Traditional banks have long offered basic checking and savings accounts for teens. However, in recent years, fintechs and challenger banks have raised the bar on junior accounts by targeting younger users and offering innovative services for digitally native kids.
Account and card combinations with applications designed for the younger generation have been launched by Revolut, PixPay, Starling Bank, Nimbl, Xaalys, and many others. Simultaneously, the Covid-19 pandemic has acted as an unexpected catalyst for the interest and adoption of child-centric banking products. This adoption has been driven by the decline of cash and the adoption of the smartphone, not only among adults but children as well.
These factors have brought into focus not only the opportunity but also the challenge facing traditional banks: a lack of innovative junior services or teen-friendly apps makes it difficult to win over young customers.
The state of Gen Z banking
Gen Z, the generation currently between the ages of 8 and 23, represents around $150 billion in spending power, according to McKinsey. It’s no secret that this generation is a profit center for today’s banks, and a significant effort has been made to appeal to adult Gen Zers.
This has led to the creation of many new products and services to match their expectations. The average Gen Zer is accustomed to Amazon-level customer service, Uber’s ease of use and Google’s pervasiveness, and they expect the same from their bank.
Although research shows that younger customers’ banking choices are informed by their parents, it’s also influenced by the availability of digital offerings. According to one survey, nearly 40 percent of Gen Zers would only choose a digital or online bank.
It’s also likely that digital banking’s promise of frictionless UX, state-of-the-art security and always-on availability will cause that percentage to increase in the future. Banks know this and are responding in various ways. One approach has been to double down on relationships and start from an even earlier age.
The case for junior accounts
Most children under the age of 16 don’t have much income, but firms like Revolut are banking on their growing spending power. In the US, Gen Z will surpass Baby Boomer spending by 2025, according to a recent report. As the younger segment of Gen Z matures, they will become part of the most populated generation in human history, not to mention Generation Alpha (born after 2010) following close behind.
Forward-thinking banks and startups are getting ahead of this evolution. And they’re largely doing it by giving kids a taste of financial freedom and education while letting parents easily track and block spending.
This is already big business. According to RoosterMoney’s allowance report, American parents give their kids over $41 billion in allowance, and now, much of those funds are flowing through freshly minted apps. Junior accounts, which often start around age twelve, are primed to capitalize on the digital payment and e-commerce boom and hold on to new customers into adulthood.
Historically, products like youth savings accounts have been a loss-leader, based on the hope of kindling an early relationship. They’re a short-term play on profitability to gain lifelong customers. However, as more kids get smartphones, offering feature-rich pocket money or chore apps can provide potential ways for financial institutions to make money now and in the future.
For banks, the potential upsides are plenty. Kids represent low or reduced risk clients because parents credit and actively monitor their accounts. Junior accounts can be a significant source of new, commission, or fee-based revenue. They can also be packaged with other products, creating easily sold one-stop solutions for parents and while developing brand loyalty among kids.
Competing with digital banks
What’s considered “basic” for a junior account has changed in the last few years. While all these services aim to streamline the banking experience for minors, today’s hot youth financial products feature kid-friendly UX, parental oversight, savings incentives and financial literacy.
There’s task functionality for things like household chores. Indeed, Gohenry has made a name for itself by offering just that. In 2019, the UK startup processed around £4.2 million in payments for completing tasks like tidying up, loading the dishwasher and doing homework. There are also apps that feature FaceID & TouchID technology, wishlists for kids, spend tracking for parents and enable peer-to-peer payments.
Many banks are also adding what is perhaps the most important element — gamification. Creating a sense of play is crucial because financial education is central to a kid’s banking proposition. And interactive game experiences have a key role to play in capturing attention and delivering said education. This education comes in various forms, including stories, quizzes, lesson content and real-world experiences. For tweens and teenagers, the games can be adjusted in the form of age-appropriate games, badges, challenges and leaderboards.
For instance, in the UK, NatWest recently released Island Saver, a game designed to help kids learn money management skills. The game features simple “work to earn” style tasks and more complex ones, such as paying tax, lending, borrowing and conducting foreign exchange.
While banking can’t ignore the complex challenges of protecting kids‘ data and marketing to minors, junior accounts are too significant an opportunity to miss out on. Financial solutions for kids and teens may still be somewhat niche, but the menu of offerings is growing. This is true despite the fact that many of the large banks have stayed on the sidelines.
Some traditional financial institutions are struggling to compete in this relatively new space. They rarely have the best junior offerings or innovative features and hence stand to lose swathes of new potential customers. In recognition of this, Chase recently partnered with Greenlight to layer kid-friendly tech on top of its existing app, a move that could be replicated by other banks.
At the end of the day, helping children to develop money management skills and grapple with the increasingly digital nature of their financial future is a substantial opportunity. But to capitalize on it, banks and credit unions must scrap conventional kid banking concepts or risk losing tomorrow’s customers.