The acquisition will add more than 300 products to L’Oreal’s lineup.
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.
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.