The Next Big Thing in Fintech: Teen Banking

Before the age of fintech, teenagers would usually open bank accounts at the same bank their parents did. I remember at the age of 12 being thrilled at having my very own bank account that even paid interest. It was a coming of age that felt big to me.

Today, the average 12-year-old has the entire knowledge of human existence at their fingertips every day. But for most kids, this doesn’t extend into research on financial choices.

There is a new breed of fintech company focusing on kids’ finances, in particular teenagers who now have a variety of excellent choices when it comes to managing their money. As the parent of a 13- and 15-year-old I have been following this space for many years and today the options are better than ever.

GoHenry

The first entrant in this burgeoning space was GoHenry. They started in the UK in 2012 and pioneered the family subscription model and the app for parents and kids. And, of course, the debit card. They launched in the US in 2018 and I spoke with the head of their US operation and one of the original co-founders of the UK company, Dean Brauer.

“This new generation is really cued into what is going in finance and they want to participate in the ecosystem,” Brauer said. “GoHenry provides tools for kids aged six all the way to 18.”

GoHenry has an interesting approach in that they segregate their users into two groups: 6-12 year-olds and 13-18 year-olds. They have a different app for both age groups as their needs are quite different. The standard GoHenry offering costs $3.99 per child, per month which includes a debit card and their online learning tools.

Last month GoHenry launched Money Missions, an in-app, gamified financial education tool to build financial literacy among kids and teenagers. “This is a fully integrated financial education system that is fun with gamified interactive lessons that will help build curiosity and learning,” said Brauer. “Think of it as a Duolingo for money, developed by teachers and financial experts.”

Greenlight

Greenlight is a fintech unicorn that launched in 2014 and has raised over $550 million since inception, including a $260 million Series D that was announced earlier this year. They have a reported 4.5 million paid users, that includes parents and kids, and have had a debit card for kids since 2017.

The app has three different buckets: Spend, Save and Give and, like all these apps, it allows regular weekly or monthly deposits for allowances. These allowances can be tied to chores or not and parents can also pay their kids interest on money saved.

They recently launched an educational investing platform called Greenlight Max where kids can conduct their own research on stocks and make actual investments in companies they know (with a parent’s approval). All stock trading, conducted in partnership with DriveWealth, is free and fractional shares are available.

Greenlight’s plans start at $4.99 per month and that includes debit cards for up to five kids. Their fully featured investing app is $9.98 per month, again for up to five kids.

Step

Step has taken a decidedly different approach, at least when it comes to pricing. Their service is completely free to parents and kids. I caught up with CJ MacDonald, the Founder and CEO of Step, and he was adamant about the no-fee approach.

“I have a hard time charging parents a fee when so much of traditional banking is fee-based,” said MacDonald. “There needs to be a better way.”

Another interesting piece about Step is that they are focused on teenagers, the 13- to 18-year-old demographic. While they don’t stop younger kids from using their app they are not their target. They do a lot of work with social media influencers who focus on their demographic.

“We are trying to be cool for the kids but safe, trusted and secure for parents. These are two different value propositions, and we work hard at balancing the two,” said MacDonald.

They also have a unique twist on their debit card. It is actually a secured credit card, not a debit card at all. This helps them earn more in interchange revenue to make up for not charging a monthly fee. It also has the added benefit of helping teenagers build up a credit history. So, when they turn 18 up to two years of history can be reported to the credit bureaus.

Which brings me to another difference with Step. Whereas GoHenry and Greenlight are comfortable saying goodbye to their teenage users after they turn 18, Step wants to keep them for life. They want to grow with their users and offer them more services as they enter college and the workforce.

Many More Teen Fintech Offerings

While I have profiled three popular offerings here, there are many, many more. The hugely popular Cash App from Square recently became available for teens aged 13-17. The app must be approved by a parent but comes with the Cash Card and many of the regular Cash App features such as peer-to-peer payments, ATM access, direct deposit, and shopping rewards. But no stock or crypto trading.

Till Financial also charges no monthly fee and they are looking to graduate older teens to banks or fintech companies serving adults (and take a bounty for doing so). It also aims to earn revenue by partnering with merchants to offer rewards to its users.

Another new fintech offering is Copper Banking. They are taking a community-oriented approach that is growing fast by relying on a network of youth ambassadors who promote the platform through schools, clubs and sports teams.

There is more. I have not mentioned Current, Goalsetter, FamZoo, Mango, Jassby, or Mazoola to name just a few more offerings. And I should not forget the traditional banks. Chase and Capital One both have dedicated offerings for kids (Chase’s offering is actually a partnership with Greenlight) although I am surprised that few traditional banks came up in my research on teen banking. As more attention gets paid to this space I expect that will change.

Our Family’s Experience

My family started with Greenlight four years ago when we wanted a way to provide our kids allowance and give them the ability to use a debit card. We also wanted to have them learn about the basics of money management. It worked really well for us and I was surprised when earlier this year my then 12-year-old said she wanted to stop using Greenlight and use a “more grown up app” (she was not a kid anymore).

We opened Capital One Money accounts, a teen offering from a major bank. But my daughter was not satisfied, primarily because it didn’t have a “cool app” (my son was ambivalent and was ok staying with Capital One). So, after listening to a podcast with MacDonald, the Step CEO, I suggested it and my daughter loved it.

She gets her monthly allowance deposited there automatically and now that she has a part-time job gets her pay deposited there as well (Step partners with Evolve Bank & Trust, an FDIC-insured bank).

I keep a balance in the parents’ wallet so I can move money between her account and my account instantly. My daughter is learning the importance of budgeting and setting spending goals and we can monitor her spending in real-time.

The next “step” is investing and MacDonald assured me that is coming in 2022.

We Have the Technology to Make This Easy

The fintech revolution has made a simple and intuitive user experience the norm. And the back-office innovations of the last decade have made advanced functionality possible so a fully-featured bank account is now easy to use for the new generation of digital natives.

Most kids these days are comfortable with technology. I think we are not far from the day when they use this comfort and knowledge to become better financial stewards of their own money. With gamified education offerings, intuitive apps, and transparent tracking of all spending we can create a generation that understands the basics of money.

When this new generation learns the basics of money management at a young age, we have the potential to close the wealth gap and really improve the financial health of this country.

That is the promise of fintech.

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