Numerical allocation. Customizable debit cards. Goal setting and savings with interest paid by parents or bank.
These are some of the key features that exist in challenger banks for Gen Z, or those born in 1996 or later, but are largely absent from traditional banks’ offerings for younger customers. A year ago, a handle of kid and teen fintechs have populated the market, including Greenlight, gohenry and Step. Since then, a mini explosion of similar apps has targeted the same audience, including Copper, Verizon Family Money, Financial up to and Wingocard.
These apps tend to follow a formula:
- A debit card that the user can personalize with a name, image or color
- A savings account that inspires kids to set goals and provides mechanisms for loved ones to contribute
- The ability for parents to transfer Allowance Dollars to their child’s card and tie these payments to household chores
- Parental control over where kids spend money and how much they can withdraw
- Increasingly, financial education in the form of quizzes or articles, ways for kids to donate to charity, and the ability to invest in fractional shares
Some banks have also used creative means to target the same generation, such as JPMorgan Chase with its First check account (built in conjunction with Greenlight). First National Simmons recently launched an account that it hopes will appeal to younger customers with its mobile-friendly approach and simple setup. Other banks and credit unions attract this segment by gamification.
But banks have largely been slow to follow suit beyond generic kids’ checking and savings accounts that largely mirror their regular accounts, and Gen Zers have shown a propensity to switch banks when it suits them.
A recent study by research firm Raddon found that approximately 70% of millennial and Gen Z consumers are customers of one of the six largest banks in the United States “But there is still a significant risk for Gen Z to move into fintech because they are very comfortable with fintech,” said Karen Kislin, strategic advisor at Raddon. The study also found that around a third of millennials and Gen Z are extremely or very likely to select a new primary financial institution within the next year.
“Banks need to do more in this area,” said Alex Johnson, director of fintech research at Cornerstone Advisors. “They risk new generations of customers being directed to suppliers other than themselves.”
These applications are already attracting millions of users. Gohenry, originally from the UK, has 1.5 million customers worldwide. Step advertises 2 million customers on its website. Greenlight, perhaps the strongest of the bunch with three tiers of plans, tops 3 million users.
Banks have several advantages over fintechs, including a more personal connection with their customers and the ability to meet face-to-face, which Gen Zers appreciate alongside digital capabilities, Kislin said. They also have trustmarks, points out Matt Williamson, vice president of global financial services at digital consultancy Mobiquity.
The features Gen Z want the most
Many millennials grew up with their parents giving them coins or bills for their weekly allowance. Challenger banks are turning this ritual into something transparent and digital, almost out of necessity.
These days, “you don’t go to the candy store,” Johnson said. “You go online and stream stuff, buying new outfits for your video game character. Everything is digital where children spend money.
Transferring the allowance via an app allows parents to balance watching the money while giving their children some freedom to manage it themselves.
“Clients always tell us they want to go into an allowance scheme because they think it’s a big part of helping kids manage a budget, but with money they often forget or don’t have the right change,” Dean Brauer, co-founder and president of gohenry, said in a 2020 interview. “When you make it automatic, it reinforces that consistency.”
To create a sense of ownership over their spending, many of these apps also let kids personalize their debit cards with a photo or color. Greenlight even has a “black card” for its Greenlight Max level.
Custom maps might seem like a minor perk, but “it makes it feel like it’s theirs,” Johnson said.
While encouraging kids to spend responsibly, these apps also emphasize the importance of saving by setting and tracking progress toward goals.
Till allows parents to boost children’s savings by matching the child’s contributions according to a set percentage or by paying interest on the balance. Parents and relatives can also transfer money, match contributions or pay interest. In the same way, Guardian allows parents and friends to give money to young customers by means of personalized “GoalCards”. Greenlight recently introduced Savings Reward, a return of 1% or 2%, depending on which level the family subscribes to, on their savings balance or goals.
“The most important thing you’re trying to impart to kids is the compound value of savings,” Johnson said. “Regardless of the specific features and how you design it, you want to show kids that if you have patience, there’s great reward that builds over time.”
Financial education is another element that may or may not immediately appeal to children using these apps. But having it is important, Williamson said, because as spending takes on an increasingly digital form, it becomes less tangible than money. He finds gamification particularly effective.
Goalsetter embeds quizzes sprinkled with pop culture memes and GIFs into its product. A Learn Before You Burn feature allows parents to freeze their child’s debit card on Sundays if the child hasn’t taken the week’s quiz yet, while Learn to Earn allows parents to pay a small bonus to their child for each quiz question they answer correctly.
Finally, most apps let parents hold the reins behind the scenes, allowing them to dictate how much can be withdrawn from ATMs or spent on a daily or weekly basis, and where that money can be spent. Or the app may completely block purchases from certain retailers, such as liquor stores or adult sites. Some apps send parents alerts about their child’s activity.
Johnson divides these challenger banks into two categories. Some, like Greenlight and Till, “are aimed at kids and teens but are really designed for parents,” he said. They provide a safe space for children and teens to learn money management until they are ready to take control of their own financial lives.
The second type is in the vein of Fluent: challenger banks that start out as a product for teenagers but move towards a more general audience so that they can grow over the lifetime of their customers and remain their primary banking provider.
“Most of Current’s clients are on average in their early to mid-twenties, but as they age and require more complex products and loans, I expect Current to become a more range of products to serve these customers,” Johnson said. “They never intend to let these customers leave this platform.” He anticipates that Step will create an equally enduring brand.
Features on the horizon
With gohenry, kids can donate 10 cents to 25 cents a week to Boys and Girls Clubs of America. Greenlight customers can search and donate to charities through a link to CharityNavigator.org.
“Charity is hugely important because Gen Z is very socially conscious,” Williamson said. He finds that if charitable giving is set up as a regular payment, similar to a monthly Netflix subscription, Gen Z is more likely to participate.
Investments are also slowly making their way into fintechs for Gen Z. BusyKid, for example, has a partnership with Stockpile that helps users buy full or partial shares with a minimum of $10. Greenlight, a registered investment adviser, allows users to buy fractional shares with as little as $1. It partnered with DriveWealth to execute the trades.
Features like these allow kids to learn about products they already know, like Apple or Nintendo, and learn that they don’t need a lot of money to start investing.
At some point, banking apps aimed at this demographic might consider integrating cryptocurrencies.
“Gen Z is very aware of this large cryptocurrency environment and is likely to own or be interested in owning cryptocurrency,” Kislin said. “This is the next frontier for the banking world.”
Johnson and Williamson both expect to see more partnerships between banks and these fintechs, where banks could take advantage of the user experience that neobanks have refined. This can take the form of acquisitions, strategic investments, white labeling or other means of collaboration.
These partnerships have already begun. The collaboration between JPMorgan and Greenlight is an example; Another is Goalsetter’s work with several financial institutions to sponsor Goalsetter accounts in their communities to meet the requirements of the Community Reinvestment Act.
When developing their own Gen Z-friendly accounts, banks may have more to think about than specific features.
“Don’t think of Gen Z as a monolithic generation,” Johnson said. “Children of 6 or 7 are far from being a first-class bank customer. When they turn 18, what will their expectations be of how the bank works and what would they be open to that would be inconceivable today?
