What a Teen Wants
Teens online need payment options; a wide variety of providers want to deliver
By Andrea McKenna Findlay
New ways of experiencing life have always worked this way: what seemed exotic to one generation is a way of life to the next. And so it is with Internet shopping. Teens are online in record numbers and probably will spend up a storm—as teens are wont to do. So what’s the problem?
Here’s the problem: Teens usually don’t have a way to pay for what they want online without borrowing Mom and Dad’s credit card. Totally uncool.
But where there’s a need, there’s a solution. The explosion of teen Internet usage is creating a market niche for online payments. And start-ups as well as the big bank card associations have introduced or are planning products to tap into the market. Some of these payment options are online-only packaged to give teens financial control in the web world. Others, including some backed by card associations, are online/offline cards couched as financial education tools. Yet others are phone cards that teens can use to purchase goods.
New York-based Jupiter Media Metrix says kids are among the fastest growing online population and will spend $4.9 billion online by 2005, up tenfold from $500 million in 2000. Jupiter says 13.2 million teens 13 to 18 are online, and that will increase to 19.8 million by 2005.
Everyone targeting the teen market agrees on one fact: teens have no payment vehicle of their own and they are sure to be interested in do-it-yourself payment plans. Framingham, Mass.-based IDC reports that 12% of back-to-school online shoppers this year were under 18. “That means kids are doing the shopping for themselves,” says Keith Waryas, IDC’s research manager. And while parents may be giving their kids the go-ahead with their credit cards, Waryas says there is a huge opportunity to build an alternative payment system for teens online.
One of the first products to cater to teens was Icanbuy.com of San Francisco, launched in March 1999. Teens sign up for an account on the web site, which also features an online mall with such hip teen merchants as Fossil and RallyCaps. The password-based system allows both teens and parents access to the spending limit and account activity. Teens can shop, put money in an online savings account with banking partner Security First National Bank, learn about finances and investing with its partner MainExchange.com and donate to a charity. CEO Paul Herman says this spend/save/donate formula is based on focus group research and on how child psychologists suggest parents teach their kids about money. While teens sign up for the program, parents fund it. Funds are held at Silicon Valley Bank in Santa Clara, Calif.
Shoppers can use the payment product at the Icanbuy.com mall and at teen apparel site Pacific Sunwear (Pacsun.com). Five additional merchants will accept Icanbuy.com as a payment option soon, Herman reports.
While it faces competition, Icanbuy.com has jumped to an early lead with 350,000 users. That base and the company’s experience give it a big advantage in signing merchants. Part of the appeal to merchants, says Herman, is that it’s little work to accept Icanbuy. “We drop in code so that the checkout process will allow an Icanbuy.com account holder to access their account with user name and password,” Herman says.
Icanbuy.com has marketed itself to become a well-known teen online payment name. For instance, last year the site was part of a Britney Spears promotion with Radio Disney.
Herman says the company is trying to be more than a brand name. The company is working to integrate its shopping mall and payment product into existing teen content web sites. Icanbuy.com is in discussion with three teen online channels to support and provide payment and shopping mall programs and plans to do a promotion in 2001 in which Icanbuy.com will work with a retailer to provide a teen loyalty and cobranded programs.
Collecting bottlecaps
A direct competitor to Icanbuy.com and the second online teen payment vehicle to launch (June 1999) is Mountain View, Calif.-based RocketCash. With a snazzy teen web page, RocketCash, like Icanbuy.com, provides an online shopping mall in which kids can spend their money at such retailers as Toys R Us, J. Crew and CDNow.
With 200,000 members already, RocketCash is making big plans to promote its brand. Starting Oct. 15, Coca Cola Co. will award 20 cents to $1 in RocketCash value on Sprite bottlecaps. Consumers will enter a code to download the value into a RocketCash account. “We have the Coca Cola Co. spending millions on advertising that will include the RocketCash brand,” says Carol Cruz, vice president of marketing. RocketCash will do print and radio promotions and will market a gift certificate during the holiday season.
Similar to the retailing pure-plays, the online-only payment systems were the first to market. But they also are at risk of being overshadowed by offline counterparts. A slew of combo cards—to be used online and offline—is entering the market as. IDC’s Waryas believes banks and card associations can provide the best option for a teen payment product because they already have a payment infrastructure and because this is an opportunity to pick up long-term customers.
PocketCard, a Visa branded online/offline card launched in May 1999 and issued by The First National Bank of Brooking, N.D., is a Visa debit card that works on the existing card networks. Teens can use the card online or in stores and can withdraw money at ATMs with parents’ permission. PocketCard already has scored a retail coup with Alloy.com as the teen site’s preferred payment card and has affiliate agreements with Teen.com and Wetseal.com. Alloy.com promotes PocketCard in customer emails, banner ads and catalogs and features it in the checkout process. PocketCard pays merchant affiliates a fee when a teen signs up for the product through the merchant web site.
Alloy.com works with most online teen payment programs. But Alloy’s Vice President of E-commerce and Sponsorship Samantha Skey says PocketCard fits with Alloy.com’s payment preferences. “We don’t want to market to parents ourselves,” Skey says. “But this product allows teens and parents to communicate about spending when they shop on our site.”
The average purchase by 10,000 PocketCard users is $22.38, contradicting some (probably parental) fears that teens would spend on big ticket items if they had their own means. The average Internet transaction overall is $28. Parents are loading funds onto the PocketCard, via phone or Internet, every 1.02 months, suggesting teens get a monthly allowance. The average unspent balance is $21. And while 84% of parents allow their teens ATM access, teens on average withdraw money only once every two months, suggesting they like using the card for payment.
Trusting those over 30
Despite being the brand mark on two other teen cards, Visa U.S.A. introduced its own payment option for the teen market, this one to be launched by major card issuers, including Bank of America, Capital One, U.S. Bank and National City Bank. The Visa Buxx card, which can be used online and offline, is definitely targeting a different audience—the parents. “We are positioning the card as tool to teach financial responsibility,” says Erica Cover, vice president of deposit access products at Visa. “According to our research, there was a need for a safer, more responsible program for teens.” Visa will market the card only to the parents, opting out of teen publications, she says.
To entice parents to sign their teens up for the card, the Visa Buxx program boasts stringent parental controls. For instance, parents can limit the amount spent and monitor spending in real-time, a process for which PocketCard has a patent pending. Although other products have similar choices for parents, Visa plans to hit the parental control message home. To get the card, parents have to do the sign up and must agree that their teens will take a financial skills assessment test.
Competitors say this strategy of parents over teens will be fatal to Visa’s teen-market aspirations. Market observers warn of the delicate balance programs must meet to not turn teens off. Northbrook, Ill.-based Teen Research Unlimited says “teens are aspirational—they want to be seen as mature, young adults. In many cases, they tell researchers they want to have the same products and services as adults.”
Cool or uncool, Visa defends its strategy. “We’re very confident that the approach of targeting the parents is the right one,” Cover says. While the Visa Buxx program is a bit heavy on the credit education, IDC’s Waryas says the association/bank track is a good one for targeting teens because the card-issuing banks will benefit in the long run from having teens use financial products early. Other teen online cards could be tossed aside as easily as a driver’s permit once teens turn 18 and enter the college card marketing sector.
MasterCard International, Visa’s most immediate rival, says a prepaid card with parental control is only a few months away.
Riskless business
Despite the debate about their appeal to teens, MasterCard- and Visa-branded cards will have at least one advantage over their competitors: Merchants need do nothing to be able to accept them.
The veteran Icanbuy.com believes it fits with the retailer plan better because it knows how to target its market, while banks traditionally are slow in identifying new markets. “From the retailer perspective, we’re a lot more innovative than a bank because we’re more in line with the risk/reward profile. Banks are riskless,” Herman says.
Even with pure-plays and card associations vying for shoppers, other players are attracted to the teen market lure. Credit-card transaction processor Total System Services Inc. working with New York City-based financial solution provider M2Card Inc. launched a Visa-branded teen online/offline stored value card in October. “We’re going to use both online and offline channels because teens still like to shop at the mall with their friends,” says Junehee Cho, CEO of M2Card.
Unlike Icanbuy and RocketCash, M2Card allows teens to shop anywhere on the Internet, except sites barred by parental controls, because the card is Visa-branded. “Teens have varying tastes and don’t always want to shop in a closed merchant network,” Cho says.
M2Card’s marketing will try to reach teens in their own environment. Cho says the M2Card will promote its product in teen magazines, online and on the radio. The card also will be featured in “Making High School Count” programs that work in schools to teach students about finances.
Catering to the teen penchant for wireless technology, the M2Card will allow teens to check card balances via cell phone and two-way pager. The company also plans to have a live chat customer service email option. “We want to do things in accordance with the lifestyle of the teenager,” Cho says.
Another product hitting the teen market is PocketPass, a phone card that can be used for purchases. The card’s appeal will be that teens can put value into the card at local retailers who sell cards, says founder and Chairman Lewis Perdue. The card launched as a beta test in Silicon Valley in late July with about 100 retailers selling it. The company has a deal with the 8,000-member Independent Agents Network to sell the card to more than 350,000 phone card sales outlets in the U.S.
PocketPass is targeting online merchants who sell content under $10. PocketPass will charge merchants 12.5% of each transaction, 6.25 cents on a 50-cent download, for example.
Right now, PocketPass is working on a branding and payment deal with Safesearching.com, a site that sells premium content and chat options on such Generation Y stars as Allissa Milano and Catherine Zeta Jones. Another deal involves cobranding the PocketPass with Allaccess.com, a company that owns the phone card rights to such teen musical acts as Christina Aguilera, whose hit “What a Girl Wants” topped the charts this past summer, and the Back Street Boys. Perdue expects the two deals to put 6 million PocketPass cards in the teen market within 12 months.
The current cosmos of teen payment vehicles is packed with players and plans for conquering the teen universe. But it’s still a shot in the dark to determine who will rule the market. Says Alloy.com’s Skey, “This holiday season is when we’ll see how accepting these teen products has helped our sales.” 
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