask her siblings to pay her back
any money they owe her. But access to digital banking can’t solve everything.
“They ignore my requests, so I have to badger them,” Jackie
said. “Three of them have not responded.”
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