Why TikTok teens could be the next fintech trend for neobanks

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Digital bank

Generation Z is growing up and becoming an increasingly interesting field for new neo-banks and venture capitalists. However, monetizing these digitally native consumers could prove more difficult, writes Selin Bucak.

Image source: Photo by Max Fischer from Pexels

Digital banks that were developed with millennials in mind have now turned their attention to the next generation, but their path to success is about to be bumpy.

“It’s an interesting investment opportunity, but also a delicate one,” said Marcel Van Oost, a newbie fintech investor.

“The best brand will eventually win in the digital banking age, so the ones that really build a brand that customers believe in, not just another digital bank like Revolut or Starling. They are the first to launch a bank [that was] fully digital. But the ones that will end up winning are the best brands. “

Targeting adolescents is not a new phenomenon. In 2012, GoHenry and Osper in the UK were created to do just that. But over the past few years, it has become more popular as fintech entrepreneurs have started looking for niches that they can disrupt.

According to fintech research group WhiteSight, there were nearly 60 neobanks aimed at children and adolescents around the world in 2020. This includes existing digital banks that are expanding their services, like the Danish neobank Lunar, which has launched accounts for adolescents aged 15 to 17. year; as well as those that only target teenagers like Pixpay and Kard in France.

The number is set to increase. For example, in Germany, a new digital bank for 15-24 year olds is launched this month called Pockid.

On top of that, mainstream banks also realized they had missed an opportunity by neglecting teens for decades, according to Caroline Menager, co-founder and CMO of Pixpay, who says some banks have started building deals for this segment. to make sure they don’t lose the children of their existing clients.

Pixpay was launched in 2019 and has raised 8 million euros in three months from investors.

“We found that teenagers were totally abandoned by traditional banks. On the other hand, we could see that kids were ready to shop online, had digital habits, but couldn’t stick to them. “

So the company targets teenagers between the ages of 10 and 18 and aims to teach them how to be good with money when they become adults. By the end of 2020, Pixpay had 50,000 customers and Menager said he was aiming for 150,000 by the end of this year.

Even digital banks that were targeting working millennials are struggling to ensure profitability. Providing services only to adolescents who do not have a large income will make it more difficult. That’s why the subscription model is so important, according to Pixpay’s Menager.

“We believe that what we offer families has value not only as a payment card, but also because it teaches you to be good with money, to make your child happy and safe.”

Pixpay charges € 2.99 per month, which includes everything from payment card to cash withdrawal. When asked if they would expand services to adults, Menager said the group is currently aiming to focus on teenagers and create the most technologically advanced product for that segment.

“When you consider that this market is really under-equipped, with 90% of teenagers’ transactions made with cash, there is a huge market in France and in Europe,” she added.

Pixpay isn’t the only one relying on subscription payments. According to junior consultant Benjamin Kral of Amsterdam-based Fintech specialist Fincog, neobanks that focus on teens and children don’t have many options for generating income.

“It usually revolves around the subscription,” he said. “Other revenue models don’t make a lot of sense. It is not a large volume of transactions for the interchange fees and there is no room for a lot of interest income.

Then it depends on whether a neobank can acquire a certain number of clients to achieve profitability or not, and it will depend on a lot of variables. “

A bank like Revolut, which launched junior accounts for ages 7 to 17 last year, has more diverse sources of income, which Kral says can be an advantage. However, if a neobank that focuses only on teenagers can acquire several million customers and offer a premium product, that can also work “because you are a niche player and famous for that specific product”.

But there is a crucial decision that can make or break banks by launching services for the younger generations. Will they target teens or parents?

While Kador by Boursorama Banque targets parents and Kard the teenagers themselves, Pixpay has decided to tackle both.

Menager thinks that if the parents are not on board it will make it more difficult because they are the ones who put the money in the account. But while the product isn’t desirable for children, it doesn’t work either, she says.

According to Van Oost, a lot of investment will be needed before people see a return in any case.

If the business tries to attract parents, as customers turn 18 and leave the account their parents have opened for them and have access to, there will be a constant need to acquire new ones. clients.

But if children are the first point of contact, then banks that only offer services up to a certain age will have to grow with their customer base and expand their offer over time. According to Van Oost, while it might take time and money, it’s the players who might be successful in the end.

“It’s an opportunity for them to build a relationship with [Gen Z]. But by the time they have their first salary, they need to offer more services to clients and grow with them.

You then build a relationship, and they have no reason to sign up with another bank, ”he explained.

“If you do it like that, it will take a long time for you to see some return on your investment. These generations don’t spend a lot of money. It will take a long time for you to be able to monetize a younger generation like this. “

While monetization may be more distant for banks focused on the next generation of ultra-digitally savvy users, the millions of existing users of neo-banks such as Revolut, which are growing rapidly around the world, could simply ensure the long-term sustainability of the sector.

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