Teen Card: Will Paypal’s Student Accounts be the 1st real success?
Line BreakAuthor: Ben Weiss (24 Articles)
Ben is an Associate at Greylock Israel, focused on Israeli and European FinTech companies. Prior to Greylock, Ben was a Senior Associate at Opera Solutions and an Associate at MMG Partners, both boutique management consulting firms focused on advisory to tier 1 financial services clients. Ben holds an MBA from INSEAD, and a BSc in Operations Research and Industrial Engineering from Cornell University.
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Sorry for the hiatus, but I have been out of town for the first two weeks of August. Our first event should be finalized shortly, and should be available for RSVP via Meetup.com soon.
Over the years, nearly every bank, credit card firm, and payment firm has attempted to solve infamous Teen Card dilemma – how to offer a secure payment alternative to cash that can be monitored/administered by parents while still being attractive to teens.
In 2000, Visa entered the market with Visa Buxx, a prepaid platform for its issuers to jump onboard with. Over the last few years, banks large and small have dropped off this system, and although a few stalwarts remain (National City, US Bank, Sandy Spring Bank, Wachovia, Navy Federal Credit Union, PAYjr), the Visa Buxx solution seems to have at least failed to achieve acceptance by mainstream American families. A recent Metabank offering, UPside Card, which is primarily a general-use prepaid card, offers loyalty rewards and connection to existing bank accounts that could appeal to potential teen card families.
MasterCard has taken a different approach, offering prepaid functionality, but not creating a specific teen brand. Traction on MasterCard have also been mixed, with cards like the Allow Card focused on parental controls and financial education, while teen-focused products like the Sun Trust Usher Card have been widely successful, due to high teen acceptance rates.
Discover launched the Current Card in 2009, offering a mix of parental controls and a connection to parent’s existing credit lines. The product has not yet been reported on in a significant way. Additionally, American Express briefly launched the CobaltCard in 2000, but its been shut down for quite some time. For some information on the offering, click here.
Needless to say – there are no clear winners in the market as of yet…
Enter Paypal
Last Wednesday, Paypal announced that the “Student Accounts” option was coming out of beta. In essence, its a sub-account to a parent’s Paypal account that can be accessed by the teen. Additionally, the teen is issued a Mastercard debit card.
The announcement immediately received praise from our friends at NetBanker for being simple to use and cost effective. The latter is a major differentiator, since Paypal is not charging typical monthly fees, transaction fees, etc – rather it is keeping to its staple fee structure of merchant fees, foreign exchange fees and ATM usage fees. The result is a clean teen product, easy to manage on the parental side and easy to use on the teen side. Looks like a win-win.
But, will it win with consumers? Does PayPal have the right reputation with consumers to finally make it over the hump and get to mainstream users? I believe they do, for a couple of key reasons:
1) A large portion of the online buying community already uses Paypal and links it to a credit card and/or bank account. Adding this option will be relatively painless, regardless of their current credit card issuer or bank.
2) Paypal’s brand fits well with consumers seeking a lower-cost teen card, since it has already been a boon for consumers involved in web transactions
3) Paypal’s parental controls will likely be a strong suit, since they have such a sophisticated risk management system already in place; This is a truly world-class operation (due in large part to Fraud Sciences of Israel), that can likely handle transaction permission parameters with relative ease.
4) Paypal’s competitors have largely failed to produce a winner – and in Visa’s case, have produced a relative-loser – leaving them vulnerable to disruption
The question will be whether Paypal can effectively market this product to the right people, and whether those parents are ready to give this product a try. I wish them all the luck in the world in trying to accomplish this…
