The next frontier for cashless payments: Pocket money
- Payments from parents to children are beginning to go cashless, with some new tools giving parents the option of making digital payments to children for chores.
- Beyond a convenience factor, developers say financial education is an important objective of the digitization of parent-to-child payments.
A child who expects a reward from the tooth fairy may soon find it in the form of a digital money deposit rather than physical money under the pillow. As the world of payments between friends and family goes digital through tools like Venmo, Zelle, Square Cash and Apple's peer-to-peer payments feature, one of the last vestiges of the cash economy is payments from parents to kids. But now, banks and startups are offering ways parents can make digital payments to their children, a move that goes far beyond the convenience factor -- it's designed to help teach children personal finance skills early in life. From the banking side, Denmark's Danske Bank has taken an early lead. Last week, it launched a pocket money app for kids ages 8 to 12 that is free to use for parents who are Danske Bank customers. In a consumer environment where mobile payments are commonplace (89 percent of Danes used mobile payments last year, according to Visa), using cash to pay children's allowances often isn't easy for parents. "Since we are very digital, we have mobile payments solutions; it's very common that parents simply don’t carry cash," said Line Munkholm Haukrogh, head of digital payments at Danske Bank. "Sometimes kids don’t get paid on a regular basis, even if the parents promise." Through the app (called Lommepenge, which means pocket money in Danish), parents can pay their children allowance money through the Danske Bank mobile app, which can be transferred to their child's Lommepenge account. The bank also offers a debit card for the child's Lommepenge account. The pocket money app lets parents and children create a "virtual vault" of savings, a means for them to begin a conversation about money. "It could be that they're saving up for a bike or whatever they want to save up for," Haukrogh said. "It's a way to enable parents to say, 'Hey, what are we going to spend our money on?'" The app also lets parents monitor the spending of their children, set up recurring transfers, block access to the debit card and set up spending limits. In North America, where mobile payments haven't caught on as quickly (a recent study from Accenture found that regular adoption last year stood at 19 percent), startups have forged an early path on payments from parents to children. A Bank of America spokesperson told Tearsheet that the bank's peer-to-peer payments service Zelle allows for parent-to-child digital payments, but Current, a startup that launched in the U.S. last month, is taking that further by creating a platform that merges task assignments from parents with digital payments to children. Current can be accessed through the web and a mobile app. "What you can do is set up one-off chores or tasks -- No. 2 is poop duty to clean up the dog poop and No. 1 is cleaning up one's room," said Current founder and CEO Stuart Sopp. Current, which has 2,500 users so far, connects to parents' bank accounts through an API and offers a debit card for the child. Current is supported by subscription fees; a one-year subscription to the service costs parents $3 a month. According to Sopp, a task assignment sequence could unfold as follows: A parent assigns a room-cleaning task to the child, the child cleans the room and sends a picture of the clean room to the parent, who then sends a digital payment upon approval. Current also offers parents capabilities to monitor their child's spending, set up spending limits or block access to the debit card. For Sopp, the drive to set up this kind of tool was a means to offer digital payments to his daughter for household tasks. "I wanted to be able to give my daughter [digital] money and teach her good financial habits," said Sopp. "There was no good way of doing this, and with the digitization of families and money along different devices, they have nothing to buy with cash anymore." Current offers users three types of wallets -- one for spending, one for saving and a third for donations to charities. The under-18 customer segment is a vast market ignored by the major U.S. banks, said Sopp. "There's a lethargy around banks in general, and they have enough problems dealing with the erosion of their customer base without having to deal with the trouble of marketing custodial products," he said. "[Current] is the digitization of an old financial discipline -- we want to start that here as a cultural norm in this country to teach financial education." Photo credit: Current