Is Teen Banking the New Way to Extending Banking Frontiers?

Digital banking is a norm today and banks that don’t pay attention are destined to bow down before competitors who took the leap. While getting into the digital banking bandwagon is an essential element, it is no longer the only cool stuff that a bank needs to have. In fact, the COVID-19 pandemic pushed reforms in the banking sector to new heights, with studies in leading European countries alone pointing out 40% of consumers opining about a change in the way they bank during the pandemic period with digital leading the charge. So now your customers know that digital is a blessing, and they will eventually move into that ecosystem if they haven’t already done it.

As the potential for luring in newer adult customers begins to wane slowly, the banking sector needs to scout for new targets. Teen banking could be the answer to extending banking frontiers globally. Recent UNICEF studies point out that nearly 16% of the world population, or roughly 1.2 billion people are adolescents. Nearly every country offers a competitive share to this population even though developing nations like India and China lead the pack.

Why they cannot be ignored?

In the past, the teenage population was never a target for the banking sector, predominantly due to the lower or near zero revenue prospects from this segment as there are only very few countries in which teenagers work and make a sizeable income to be managed through banking channels. But the situation is slowly changing as the rising middle-class population is letting teenagers handle their own money, even though being financed (in a majority or completely) by parents.

Today, it is not just a daily canteen or bus ride allowance that students are young teenagers handle on their own, but they make their own investment decisions on plenty of stuff that parents had to do in the past for them.

How do teens become involved in the financial value chain?

There are a few key factors that put teenagers in a noticeable position in the financial value chain that banks may want to explore. Let us explore a few of them:

• The digital rush: The rise of e-commerce combined with events like the COVID pandemic led to a rapid shift to digital services by consumers in nearly every sector from education to entertainment and food delivery and teenagers were not left behind as well. Parents today, let their kids make their own choices for fashion, the entertainment options they leverage, and the kind of educational assistance they need. With digital permeating all these sectors, parents get more confidence as the decisions are made mostly at home under their watchful eyes, and where kids spent their money in a more transparent and traceable manner. Hence, with teenagers getting financial autonomy, banks can step in with financial instruments to allow a risk-free environment for them with controls held by parents.
• Better fund flow: Recently, an Indian fintech company FamPay was in the spotlight for raising close to USD 38 million in one of the largest Series A funding ever raised for a startup. The company is a neobank focusing primarily on enabling online and offline card payments for teenagers. In a comprehensive survey on teenage financial trends done by the fintech, they found that nearly 50% of teenagers received money on-demand from their parents while only 23% had access to only a regular fixed pocket money income stream. India is home to the world’s largest teenage population. With over 250 million teenagers, the trend reflected in the study is a major area of interest that banks can explore as more teens have access to money and they are going to need financial instruments like cards, payment apps, and other digital facilities to seamlessly utilize this money.
• Rising number of high-net-worth teenagers through influencer marketing: It is not just ordinary household teenagers with family income that banks have as a target base in the teenage segment, but even self-made multi-millionaire kids. The thriving social media industry has led to the rise of hundreds of thousands of teenage influencers worldwide with plenty of them earning millions of dollars yearly just from their bedrooms using their smartphones. These earnings mostly come from brands that leverage their influence to target millions of followers. The influencer marketing market size worldwide is expected to hit nearly USD 13.8 billion in 2021.  A sizeable portion of this market will be consumed as paycheck by teenage influencers.
• Future prospects through trust: While the revenue size from teenage offerings may be limited for banks in the short run, building trust in the budding stage sets the ground for a bright future. When banks offer financial solutions for the whole family, including teenagers, they create an ecosystem that the entire family trusts. When teenagers eventually grow up and achieve financial independence, they will already have all the necessary arsenal to manage their money like cards, payment apps, credit lines, and much more. They don’t have to do more research on which bank to apply for a loan or a new credit card, etc. So, a limited revenue opportunity today has a very good chance of maturing into a sizeable revenue stream in the near future thereby justifying investments made for teenage offerings.

More and more neobanks are becoming aware of the impact that teenagers can have in the financial value chain. In fact, studies show that there were nearly 60 neobanks worldwide that catered to the teenage population. Traditional banking players need to take a page of this book and start building products that can attract teens and their families into their customer base. Get in touch with us to explore ways to build the perfect digital infrastructure needed to accommodate dynamic market trends into your banking offerings.