It’s no secret that banking for teens has been making waves across the United States. Companies like Greenlight with two million users in this space and banking giants like Chase that just launched an offer for this age group and pushed out programs specifically to attract the next generation of customers.
While digital is important to all age groups, it is vital for teen accounts as this generation is comfortable running all transactions in a fully digital environment. A piggy bank and a checkbook are not part of their new habits. In addition to being digital natives, this generation also expects a flawless user experience, having been raised on mobile apps and the ease of use of smartphones since early childhood. One of the main reasons why teen accounts have become popular is for their ability to provide some freedom of spending to teens while still maintaining control and ties to their parents’ accounts. Through the digital channel, parents can oversee spending and seamlessly transfer money to their child, utilize card controls to set limitations and reinforce smart financial habits.
The market of children under the age of 18 who could utilize such accounts is roughly 25 million within the U.S. This is a huge opportunity especially for smaller community banks and credit unions to expand business as the average age of customers and members in these institutions is roughly 55 years old. One other advantage that community banks and credit unions have is that they have an upper hand by having already the relationship with and providing business to parents. The parents open a strategic opportunity for these banks, since adding a teen account could be instant (vs opening a real new account) and connecting the two accounts in real time for p2p transfer and de facto increases business for community institutions. Parents also prefer to open accounts with banks they already know and trust, which is a major selling point for most organizations.
Current Market of Mega Banks and Challenger Banks in Teen Banking
Megabanks and challenger banks with current teen offerings like Chase and Greenlight, are currently taking the lead with teen banking. They have developed a specific digital channel and user experience that teens are after. Community banks and credit unions are not aware yet, but they too can quickly and easily break into this market and with key differentiation with Greenlight and other new players.
Depending on size and spend, FIs can go one of two ways with incorporating these types of solutions to serve this market. The first option is to build teen-focused digital offerings in house and with their existing core provider.
The second option is to tap into resources, such as fintechs, who specialize in these services. The right partner can quickly and seamlessly integrate digital teen offerings in a more cost-effective manner.
What the Next Generation of Bank Customers Want
For teen accounts, there are two major requirements to be successful for this generation. Great user experience and fully digital capabilities for the teen and their parents. For parents, it is vital to offer tools to manage their teen’s finances (for both parents, not only one). Parents specifically want features such as auto pay allowance, track account activities and set limits on how much money can be spent at one time. A new standard seems to emerge where parents are looking for solutions with long-term savings features that help teens to set aside a portion of their money toward a goal of their choice. Teen digital banking accounts, backed with parental controls, provide adolescents a hands-on, risk-free way to gain experience with managing their money. This is a more effective method for most teens over sitting through a finance class that they may not understand or fails to engage them.
There are many tools community banks and credit unions can provide with digital teen banking accounts, including virtual wallets, plastic and virtual cards, money pools, group funds and cash back rewards. Additionally, community bank-based teen accounts should offer the same features as challenger banks, providing real-time notifications and a fully mobile application.
Financial institutions must continue to assess the needs of the next generation of customers to grow successfully for decades to come. Looking forward, community banks and credit unions must serve their teen customers as best they can through offering the right products and services at the right time.
Arcady Lapiro is founder and CEO of Agora Services, the challenger bank technology platform for community banks and credit unions.