Can APIs help a teen-targeted payment card succeed?

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Success stories about teen-focused payment cards are relatively few, despite steady improvements in technology to give kids a measure of independence in their spending while parents hold the purse strings via shared apps.

But a new wave of startups promoting prepaid cards for teens is getting investors’ attention with products that use technology to update their teen-focused sales pitch.

One of the newest contenders is Current, which launched in 2015 in New York and has raised nearly $10 million so far with a concept that costs $3 per month per account for a reloadable prepaid card issued by Metropolitan Commercial Bank in partnership with processor Galileo.

The category of teen-focused prepaid cards began about 20 years ago, when no less than Visa gave youth-targeted payment cards its best shot with the Visa Buxx prepaid card. Today, only one major card issuer—Navy Federal Credit Union—still uses the Buxx name on its prepaid product for teens.

TD Bank is another large issuer that still supports a teen-targeted prepaid card, after it migrated from its own Visa Buxx card to the TD Go reloadable Visa card, available in 16 states. Parents pay $1 each time funds are loaded to the card, which provides a variety of parental controls for a card children 13 and up can have in their own name.

There's also Greenlight Financial Technology, which has raised $23.5 million since 2014 and garnered 100,000 users since last year’s rollout of a card targeting youths aged 13 and up. Its Mastercard reloadable prepaid card account is backed by SunTrust Bank, Ally Financial and Amazon Alexa Fund. The difference for Greenlight’s card, issued by Community Federal Savings Bank, is its patented “smart debit card” technology empowering parents to choose the exact stores where children can spend funds. Its fee is $4.99 per month.

The Current card hopes to set itself apart via its API-based platform enabling streamlined integration with banks that may issue the card, or opt to add customized features, according to CEO Stuart Sopp, who founded the company after years working in financial services in the U.S. and the U.K.

Current’s app includes features enabling parents to establish “chores” teens can do to earn their allowance, request money from friends and set spending goals, which Sopp said increases the product’s utility versus previous incarnations from other marketers.

“We think the confluence of smartphone and app usage, plus the increase of teen spending on more mobile channels and devices may mean the timing is finally right for a prepaid card for teens that uses the app in new ways,” Sopp said.

Since rolling out a year ago, Current has attracted 141,000 users and the company is in discussions with a major financial institution that plans to use its platform, Sopp said. Banks could add on insurance for purchased items, for example, or other services, he noted.

“Our API allows a quicker white-labeling of the Current offering for smaller banks and credit unions and allows us to be agnostic about where the deposits are,” Sopp said.

That may eliminate some of the friction in scaling the product, but prepaid cards for teens could face more competition now than ever before, warns Kevin Morrison, a senior analyst with Aite Group.

“The essential challenge with payment cards targeting teens is that parents want to have visibility into the kid’s spending, but what kids crave is privacy and independence, so it’s a product with a built-in conundrum,” Morrison said.

Profits are razor-thin with reloadable prepaid cards because of the low debit interchange rates and relatively high cost of regulatory compliance for teen cards, which fall under additional rules including Children’s Online Privacy Protection, Morrison said.

The other threat to prepaid cards targeting teens is the evolving P2P environment, which comes quickly within reach of young users whose eligibility for a youth-targeted card is short, he said.

“Startups targeting teens with prepaid cards will quickly bump up against the evolving capabilities of P2P products like Square Cash, Venmo and Zelle that are becoming more accessible and versatile to younger audiences, and marketing competition there is going to be very strong,” Morrison said.

Amazon is another competitive factor through its Amazon for Teens shopping option launched last fall. The service enables parents to give teens their own login and password to make approved purchases through the family’s Amazon Prime account, with suggested merchandise. Amazon declined to share details but said the company is “happy” so far with the program’s results.

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Prepaid cards APIs