As popularity of teen banking grows, competitors differentiate in marketing and monetization

"All of the money flowing to the space speaks to the enormous market opportunity but also to how competitive customer acquisition is," said David Stark, General Partner at Ground Up Ventures, an early stage VC firm with a strong fintech focus. "These businesses require a lot of capital to grow as they are engaged in an expensive land grab. But the hypothesis is that the high CACs are justified given extremely high projected LTVs that can literally last a lifetime."

The journey starts with knowing your user to the max, said Simon Elkjær, the chief marketing officer of avXperten, a Denmark-based electronics store.

“When it comes to marketing to teens or any similar demographic, marketers need to realize that they have to dedicate even more effort into researching their audience,” said Elkjær. “What the current trends are, and what issues they hold dear.”

For Copper Banking, a Seattle-based digital bank made for teens, the key to understanding its customers has been going straight to the place they’re most likely to be found: high school. This has given the company a chance to hyper focus on their key demographic and avoids spending a lot of time marketing and acquiring on social media channels.

“What we were able to prove early on, pre-COVID, is that by working through the 30 or so groups that exist in any high school -- think arts, sciences, athletics-- we were able to introduce Copper through the value proposition that we want to actually pitch, rather than pay Facebook or Instagram for marketing,” said Eddie Behringer, co-founder & CEO of Copper.

While this marketing channel breaks with teens’ digital-first habits, Behringer said the method has helped them zero in on key locations and gain popularity within these areas.

“The approach is obviously a little counterintuitive from a digital marketing perspective,” said Behringer. “But it allows us to really lock down key cities.”

For Step, a teen bank based in California, understanding its key demographics has also been about understanding and pinpointing key hang out spots -- digitally speaking.

Step has relied on social media platforms teens are likely to visit.

“Gen Z relies on social media --especially influencers -- for their news and subsequent product discovery,” said CJ MacDonald, founder & CEO of Step. “We engage teens through community platforms like Instagram, Snap and TikTok.”

Then there’s of course the message Step is actually sending through social media.

“Teens are looking for a product that’s very modern and has the ‘cool’ factor. In terms of functionality, they’re most interested in the ability to earn money, send P2P payments and checkout with Apple Pay,” he said.

There’s also the matter of monetization that is unique for teen banking. It’s more complicated than just charging the user. You have to charge someone who’s actually old enough to pay -- for the most part, that means parents, but it could mean other people, as well.

Copper goes about earning revenue through subscription fees to the parents of the teens using their services. It also gets a percentage of the service fee card networks collect for processing  a Copper debit card. Step also makes money through getting a percentage of the interchange fee.

While their business models may differ slightly, both banking solutions earn revenue through parents in some way -- either directly through fees or indirectly through parents engaging and getting involved in their kids financial literacy.

Step’s approach to appealing to parents is parallel to its approach to appealing to teens: it's about finding the right channel and the right message.

“The Reuters Institute reports that those over the age of 35 are most likely to get their news from traditional media outlets,” said MacDonald. “ So, to reach parents, we prioritize telling our story through traditional media outlets and platforms like Facebook, LinkedIn and Twitter.”

And in marketing to parents, Step modifies its message as well, zeroing on the issues important to them.

“Parents are more focused on things like security, financial literacy and credit building capabilities,” said MacDonald. “Asking someone to entrust you with their money and their teen’s financial education is not something we take lightly, so we ensure it’s at the forefront of our marketing.”

For Copper, its approach to marketing to parents has been less about targeting demographics as much as it’s been about zeroing in on stages of life. Copper wants to catch their potential customers just as parents and teens are actively looking together for a teen bank account -- a first banking experience. The firm’s educational content, on site and on social media, should make it findable when its prospects begin looking for a bank.

“Our goal is to really build a relationship with the teen early. Our median age right now is 14 years old. So we're hyper focused on owning that time in which parents and teens are looking for their first bank account.”

The trend in consumer fintech has been to try to capture consumers at earlier lifecycle inflection points, according to Ground Up Ventures' Stark. "The first financial service provider to build trust early on with a consumer has the pole position on nurturing a really sticky relationship and growing alongside that consumer with new products and services as they mature and their financial needs change."

Stark cites SoFi, which launched targeting college grads with student debt refinancing, securing a relationship early with their users and maintaining that relationship until their users were old enough to start buying homes, at which point they started offering them mortgages.

"Much like talent scouting in baseball, the race has been to try to build these relationships at younger and younger ages, and the teen finance apps are the final act in this move upstream. The winners will be massively rewarded," he said.

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Ultimately, teen banking solutions seem to be a natural fit for teens, a generation built on tech-savviness and an interest in financial education.  

“What we're seeing is a huge wave of fintech partnerships and innovations in banking that naturally lend themselves to attracting a younger, tech-savvier set of customers,” said Jim Pendergast, svp at altLINE, a division of The Southern Banking Company. “That's where Gen Z comes in, a generation born around the turn of the millennia that's digital-first in most aspects of life, including banking.”

The challenge may not be to convince teens to use these solutions, but rather to convince teens these solutions match them in a way that goes beyond just helping them manage their finances.

“We have to be mindful that for this generation, aspects of luxury from a branding and goods perspective is less important,” said Evgenia Loginova, CCO of BPC Banking Technologies, a payments technology company. 

“But they are more influenced by the value of quality of life. So climate change, remote work and e-learning- - all of this should come into shaping the future of digital banking products.”