Challenger banks eye the untapped teenage market

via Sifted

Revolut is launching a banking app for under-18s; a group which offer inflated disposable incomes and life-long loyalty. Could this be the next battleground for fintech?

Revolut is breaking ranks with its fellow challenger banks by targeting 7-18-year-olds for the first time, set to launch “Revolut Youth”  later this year.

Parents will control children’s cards via their Revolut current accounts, and a child-friendly app interface will reportedly follow in early 2020.

Most importantly, Revolut Youth users will be absorbed onto its main platform once they hit 18. Current trajectories show most customers stick to their first bank for life, meaning “getting them young” has obvious appeal — even if short-term revenues are limited. It’s also much more expensive to get customers to switch banks than to get banked.

Revolut is also tapping into Gen Z’s growing income. In the UK alone, those aged between 6 and 18 earnt £4.5bn last year, largely courtesy of social media and growing pocket-money allowances.

The incumbents

Revolut Youth is breaking into a market currently dominated by pocket-money cards such as the UK’s GoHenry and Osper, which charge a monthly fee.

Yet the problem with the GoHenry model is that they’re a pay-tool children inevitably graduate out of when they hit adulthood.

It’s a little-known fact that German neo-bank N26 — one of today’s richest fintechs — originally began as a pocket-money card for teens, with an accompanying app called “Papaya.” Its founders developed the product to the point of being rolled out in beta, before pivoting to focus exclusively on the parents.

“In retrospect, the pocket money card is a crazy idea, actually crazy,” N26’s execs said at the time, casting doubt on the GoHenry model also recently adopted by Spain’s Mitto, which announced a €2M seed round this week, as well as by France’s PixPay.

In comparison, Revolut is attempting to sit in a sweet spot by combining the benefits of GoHenry with a familiar user-interface and a full banking solution. While not wildly original then, Revolut hopes the sheer efficiency of its Youth feature will win over its maturing user-base, now largely in their early 30s. Meanwhile, it’s hoping its age-appropriate kids app will boost its chances of retention among its younger clients, grasping the power of “cool” that traditional banks may lack.

One to watch

Another player moving into the teenage fintech market is Paris-based Kard, a newly-launched youth-bank for those aged 12+.

Unlike Revolut, it will immediately target teens rather than their parents, with the view its users will eventually become loan-paying adults.

Kard’s plan around regulation is to have teens download the app and have parents complete the 3-minute KYC process on their behalf. So far, so good: Kard says 80% of parents have approved the first-wave of accounts, which give teens total autonomy and a practical way to receive funds.

“We’ve taken a big risk [by not targeting parents]. But the growth isn’t there…Nobody has targeted teens before,” chief executive and co-founder Scott Gordon tells Sifted, adding that most parents aren’t “control-freaks” and want their children to become financially literate.

The life-long customer base is a key part of the business model for Kard, which happily admits it’s currently focused “much more” on growth than immediate monetisation, hoping to have 1m users by 2021.

Fortunately, Gordon says he’s looking to build a long runway with a large, undisclosed Series A scheduled for later this quarter. He also plans to bring in early revenue through paid customisation, insurance, and the “potential goldmine” that is teenagers’ spending data.

Gordon also cast doubt on Revolut’s ability to tap into the super-young market given its non-specialised focus and questioned its projected timeline.

Getting outgrown?

Revolut’s fellow competitor banks — such as Monzo or Starling — may wait to see how the experiment plays out before lowering their age-restriction below 16. Indeed, for its part, N26 hinted to Sifted there were no plans to go back to its teenage roots.

Still, there are signs that fintech solutions could prove more popular with teenagers than bog-standard youth accounts.

For instance, US-based Step, which shares a similar business model to Kard, has grown its waitlist to over 500,000 teens in just a matter of months. Kard meanwhile is aiming to roll out its ‘black cards’ to over 80,000 users by year-end.

“This generation was born with a smart phone in their hand…They’ve always lived around revolutionary movements,” Kard’s Scott Gordon noted.