Parents who educate kids in lockdown may—finally—see value in youth payment cards
The coronavirus lockdown could provide the opportunity for parent-controlled payment cards or mobile apps for children to gain traction after a wobbly past in terms of consumer adoption.
Youth payment cards — typically tied to a stored-value account or mobile app with parental controls — make sense in theory. They allow parents to control allowance and encourage responsible spending, while also making it easier for kids to access and spend their allowances. But in practice, they have failed to provide the allure of a popular app like Venmo or the practicality of cash.
The coronavirus lockdowns have created a setting in which parents have more control, as well as more time to provide financial education. Thus, youth payment cards may emerge as a tool to help parents while also keeping germ-ridden cash out of their kids' hands.
"Many money management benefits come with teen or child debit cards," said David Shipper, senior research analyst with Aite Group. "But more than that, consumers are concerned about touching anything now, and cash is usually the only option for younger consumers to make purchases."
Because of that, a teen or child debit card that is contactless or can be added to a digital wallet would be considered a far safer way for children and teens to pay for things during the pandemic, Shipper added.
A Federal Reserve study last year found that, of those 18 and older, the youngest age group demonstrated the highest cash usage — giving some credence to the notion that a card would hold more appeal to younger spenders.
The landscape for prepaid cards designed for teen use was flat four years ago, especially after a promising youth payments company called Oink shut down its products. For nearly a decade, it operated under the name of Virtual Piggy, offering a service that enabled youths to buy games, educational materials and other retail products through partnerships with merchants.
About the same time, the Visa Buxx reloadable card for teens was also losing major issuers: U.S. Bank and The Bancorp. For its part, Visa began the teen-focused prepaid card ventures with Visa Buxx more than 20 years ago. Today, only 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 that children 13 and older can have in their own name.
Visa declined to comment on the status of Visa Buxx or similar products, and Mastercard did not respond by deadline.
"These types of cards have been around for quite a while, and I've worked with cards for a long time and have never seen any of them take off," Shipper said. "As cool as the idea is, for some reason, I have never seen any bank get traction off this type of product."
The concept of a parent-controlled payment card for teens has always been perilous, mostly because major issuers weren't seeing enough high-value transactions moving through the products or, even more problematic, not enough transaction volume overall.
"A youth wallet is not a big enough product to sustain a market, but it is worth considering because it is not just about harvesting these very early users into the financial platform," said Richard Crone, chief executive of San Carlos, Calif.-based payments consulting firm Crone Consulting LLC. "It is about engaging the parents it empowers, as the key to this market is setting up a delegate account."
Any youth payment scheme has to have a core system that has the delegate account feature, Crone said. "That is what all of the challengers, neobanks and fintechs in this space have offered."
The list of attempts that have come and gone — or remain available with little fanfare — include products like Capital One 360 Money, Bank of America Student Banking, Alliant, Chase High School Checking, Wells Fargo's teen accounts, Bluebird family account options through American Express, FamZoo, Google Pay connections to teen accounts, goHenry parental controls, Revolut Youth, Kard, Step, Greenlight, Current, Rebellion and others.
Last week, HSBC in Hong Kong launched its PayMe e-wallet for users 16 and older, a money transfer app linked to parent-supervised accounts. For younger children, the bank was offering a Children Savings Account that could be funded through PayMe.
"The beauty of this right now is the chance to sit side by side with the child and talk about managing money," Crone said. "That is really hard to do, but we have a reason to do it now and make another connection point for the child. And we really shouldn't be touching much of anything, let alone cash, right now."
In showing some desperation to save the youth card vehicle, GoSave, a Melbourne, Australia-based company, introduced piggy- bank toys paired with money-storage apps that allow users to save and spend money, or receive money from parents or relatives making P2P payments through an app like Venmo.
PayPal began working on a prototype earlier this year for a Venmo debit card for kids, but it has not announced any official launch of the product. PayPal declined to comment on the card's progress at this time.
Amazon has kept youths ages 13 to 17 in mind for a few years now with its Amazon for Teens option, which allows parents to set up an account with preset spending limits.
The SpendSmart Payments Company came into being seven years ago, after operating as BillMyParents since 2009. Its SpendSmart prepaid card established a way for parents and teens to monitor spending together, while using the online payment system technology BillMyParents initially introduced.
Two years ago, New York-based Current, a new teen-focused wallet, entered the market with a prepaid reloadable card issued through Metropolitan Commercial Bank.
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.
"Of all of these products, the play here could be Venmo, because it considers the social aspect more than the money itself through its connection with family and friends," Crone said.
Those in the financial education field have contended the missing ingredient in youth card payment schemes has been the financial education needed to keep a young person interested.
"The cards out there are too abstract to teach anything to a child independently," said Susan Beacham, CEO and founder of Money Savvy Generation, a company that for the past 20 years has stressed financial understanding for young people. "To succeed, those cards have to be married to educational content."
Youth card programs only allow kids to complete a transaction without their parents, "which is pretty provacative," Beacham said. "But it doesn't have the sticking power of teaching kids to spend wisely, and not buy everything you see, and setting aside money for bigger transactions."
It's a stretch to ask a young person to think in that manner without helping guide them through a process step by step, Beacham added.
Beacham's company has focused on children in grades K through 3 in creating the Money Savvy Piggy Bank, which has four money slots — save, spend, donate and invest. The company also provides guides and best practices targeting older teens and young adults.
"The challenge is to get one of these card providers interested in succeeding and not just being another card on the pile," Beacham said. "I am not criticizing the mission of the card providers because theirs is not to educate, but if you put the two together, you'd have the other piece of the puzzle."