OBSERVATIONS FROM THE FINTECH SNARK TANK
On the heels of the success (i.e., growing adoption) of digital wallets from Apple, Google, and PayPal, some large banks—including Wells Fargo, JPMorgan Chase, and Bank of America—have launched their own digital wallet, Paze, through Early Warning Services, which provides the Zelle person-to-person (P2P) payment tool.
Where does this leave the other thousands of banks and credit unions in the US?
They might be looking to create their own digital wallet to compete with Apple, Google, and the big banks, but if they are, they’re barking up the wrong tree.
The Digital Wallet Opportunity For the Rest of the Banks
According to a new report from Cornerstone Advisors, The Rise of Family Digital Wallets, community-based financial institutions should set their sites on offering a specialized digital wallet focused on helping consumers manage the finances of their Gen Z (born 1995-2009) and Gen Alpha (born after 2009) children.
Americans are no strangers to digital wallets. According to Morning Consult, seven in 10 American adults use PayPal, four in 10 use Venmo and Cash App, and more than three in 10 use Apple Pay and Google Pay.
These tools, however, typically lack the features and functionality to help consumers manage their family’s finances, nor do they help parents monitor, control and guide their children’s’ spending activity. In addition, banks have done little to develop products to address the younger segments beyond offering “youth savings” accounts.
This has given rise to fintechs that offer youth- oriented banking apps or “family digital wallets” that provide children with features and functionality that allow their parents to monitor and control their behavior. According to Apptopia, family digital wallet providers Step and Greenlight are among the top 15 most downloaded banking apps in the US.
What is a Family Digital Wallet?
Family digital wallets are apps designed to provide younger consumers, who would otherwise not be able to open a banking account, with the tools to begin their first foray into finances while providing parents with the ability to monitor and control their activity.
In general, these youth banking apps offer some form of a savings account, a debit card and an element of education to promote financial literacy. They also typically include features that let parents control their child’s spending and transfer money to them from parental accounts. The apps geared toward older teens may also introduce investment options, like mutual funds, ETFs and stocks.
While specific features and functionality differ, the family digital wallet experience can be viewed in through three “experiences”:
- Parent experience. Parents’ experience typically involves: 1) monitoring, where parents can see where their children are making transactions, what they’re buying, and how much they’re spending, and 2) control, where parents have the ability to limit spending and withdrawals, as well as the individual merchants with which their child is authorized to transact.
- Child experience. The child experience encompasses: 1) money movement, enabling children to request funds from parents, send money to other users, and allocate funds to “buckets” (i.e., spend, save, invest or donate), and 2) financial education, where children can earn real or platform-based rewards by playing financial-based games or by completing tasks such as saving a certain amount of money.
- Shared experience. The shared experience is designed to provide the tools for parents and child to manage chore/task management, budgeting, and savings goals.
The Overlooked Family Digital Wallet Opportunity?
It’s obvious (or should be obvious) that two important benefits from family digital wallets are attracting really young consumers (Gens Alpha and Z) who want to use technology to manage and spend their money as well as somewhat young consumers (Millennials in their 30s and early 40s) who are now the parents of young children.
The potentially overlooked benefit of family digital wallets—especially important today—is the opportunity to attract deposits.
According to Tristan Green, the author of the Cornerstone report:
“Based on when children begin receiving an allowance and the number of parents that pay an allowance, a bank or credit union serving 50,000 households could capture more than $10 million in incremental deposits. And this doesn’t include deposits that could come from the wages earned by working teens.”
Nationwide, this represents a nearly $26 billion deposit acquisition opportunity.
By offering a family digital wallet, institutions can begin to help children develop money management skills while building crucial brand loyalty. Those that don’t have an answer for young customers today are at risk of losing their customers tomorrow.
For a complimentary copy of the report The Rise of Family Digital Wallets: Unlocking Opportunities for Banks and Credit Unions, click here.
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