Teen Customers Always Grow up
Teenagers inevitably grow up & their needs change. Banks must be clear about whether they want to chase new teens, build a new door for banking or decide it’s futile to build banking for teenagers.
Photo by Annie Spratt on Unsplash
In previous issues of my newsletter I outlined the 4 reasons banks should not create banks for teenagers and covered the first 3 reasons:
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 address the 4th reason against challenger banks for teens: Teenagers grow up. All teenagers grow up and become adults - maybe not at 18, but certainly by their mid to late-20s.
The first impact of teenagers becoming adults is that the challenges I addressed in earlier issues change or evaporate. Former teenagers no longer need an adult to open a bank account – or other types of financial services accounts. Their financial supply chain changes. Her financial needs start to be more complex. Mom and dad aren’t around to pay for health or car insurance.
Many young adults who have recently finished college or trade school are working and paying off a student loan. The young adult’s brain is better able to comprehend the need to put off buying a Michael Kors handbag or to get a second job because she has to make a student loan payment.
The teenage-focused services that address the needs of the teen brain are not relevant in the same way.
Growing Up & Implications for Teenage Banking
All this change has several implications for challenger bank for teenagers:
Let the teenager customers go. This is a hard path. This path demands that the challenger bank must constantly acquire new teenage customers just to replace the now-adult customers who age out of their services. The adults will leave of their own accord or become dissatisfied with the challenger bank’s offerings as they are a complete mismatch for the young adult’s needs. The challenger bank not only has to constantly acquire new customers but also deal with constant customer dissatisfaction as customers age out.
Create new banking products and services for young adults and beyond. Yes, the challenger bank can avoid the constant customer turnover of option 1 by creating products and services for those young adults – like car loans, mortgages. But if the challenger bank does this, I have more questions: Did you create a challenger bank for teenagers or did you create the challenger bank as a front to get new, younger customers in your (digital) door? There’s no wrong answer to these questions, but I think it’s helpful to be honest about why you are or have created a challenger bank for teens. If you created a challenger bank for teens as a new digital front door to your bank, then you needn’t worry about their aging out – as long as you provide a path from the teen bank to the rest of banking.
Don’t create banking for teens at all. Teens don’t know what banking is, but they do need to learn what it is and how to use it. They do need (and often already have) payments but they probably don’t understand how payments work.
Banking is a lot like Port & Sherry
To understand why banks should not create banking for teens, we need to know more about the state of port & sherry.
A few weeks ago I was listening to Everyday drinking podcast. During the podcast Jason Wilson and his brother Tyler talked about port, why they drink it and how younger people don’t drink port anymore.
I learned, as neither a frequent nor well-educated drinker, that some bartenders have created port-based cocktails to appeal to younger drinkers. Porto, Portugal, where port is made is looking for new port products and markets in which to sell port. (I’m simplifying the conversation; go listen to the podcast for the whole story)
Wilson also did a segment on sherry with Beth Comatos. A similar theme emerged: young people don’t drink sherry either.
But in a millennial and gen-Z market where low-alcohol, organically-farmed, and low-intervention winemaking is the way forward, these wines are simply out of fashion. Changing consumer palates, coupled with convoluted naming conventions and aging styles, make sherry difficult to appreciate and understand. But who knows, perhaps a new generation of heroic young wine nerds will emerge, save sherry, and prove my juice-box-millennial-butt wrong. Time will tell.
Afterwards, I realized that the people who espouse fortified wines – like port and sherry – have the same complaint that bankers have: Just as banking is for old people, port & sherry are viewed as old people’s drinks. Like bankers faced with an ever-dazzling array of fintech apps, fortified wine aficionados ask: How do we engage young people who are distracted by and attracted to so many other newer, sexier alcoholic inventions – disruptions if you will?
A few points from Wilson’s conversation with his brother and Comatos stuck with me:
How does this (port) appeal to a younger generation? Does everything have to appeal to a younger generation?
Years ago, did young people sit around drinking cognac or 40-year-old whiskies? They were taught to drink it.
Port has to become something that we are taught to drink.
Older people are the ones who buy and drink vintage port vs newer port products that are targeted towards younger consumers. Does that mean vintage port “go away” because older drinkers are the only ones who buy it?
I think these points are also relevant for banking. Like port and sherry, maybe banking is not for teenagers. What if it’s futile to try to sell teenagers anything more than a payment app and a place to park their money in between the time they receive it and spend it?
What if it’s futile to sell teens banking?
What if bankers let young people have the bank and payments equivalent of cheap beer and sweet cocktails — until they develop the ability to appreciate and need for more?
This appears to contradict what I’ve written a lot about how traditional demographics - and especially teenagers – are no longer enough to attract new customers and create innovative products and services and that banks have to use technology to identify hidden tribes to identify new customers and products.
But. Just because younger people (of legal age!!) drink sweet cocktails and beer doesn’t mean they don’t want to know more about those drinks and they don’t need to know the laws around alcohol consumption.
What if banking for teenagers is all about teaching teens about money and finances in a safe environment? If no one teaches them, how will they, as young adults, understand how to manage all of the various ways money moves in and out of their account to other accounts? I’m not talking about financial literacy the way we traditionally understand it.
Because they already use payment apps and make a lot of purchases through Instagram and other 3rd party mobile apps, teenagers must learn a lot of things about banking & payments including:
The difference between a debit card and a bank account and the difference between a debit card and credit card.
How come the money doesn’t show up right away in my bank account or payment app?
When should I pay for something in bitcoin? Should I covert my money to bitcoin? (My friends did and made so much money!!)
What is interest in a digital finance and money world?
How do interest rates affect my life?
Why should I check my payment transactions every day – and how do I talk to the fintech or bank about fraud.
Also, what is fraud?
What do I do if I get a fraud alert?
I have 7 Buy-Now-Pay-Later (BNPL) arrangements set up and I can’t pay them back. (Is this a surprise? It shouldn’t be.)
Is this a complete list of things? Certainly not. You probably thought of 10 other topics while reading my list.
I’m not talking about creating some videos or tik toks or twitter advice
What I am suggesting is that banks that want to serve teenagers must use technology to show rather than tell. Instead of telling teenagers what to do and what not to do (and as any parent can tell you works really, really well (not)), banks (and challenger banks for teens) must create products and services that show these and other facts and information in a banking and payments context.
These services will likely need gamification – and not just to promote loyalty or card use – but to motivate teenagers – and partnerships.
These partnerships will likely be with different types of companies than banks are used to working with. Retailers and others that teenagers already use and engage with. For example, a teenager who is outgrowing his basketball shoe obsession might want to know How many of my basketball shoes do I need to resell to have enough money for a weekend at the shore? Partnering with platforms that allow teens to consign their shoes and providing a tool that tells them how much each pair in their collection is worth, know and understand how much money he or she will make & how much money the platform takes to sell the shoes teaches a lot while engaging the teenager in activities he wants to do (which is not banking).
This type of idea involves a lot of digital technology & trends – embedded finance, mobile payments, a partnership ecosystem, open banking. It will be hard for bank to engage teenagers without these pieces and others in place. Imagine how successful – or unsuccessful - this type of service will be if the bank tells a teenager that he can’t accept Venmo payments and has to use the bank’s own P2P application – or worse, come into the branch to set it all up?
Of course, different hidden tribes will figure into these services. Different teen tribes will have different knowledge & needs. Just as I am sure some teenagers in Bryn Mawr grow up with a very different knowledge of port & sherry than some teens in, say, South Philly.
This list is just a start. I am sure there are more ideas out there, ideas better suited to teenagers in your country or state or teen hidden tribe.
Sit back, enjoy a glass of port & come up with more ideas.
Takeaways
For bankers:
Honestly appraise whether your approach to teenage banking addresses one or more of the 3 implications noted above. There’s no wrong answer but honesty will clarify your path forward to dealing with teenagers who become adults.
If you are creating services for young adults or a digital front door to a new full service bank, create a low-friction ‘migration path’ for teenage to adult banking services.
Evaluate your payments-related services to ensure they match current teenager behavior usage patterns.
Determine whether you can use your partner ecosystem to create services to address teenager interests in digital commerce.
For digital banking vendors
Can your solution address the 3 implications teenage banking services?
Support a low-friction ‘migration path’ for teenage to adult banking services.
If you support the ability to create new services that address financial literacy build in relevant (and what is relevant will change) partnerships and connectivity.
Identify how your solution can help banks identify and support a variety of teenage hidden tribes.
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, these things I wrote for or did with clients and they may ask you for information before you can download or watch 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.