How neobanks are leveraging the Gen Z market

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Cash App became the latest fintech to target its services to the Gen Z population when it announced last week that it would open the application to 13-17 year olds.

The platform – owned by Twitter CEO Jack Dorsey, who also runs digital payments company Square – now allows teens to send peer-to-peer payments through the app and use a credit card. personalized payment, with the appropriate consent of a parent or guardian.

Cash App’s decision to open its platform to a younger population follows a growing trend in fintechs to design products for the Gen Z population.

Several neobanks have built their platforms to meet the financial needs of young people – a market these digital players say incumbents have historically overlooked.

Cash App’s decision will likely be mirrored by other payment and digital banking platforms that serve a wider audience while viewing the children of current customers as an untapped market.

“The key to winning over this audience is convincing the parents of these teens, who must give their consent for their child to use these services,” said Shayli Lones, vice president of marketing for MX financial data platform, and one of the authors of a recent report explore Gen Z and Millennial trends in banking.

“As more and more leading data companies help make finances the way they should be, especially among families, we’ll see more fintechs and neobanks taking over the younger audience,” he said. she declared in an e-mail. “Our research has shown that only 47% of Gen Z respondents say they have an account at a traditional bank, credit union, neobank, or tech company. It makes sense that these neobanks are laser-focused on conquering this demographic. “

As more fintechs create products for younger consumers, traditional banks also have an opportunity to better capitalize on demographics, Lones said.

“Our research has shown that local and regional (traditional) banks have more work to do to improve their reliability – and their products and services – if they are to appeal to the younger generations,” she said.

Millennials and baby boomers are more likely to trust local and regional banks, while their Gen Z kids trust national banks more – 44% for Gen Z versus 27% for Baby Boomers, according to Lones research.

“We believe that parents’ banking habits influence their children, but the difference in their banking habits is gradually widening,” she added.

Here is an overview of several neobanks already established in the Generation Z market.

Stage

Step founder and CEO CJ MacDonald said he came up with the idea to launch Step after noticing that traditional banks and fintechs only made products for the 18-and-over market.

“A lot of people start their financial journey before they are 18. There wasn’t a product on the market that really suited their needs,” he said. said Banking Dive in December. “When we looked at it, we said, ‘What if we could create something where we became that first bank account, that first spending card? “”

The San Francisco-based startup, which launched in 2018, offers teens an account insured at no cost by the Federal Deposit Insurance Corp. (FDIC) accompanied by a secure spending card, allowing users to accumulate credit. The platform also has a peer-to-peer payment function.

A parent or legal guardian is required to co-sign a Step account for users under the age of 18.

Step closed a $ 100 million Series C funding round in April after reaching over 1.5 million users six months after launch, according to TechCrunch. The app is supported by celebrities and social media influencers such as TikTok star Charli D’Amelio and NBA player Stephen Curry.

Although Step targets a young demographic, the account is designed to grow with the customer, MacDonald said.

“Our goal is to grow with the consumer every step of the way in their life, hence the name,” he said. “We are not a teen bank. We are a banking platform and hopefully a brand for the next generation.”

Green light

Atlanta-based startup Greenlight launched a debit card for kids in 2017 and claims to serve more than 3 million parents and children, according to TechCrunch.

The platform, co-founded by Tim Sheehan and Johnson Cook, caught the attention of JPMorgan Chase last year.

The largest bank in the country in partnership with Greenlight in October 2020 to offer an account designed for children called Chase First Banking.

Greenlight, which is valued at $ 2.3 billion after closing a $ 260 million funding round in April, is also considering a new service targeting parents.

The platform plans to launch an investment platform that aims to teach parents how to research stocks and exchange traded funds, according to CNBC.

The platform already has savings and investments for children.

“Beyond helping their kids get smart about personal finances, by working closely with our families who use Greenlight, one big thing that has become clear is that saving for college is a big challenge.” , Sheehan told CNBC. “And then other things come up in a family’s life that might cause them to need money for different purposes.”

Come on Henry

UK-based challenger bank GoHenry offers Gen Z users a teenage account, instant peer-to-peer payments and a product called Giftlinks, which allows GoHenry members to receive cash in gift from relatives and friends approved by parents.

The platform, launched in Europe in 2012, is expanding in the United States, where it has been present since 2018.

Led by GoHenry CEO Alex Zivoder, the company raised $ 40 million last year in a funding round led by US private equity firm Edison Partners, with investments from Gaia Capital Partners, Citi Ventures and Muse Capital.

Zivoder says Banking Dive Last year, the company planned to use part of the funding to increase its advertising on social media channels, such as Facebook and Instagram, and increase its investment in U.S. TV ads.

GoHenry charges a monthly subscription fee of $ 3.99 per account in the United States. Subscription fees, Zivoder said, are the company’s main source of revenue.

The product is designed for users aged 6 to 18, but Zivoder said the option remains open to someday create a product that allows GoHenry customers to continue using the account once they reach the adulthood.

The main focus of the platform, however, remains on the under-18s, Zivoder said.

“The reason we don’t focus on what happens at 18 is because we want to do a great job on what happens before 18, which is our heart,” he said. he declares.

Last month the company launched a new in-app product called Money Missions, a fun educational experience aimed at increasing financial literacy among Gen Z.

The company claims to have 1.5 million members worldwide.

The copper

Seattle-based Copper Banking, a neobank targeting teens, launched in 2019, and claims to have more than 350,000 users on its platform, according to TechCrunch.

Eddie Behringer, CEO of Copper Co-Founders, and Stefan Berglund, CFO, previously co-founded Snap! Raise, a crowdfunding platform for young people. Behringer and Berglund told TechCrunch they plan to emulate the model that led to the success of their previous company, which raised more than $ 90 million in venture financing.

“We have worked with millions of teens and parents in our old business,” Behringer told the publication. “This playbook is one of the main reasons we’ve grown so quickly. We’ve been down this path before – in partnership at the community level. It’s something that is typically overlooked in technology models. ‘today.”

The startup offers users a debit card, peer-to-peer payments, direct deposit, automatic savings options and integrates financial education into the platform.

Copper is also using young ambassadors to promote the platform in schools, a strategy that helps the startup lower its customer acquisition costs, Behringer told TechCrunch.



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