The Children's Online Privacy Protection Act (COPPA) adds burdens for any company that works with minors online, but it also adds opportunities for payment companies, which already vet their users extensively.
Virtual Piggy last week launched a service called VP Authenticate that lets its merchant clients verify that children have their parents' permission to use and transact on their sites. The demand for such services could spike as regulators crack down on less thorough methods of verifying minors' identities.
The Federal Trade Commission has hinted that "e-mail plus," a widespread method for merchants to authenticate parents' approval of their children's online activities, is too subject to fraud. Kids can merely open an e-mail account to satisfy the requirements, says Aite Group senior analyst Shirley Inscoe. Merchants who are fooled are subject to not only a loss of customer but also a penalty for violating COPPA.
"There's really no security involved (with email plus)," Inscoe says. "Kids are creative, and they can easily create such an account in their parents' name and circumvent that process."
This creates a demand that payment companies can meet. "I'm glad to see the market moving in this direction because it really is fulfilling a need," she says.
Virtual Piggy, based in Hermosa Beach, Calif., began as a service for parents to help children manage and spend money, such as their allowance. When purchasing from a merchant who partners with Virtual Piggy, a child has to enter a Virtual Piggy username and password before the transaction can continue.
In setting up the Virtual Piggy account, the parent has placed certain controls in the account, and can be notified for approval of a purchase through e-mail or text message. With Virtual Piggy's new service, VP Authenticate, the merchant can use Virtual Piggy's existing vetting of the parent and child to get permission for the child to use its site.
"If you're [under] 18 there's really no way of purchasing online easily without having to go get your parents' credit card, and that's when all hell breaks loose," says Virtual Piggy founder and CEO Jo Webber. "It's all about putting the parents back in control of the situation to stop the kid being taken advantage of, whether it's falling into a predator trap or some kind of financial scam."
To date, there are 40 merchants who partner with Virtual Piggy, including most recently, the American Society for the Prevention of Cruelty of Animals (ASPCA), which encourages youth to donate to causes.
"As the Internet has grown up it's become part of our everyday life," Webber says. "It's also become part of our children's everyday lives."