home News Speakers Programme

NEWS

The ins and outs of neobanks for teens

In recent years, many neobanks, i.e. 100% digital banks, have emerged. Among them, some are aimed at a very specific clientele: teenagers (12-18 yo). Here is an overview of this niche market that supports financial education for young people.

According to Bipfrance, in 2020, there were 256 neobanks in the world. That same year, 72 were born. And according to fintech research group WhiteSight, there were nearly 60 neobanks catering to kids and teens around the world in 2020. This includes existing digital banks expanding their services, as well as those that are only targeting teenagers like Pixpay and Kard in France or Rise in Belgium.

The vast majority of these neobanks for teens offer more or less the same type of services at relatively low prices (a few euros per month): bank card, current account, mobile application, no overdraft authorized, parallel management by parents. Some also offer an investment account and a cashback’ system.

A generation empowered by Fintech

"Digital banking apps for young people under the age of 18 have multiplied. New technologies, in particular real time, make these dedicated offers more relevant. The challenge: to capture and retain the young generation", stated La Tribune.

Traditional banks have gradually tried to adapt to these new uses. Hoping to attract this clientele and retain them over the long term, most have launched their online banking. But it seems that start-ups better answered the needs of “digital natives”. The neobanks, exclusively digital banking establishments that are part of the Fintech ecosystem, are gradually establishing themselves in the landscape, whether on the side of teens or young adults.

An educational purpose

The founders of the new fintechs dedicated to teens are unanimous: a whole section of the population is excluded from banking services and financial education, and this part includes children and young adults. Often linked to their parents, sometimes having their own accounts through their parents' accounts, they do not benefit from specific offers.

However, with the arrival of neobanks, the idea of ​​focusing on the young segment of the population, as consumers, emerged. Indeed, if teens have a small savings account, with a withdrawal card, it is impossible for them to pay in stores or online. Therefore, they have to borrow the parents' bank card, or ask them for cash… which adults have less and less with the advent of a cashless society.

“We are reinventing financial tools to enable a financially savvy generation to spend, save and invest their money with confidence. (…) All-in-one, all simplified. Financial skills are worth practising at all ages, and we believe that every teenager should be enabled to manage their finances the day it matters to them. Our aim is to help teens grow their money skills while keeping it fun, engaging and trendy”, said Morgan Wiltz, founder, Rise (Belgian money app & debit card for teens), on InFinance.lu.

The educational vocation is therefore crucial for these new applications which operate in a real niche. Pixpay (French neobank) works in particular to train parents, via wise pieces of advice. By opening the doors to banking world for teens, Pixpay is able to compare and analyse the habits and customs of children in matters of money and support parents in their financial choices for their children. How much to give to adolescents? What level of autonomy for my children? Answers to these questions is  available immediately on the app.

The monetisation’ issue

For neobanks that cater only to teens, monetisation is a huge issue. Even digital banks that have been targeting salary-earning millennials have struggled with profitability. Offering services only to teenagers who don’t have large incomes will make this more challenging.

That’s why the subscription model is so important, according to Caroline Menager, co-founder and CMO of Pixpay, cited by altfi.com. “We are convinced that what we propose to families has value not just as a payment card but also because it teaches how to be good with money, making your child happy and safe.”

“When you consider that this market is really underequipped, with 90% of transactions by teens made with cash, there is a huge market in France and in Europe,” she said.

Pixpay is not the only one to rely on subscription payments. According to junior consultant Benjamin Kral at Amsterdam-based fintech specialist Fincog, revenue creation for neobanks that focus on teenagers and children “usually revolves around subscription”, he said. “Other revenue models do not make much sense. It’s not a big transaction volume for interchange fees and there is no room for much interest income. Then it depends if a neobank can acquire a certain number of customers to achieve profitability or not.”

However, there is one crucial decision that can make or break banks launching services for the younger generations. Will they target the teenagers or the parents?

Caroline Menager believes that if the parents are not on board, it will make it more difficult as they are the ones who put money in the account. But if the product is not desirable to the children, it also doesn’t work, she says.

According to the investor Marcel Van Oost, also cited by altfi.com, a lot of investment will be necessary before people see a return in any case.

If the business is trying to attract parents, then when their children turn 18, there will be a constant need to acquire new customers. However, if the children are the first point of contact, banks only offering services until a certain age will need to grow with their client data base and expand their offering on time. “It’s an opportunity for these neobanks to build a relationship with Gen Z. But the moment they have their first salary they need to bring more services to clients and grow with them. You then build a relationship, and they have no reason to sign up with another bank,” Marcel Van Oost explained. “If you do it like this, it will take a long time for you to see some return on investment. These generations don’t spend a lot of money. It will take a long time before you can monetise on a young generation like this.”

Article by Nicolas Klein