Fun, Fun, Fun 'til Her Daddy Takes the T-bird Away
Teen brains lead them towards poor decision-making & risk taking that are obstacles for challenger banks for teens. But teen brains might present traditional banks with opportunities for innovation.
Photo by Clem Onojeghuo on Unsplash
In my first newsletter about teen challenger banks, I outlined the 4 reasons banks should not create banks for teenagers and covered the first reason. The previous issue discussed the complex supply chain for acquiring and onboarding teenage customers.
Traditional demographic. The pursuit of the same old demographics in a digital world will not yield either disruptive products or the results – customer acquisition - the bank seeks. – teenagers are a traditional demographic. Instead, digital banking solutions and bankers must adopt a Hidden Tribes framework to identify new customers and products/services.
Financial supply chain for teenagers - The premise of a challenger bank for teens faces a different supply chain challenges than do other banks that target adult customers.
Teenage brains. Teenagers are not younger adults. Their brains are still developing.
Teenagers grow up.
In this issue, I cover the 3rd reason: Teenage brains.
What’s the teen brain got to do with banking?
Bankers worldwide look to teenagers (and tweens & children too) as the pipeline for the next generation of customers who will want, or even prefer, digital-first their banking products and services. Challenger banks for teens, of course, are particularly focused on teenagers. But, they (not only banks but also vendors) probably ignore or avoid the issue of the teenage brain in creating banking functionality or challenger banks for teens.
Bankers (and vendors) should pay more attention to the teenage brain. While they might be taller than their parents or more savvy with their smartphone, teenagers aren’t adults. Teenage brains continue to develop through their 20s.
Though the brain may be done growing in size, it does not finish developing and maturing until the mid- to late 20s. The front part of the brain, called the prefrontal cortex, is one of the last brain regions to mature. Source: National Institution of Mental Health
This developmental difference between teenagers and adults differentiates challenger banks for teens from other types of niche challenger banks. While we may disagree whether the premise of niche banks is viable, challenger banks for the LGTQ community, small businesses & freelancer workers and black-owned banks all target adult customers – whose brains are fully developed.
Teens, risk and friends
Among other things, teenagers are more likely to act on impulse, engage in risky behavior. They break rules, stay out too late, skip classes, get speeding tickets. Brain research has uncovered the reasons for this:
Based on the stage of their brain development, adolescents are more likely to:
act on impulse
misread or misinterpret social cues and emotions
get into accidents of all kinds
get involved in fights
engage in dangerous or risky behavior
Teens are less likely to:
think before they act
pause to consider the consequences of their actions
change their dangerous or inappropriate behaviors
The important thing is that this risky & other behavior is a normal part teenage behavior & development. But it’s enhanced by another normal part of teenage life: growing influence of friends & peers over parents.
…during the adolescence period, there is an increased interest in peer relationships (Larson & Richards, 1991), and susceptibility to peer influence increases during the early teen years and peaks at about age 14 (Berndt, 1979). Consistent with these readily observable changes in peer relationships, brain imaging studies have shown that several areas of the brain make adolescents more sensitive to the rewards of peer relationships than adults (Albert, Chein, & Steinberg, 2013).
This motivates teens to focus on their peers in decision-making situations that involve risky behavior.
Teenagers want their friends and peers to like them and they will make risky decisions to do so.
…adolescents are more distressed than adults when excluded by peers. A brain region known as the right ventrolateral prefrontal cortex (PFC) might be important in helping people cope with negative evaluations from peers by reducing distress. Research shows that this brain region is used more heavily by adults when being socially excluded than by adolescents (Sebestian, et al., 2011). When teens do use this area of the brain during peer exclusion, they report lower levels of distress (Masten, et al., 2009).
Teenagers not only feel distress feel when their friends excluded them, but they are also less able to use the part of the brain that can help them cope with this exclusion:
During the adolescent years, however, this brain region is still developing (Blakemore & Mills, 2014), so adolescents may not be as effective at controlling distress during peer social exclusion. This likely contributes to engaging in risky behaviors to prevent being excluded by their peers.
All of these developmental factors lead teens towards risky behavior and doing what their friends do. If you’ve been a teenager or a parent of a teenager, then you know intuitively that this is true. The reason these developmental factors are important is that banking — and payments — for teenagers must accommodate them. Not ignore them.
Accommodate the Teen Brain - Car Insurance Companies Do
The car insurance industry has understood the teen risk for decades. Teenage risky behavior is why car insurance is much higher for teenagers than for adults over 21 or 25. And higher for teenage boys, especially those with lower grades. They offer discounts for teenagers who take additional driving classes. Nationwide, and likely other insurance companies, has an app that monitors a driver’s acceleration & hard breaking, night time driving, idle time and miles driven. All of these variables, according to Nationwide could increase the risk of an accident.
The challenges that have been apparent to the car insurance industry for so long seem to escaped banks’ notice. Or perhaps regulation and other challenges enabled them to ignore this risk. But have the Challenger banks for teens, the banks who want to attract teen customers and digital banking vendors addressed the challenges of the still-developing teenage brain in their products and services for them? Awareness of the developing teen brain can help parents and others better manage teen behavior:
These brain differences don't mean that young people can't make good decisions or tell the difference between right and wrong. It also doesn't mean that they shouldn't be held responsible for their actions. However, an awareness of these differences can help parents, teachers, advocates, and policy makers understand, anticipate, and manage the behavior of adolescents.
How might this apply to banking?
For example, let’s take a look at the hot banking/payment feature “buy-now-pay-later” (BNPL). The same feature that banks hope adults will use to make a purchase could spur teenagers to use BNPL to make all of their purchases – without either the adult ability to regulate their behavior or a thought as to whether they can afford to manage all those BNPL plans or to repay them at all. Teens want to satisfy immediate needs, but don’t consider how they will pay back all of these short-term loans – because their developing brain means they are less likely to think before they act or to consider the consequence of their actions. Providing the teenager with a nudge or other capability that urges him to consider his outstanding bills, goals or other debts ignores the way the teenage brain works. That nudge, like his father, cannot compete if the teenager is with a group of his friends who are also buying that thing or simply egging him on. No bank alert, twitter tip or Tik Tok video will persuade a teen to ignore his friends at that moment.
Sure, there are also many very responsible teenagers. That’s your teenager, right? Perhaps your challenger bank has made responsible teenagers your “hidden tribe” within the teenager demographic. If so, how are you going to verify are teen as responsible? Should you copy car insurance tactics by creating an app that monitors their spending habits? Approve new accounts only for those teenagers who can show that they are responsible – with good grades, SAT scores? What data or documentation would demonstrate responsibility? Do you close the account if the student gets poor grades for a semester?
The challenges that these questions pose circle back to the difficulties of creating a challenger bank for the teen given the traditional nature of the demographic which hides the “hidden tribes” within it, the complexity of the teenager financial supply chain & the teen brain itself.
Yet, the banks in the best position to market to teenagers may well be traditional, incumbent banks, credit unions and community banks. These banks have a ready pool of customers who have teenagers: parents. And, they already have data on those parents.
Think about teenage development before you create teen banking functionality
Some banks might choose to go the car insurance route to identify risk markers of teenage customers. But banks and vendors can also choose a different route for developing functionality specifically for teenagers. Banks that want to acquire teenage customers should look to the advice that pediatricians give to parents that addresses teenagers’ specific development needs.
You’re the most important role model your kids have. Sure, their friends are important to them, but the way you behave and fulfill your responsibilities will have a profound and long-lasting effect on your children.
Discuss the consequences of their actions can help teens link impulsive thinking with facts. This helps the brain make these connections and wires the brain to make this link more often.
Remind your teens that they’re resilient and competent. Because they’re so focused in the moment, adolescents have trouble seeing they can play a part in changing bad situations. It can help to remind them of times in the past they thought would be devastating, but turned out for the best.
Become familiar with things that are important to your teens. It doesn’t mean you have to like hip-hop music, but showing an interest in the things they’re involved in shows them they’re important to you.
Ask teens if they want you to respond when they come to you with problems, or if they just want you to listen.
Parents tend to jump in with advice to try to fix their children’s problems or place blame. But this can make teens less likely to be open with their parents in the future. You want to make it emotionally safe and easy for them to come to you, so you can be part of their lives.
No, I’m not suggesting that banks should become like parents or more paternalistic. What I am suggesting is that banks can leverage this advice to identify and create services that enable the bank to do 2 things:
Play a bigger role in teenagers’ knowledge about financial services, fraud, and as they get older, financial management
Create products and services for teens that take into account adolescent risk taking and peer influence. Below are just some examples.
Gamification of financial literacy.
While developing banking services for teenagers is fraught with challenges, there is an opportunity. According to NIH:
The teen brain has lots of plasticity, which means it can change, adapt, and respond to its environment. Challenging academics or mental activities, exercise, and creative activities such as art can help the brain mature and learn.
Banks that seek to attract teenagers might embed gamification and other techniques to engage teenagers in the decision-making processes that are a part of earning, saving money, making a purchase and setting goals while they are using their banking app.
Sleep & impulsive spending
A lack of sleep can make it difficult to pay attention, may increase impulsivity, and may increase the risk for irritability or depression. Just as a car insurance app may monitor the miles a teenager drives, a banking app for teenagers might monitor how many P2P, debit card and credit card payments the teen has made in a 24-hour (or some other relevant) period. Activity that extends into the late night could indicate the teen is not sleeping and making more risky decisions. Additional capabilities can be built to help the teenager stop making purchases, alert her parent or shut off access to payment capabilities.
Takeaways
For bankers:
Simply providing traditional banking capabilities and tools for teenagers will not address the developmental reality of the teenager brain.
Be careful which banking or payments capabilities you offer to the teen (or younger) segment and how you market and offer them. “Buy Now Pay Later” capabilities may support the teen tendency to engage in risky behavior and make impulse decisions. This applies to debit and credit cards as well.
Provide tools that enable parents (or guardians) to help or advise their teenagers about risky transactions or payments and impulsive decision-making. This should include the ability to require parent sign off on a teenager ‘s ability to both access and use a banking feature. This could mean separating teen’s ability to access to the BNPL feature from the ability to use it.
Use the influence of friends and peers. Teenagers are more apt to listen to peers or other non-family adults. Consider involving branch staff – or even teens themselves - in educating teenagers about fraud, payment fraud, fraud attempts they’ve seen.
For digital banking vendors
Be careful about building “digital-bank-in-a-box-for-teens”. Does your solution fall into the traditional assumptions about teenagers and push traditional bank functionality to them?
Identify the specific challenges of the teen brain you want to address and build the banking, payment and financial management capabilities that address those needs. By the way, these capabilities might work with adults with fully developed brains.
Me, Elsewhere
Think like a Challenger: How banks and credit unions can compete and win - I recently moderated this conversation on challenger banks with Bryan Clagett of Moven and Ted Brown of Digital Onboarding. And, yes, I talked about challenger banks for teenagers.
Does it Fit Me? The Next Step in Digital Banking Transformation
Digital banking transformation’s surprising secret for success in Entersekt’s ebook New Directions in Authentication
Yes, the 2 pieces were written for clients and they may ask you for information before you can download them. If you’re interested in collaborating with me, contact me at stessa@pivotassets.co.
Who writes PivotAssets?
I’m an independent analyst & consultant & former Gartner analyst. I’ve worked in and covered the banking industry for over 2 decades. I write about digital banking in this newsletter - not to confirm what you know (and you are plenty smart!) but to give you a fresh perspective & analysis on the transformation that is —and isn’t happening - in the industry.
I write this newsletter for people and companies who are trying to differentiate their banking software in an increasingly competitive market. That could be people who work at software companies currently developing banking software or people at vendors that want to move vertically into the banking market. It’s also for bankers and investors who want to know more about digital banking transformation strategies & the technologies that power them.