The next frontier for cashless payments: Pocket money

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

Venmo rising: Why PayPal wants you to pay for purchases using the app

The act of posting payment details on an emoji-rich social feed is about to move to payments for purchases.  Venmo, the peer-to-peer payments service said to be most popular with millennials, is expanding its reach so users will be able to have that same experience when buying things.

PayPal CEO Dan Schulman announced this week that the option to pay with Venmo for purchases will be available for any merchant that accepts PayPal by the end of the year. To use the feature, users will need to enable it from within the app. It’s remarkably similar to PayPal One Touch, with the ability to split payments with friends and share what it calls the “excitement for each purchase” on the social feed.

“We think that’s powerful in the long run to think about Venmo being your most intimate social network,” said spokesman Josh Criscoe. “On Venmo it’s people you’re doing most of your activities with.”

But beyond offering users a back-up payment method, what’s really driving the move is a bigger strategy to connect Venmo to brands and generate revenue. While Venmo processed $6.8 billion in payments in the first quarter of this year and $17.6 billion in payments last year, Criscoe acknowledged that the peer-to-peer payments aspect of Venmo is not a money maker for the company. Venmo subsidizes the costs of the transactions, he said, keeping it free for users. But for ‘pay with Venmo,’ merchants will pay 2.9 percent plus 30 cents per transaction — the same price as PayPal.

“In the long term, it’s a way for merchants and brands to get exposure and connect with more users,” said Criscoe. “There’s a lot of powerful stuff here than just the buy button. We hope that Venmo is something that you can use to pay anywhere and everywhere.”

While ‘pay with Venmo’ was first rolled out in 2014 with selected merchants using the Braintree platform (e.g. Uber, Airbnb), the ability to use it with the millions of brands, including Target and Walmart, is significant, especially as the peer-to-peer payments space gets more competitive with the launch of bank-backed Zelle and rumors about an Apple rival to Venmo in the works.

Despite more competition in the peer-to-peer payments space, Criscoe said connecting the Venmo experience with brands has long been part of its vision.

“Venmo has always been on this path,” he said. “We have a really strong base of customers that are really loyal to Venmo and evangelize about it every day — it’s spread by word of mouth with little or no marketing spend.”

 

Hardly a Venmo killer, banks are being cautious with Zelle rollout

Banks aren’t ready to call Zelle’s hyped entry into the peer-to-peer payments space a Venmo killer, at least not yet.

Early Warning, the company owned by a consortium of major U.S. banks that runs the peer-to-peer payments network, announced Monday that the volume of payments made through that channel were valued at $55 billion last year — more than than double the value of those originating through PayPal-owned Venmo. For the same time period, Venmo processed $17.6 billion of payments.

Venmo’s success, however, has been driven by brand recognition, to the degree that “venmoing” a few dollars for beer is now synonymous with the modern experience of dealing with money. But banks are holding off on pushing the Zelle name for now. They haven’t launched an ad blitz, for instance.

Jeremiah Glodoveza, vp of communications, said many of the participating 20 banks, including Bank of America, U.S. Bank, and Wells Fargo have integrated the peer-to-peer payments capability of Zelle within their mobile banking apps without explicitly calling it Zelle. That will come later. And in the meantime, Zelle has created a design and experience “standard” so the offering looks and feels the same across all banks.

“As the banking industry moves toward a full rollout of the Zelle network, Wells Fargo is proud to offer our 20 million mobile customers the connectivity and the most vital features of the Zelle experience,” Brett Pitts, head of digital for Wells Fargo virtual channels said in a statement. “As we look forward to implementing the Zelle brand into our app, we’re also pleased with the incredible transaction volume this network already handles.”

Early Warning said it needs to continue to test the technology before a formal launch.

“We’re making sure all the banks in the network are connected up, so we can deliver on the promise of money movement in minutes — that’s a significant technological challenge to do,” Glodoveza said, noting that benefit of peer-to-peer payments through Zelle is safety and immediacy, given its capability for near-instant receipt of funds.

While Glodoveza didn’t give a precise date as to when Zelle will launch as a brand, he said it would be ready to roll out in a few months. Customers of banks that aren’t Zelle participants will also be able to use the network through a standalone app that connects to their bank account. The app’s roll out will coincide with a national advertising campaign, which he said will include digital, print, out-of-home and social media outreach.

When asked if banks are latecomers to the game of peer-to-peer payments in a space Glodoveza said Zelle’s broader appeal will center Zelle’s ease of use and quality. And the banks have a sort of strategic advantage in this place: Zelle has the benefit of layering on top of existing institutions that people already use.

“What we’re focusing on for our brand is highlighting the value proposition for Zelle and within that, we’re looking at the entire market to educate people that this is a viable alternative to checks and cash.”

[interview] Paying for the insurance we actually need via a peer-to-peer model

friendsurance - paying for insurance we need
Friendsurance's Tim Kunde
friendsurance’s Tim Kunde

Tradestreaming had the opportunity to chat about the future of insurance with Tim Kunde. He’s co-founder and managing director of Berlin-based friendsurance, a company taking aim at disrupting the insurance industry. It’s doing so by changing the way we purchase and subsequently, behave with insurance coverage.

Tim graduated with a Masters in International Management. He started his career with The Boston Consulting Group, advising various companies on consumer goods and insurance matters. He is responsible for marketing, business development, sales, IT, product, customer support and CRM.

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What was wrong with the way traditional insurance worked? Why do you think it was expensive and opaque?

In 2010, the founders of Friendsurance realized that many people own insurance that they don’t or only rarely use. However, insurers don’t reward caution and fair play – even though this means less work and lower costs for them.

We don’t think this is fair.

This is why we have developed a disruptive peer-to-peer insurance concept, which rewards small groups of users with a cash-back bonus at the end of each year if they remain claimless: the claims-free bonus, which has been selected as shortlisted project at Word Summit Award 2015.

How does this all work?

Policy owners with the same insurance type form small groups. A part of their premiums is paid into a cashback pool. If no claims are submitted, the members of the group get some of their money back at the end of the year. The claims-free bonus is available for new insurances and can also be added to existing home contents, private liability and legal expenses insurances very easily – without any change in coverage, premium or provider.

You provide bonuses if groups go claims-free during a period. How does that work? Do policy holders really change their behavior in this model? What’s the role of insurance companies in your model? Do they benefit as well?

how friendsurance works
how friendsurance works

The claims-free bonus can be added to existing insurance contracts: A deductible is integrated into the contract, or rather, the existing deductible is increased to the maximum. The increased deductible comes along with a lower premium. The difference between the old contract without deductible and the new contract with deductible flows into the cash back pool.

The premium reduction allows the cash back in case of no claims. In case of a claim, the policy owner does not have to pay for the deductible himself because it is covered by the pool. Therefore, the policy owner profits from the low premiums of insurance contracts with deductible without having to take the risk of high expenses in case of claims.

As the claims-free bonus rewards careful and fair behavior, we record a claim frequency below market average. For insurance companies, improved behavior means reduced cost of claims and also reduced processing cost for small claims.

Additionally, the claims-free bonus helps to increase customer satisfaction as well as customer loyalty. Currently we are cooperating with approximately 70 domestic insurance partners.

You’re active in Germany — will friendsurance model extend internationally? Do you have expansion plans?

Friendsurance has always been planned as international project. We are currently checking expansion possibilities in other markets.

It feels like the insurance industry is ripe for disruption but fewer firms are focused there. Why do you think that is? Why did you target this industry when you created friendsurance?

That there are few startups may be due to the fact that the insurance industry is still very regulated and lacks trust, making it hard to convince consumers of new ideas. You need long vision and patience. But we can see a change: Recently more and more startups are entering the insurance market.

Can you give readers a taste for what else you have planned with the product/service in the future?

We plan to offer additional insurance categories and expand to other markets.

 

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Get off the investment roller coaster by getting the Lending Club gospel

Lending Club produced a nice new video I liked and thought you’d appreciate seeing.

In 5 years, the firm has underwritten over $1B in peer-to-peer loans and is on fire. As I’ve written before, I believe the direct personal loan is on its way to becoming a new asset class in investor portfolios, thanks to Lending Club.

Additional resources

  • Listen to my interview with Lending Club founder and CEO, Renaud Laplanche

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