Cash App became the latest fintech to aim its services at the Gen Z demographic when it announced last week that it would open the app to 13- to 17-year-olds.
The platform — owned by Twitter CEO Jack Dorsey, who also runs the digital payments company Square — now allows teens to send peer-to-peer payments through the app and use a customized Cash Card, with the proper consent of a parent or guardian.
Cash App’s decision to open its platform to a younger demographic follows a growing trend of fintechs designing products for the Gen Z crowd.
Several neobanks have built their platforms around serving the financial needs of youth — a market these digital players say incumbents have historically overlooked.
Cash App’s move will likely be mirrored by other payments and digital banking platforms who serve a wider audience yet see current customers’ children as an untapped market.
"The key to cracking this audience is winning over the parents of these teens, who must give approval for their child to use these services," said Shayli Lones, vice president of go-to-market at financial data platform MX, and one of the authors of a recent report exploring Gen Z and millennial trends in banking.
"As more of the leading data companies are helping make finances as they should be, especially among families, we’ll see more fintechs and neobanks winning over the younger audiences," she said in an email. "Our research showed that only 47% of Gen Z respondents claim to have an account with a traditional bank, credit union, neobank or technology company. It only makes sense that these neobanks would be laser focused on winning this demographic."
As more fintechs create products for younger consumers, there’s also an opportunity for traditional banks to better capitalize on the demographic, Lones said.
"Our research showed that local and regional (traditional) banks have more work to do in improving their trustworthiness — and their products and services — if they are going to win over younger generations," she said.
Millennials and baby boomers are more likely to trust local and regional banks, while their Gen Z children put greater trust in national banks — 44% for Gen Z vs. 27% for baby boomers, according to Lones’ research.
"We believe parents’ banking habits do influence their children, but the difference in their banking habits is getting progressively wider," she added.
Here’s a look at several neobanks that are already entrenched in the Gen Z market.
Step founder and CEO CJ MacDonald said he got the idea to start Step after noticing that traditional banks and fintechs were only building products for the 18-plus market.
"A lot of people start their financial journey off before they turn 18. There wasn't a product in the market out there that really tailored to their needs," he told Banking Dive in December. "When we looked at it, we said, 'What if we can build something where we become that first bank account, that first spending card?'"
The San Francisco-based startup, which launched in 2018, offers teens a fee-free Federal Deposit Insurance Corp. (FDIC)-insured account that comes with a secured spending card, allowing users to build credit. The platform also features a peer-to-peer payment function.
A parent or legal guardian is required to cosign a Step account for users under 18.
Step closed a $100 million round of Series C funding in April after growing to more than 1.5 million users six months after its launch, according to TechCrunch. The app is backed by celebrities and social media influencers such as TikTok star Charli D’Amelio and NBA player Stephen Curry.
Although Step is targeting a young demographic, the account is designed to grow with the customer, MacDonald said.
"Our goal is to grow with the consumer each step of their journey in life, hence the name," he said. "We are not a teen bank. We're a banking platform and hopefully a brand for the next generation."
Atlanta-based startup Greenlight launched a debit card for kids in 2017, and claims to serve more than 3 million parents and children, according to TechCrunch.
The platform, which was co-founded by Tim Sheehan and Johnson Cook, caught the eye of JPMorgan Chase last year.
The nation's largest bank partnered with Greenlight in October 2020 to offer an account designed for kids called Chase First Banking.
Greenlight, which is valued at $2.3 billion after closing a $260 million in a Series D funding round in April, is also eyeing a new service targeting parents.
The platform plans to release an investing platform that aims to teach parents how to research stocks and exchange-traded funds, according to CNBC.
The platform already has savings and investing for children.
"Beyond helping their kids become smart about personal finance, in working closely with our families who are using Greenlight, one big thing that became clear was that saving for college is a big challenge," Sheehan told CNBC. "And then other things pop up during the course of life for a family that might cause them to need the money for different purposes."
U.K.-based challenger bank GoHenry offers Gen Z users a teen account, instant peer-to-peer payments, and a product called Giftlinks, which allows GoHenry members to receive money as gifts from parent-approved relatives and friends.
The platform, which launched in Europe in 2012, is expanding in the U.S., where it has had a presence since 2018.
Headed by GoHenry CEO Alex Zivoder, the company raised $40 million last year in a financing round led by U.S. growth equity firm Edison Partners, with investment from Gaia Capital Partners, Citi Ventures and Muse Capital.
Zivoder told Banking Dive last year the company planned to use some of the funding to boost its advertising on social media channels, such as Facebook and Instagram, and increase investment in U.S. TV ads.
GoHenry charges a monthly subscription fee of $3.99 per account in the U.S. The subscription fee, Zivoder said, is the company's main source of revenue.
The product is designed for users age 6 to 18, but Zivoder said the option remains open to one day create a product that allows GoHenry’s customers to continue using the account once they reach adulthood.
The platform’s main focus, however, remains on the under-18 demographic, Zivoder said.
"The reason why we're not focusing on what happens at 18 is because we want to do an excellent job at what happens before 18, which is our core," he said.
Last month, the company launched a new in-app product called Money Missions, a gamified educational experience aimed at increasing financial literacy among Gen Z.
The company claims to have 1.5 million members globally.
Seattle-based Copper Banking, a neobank targeting teens, launched in 2019, and claims to have over 350,000 users on its platform, according to TechCrunch.
Copper co-founders CEO Eddie Behringer and CFO Stefan Berglund previously co-founded Snap! Raise, a youth-oriented crowdfunding platform. Behringer and Berglund told TechCrunch they plan to emulate the model that led to the success of their previous venture, which raised over $90 million in venture funding.
"We worked with millions of teens and parents in our previous company," Behringer told the publication. "That playbook is one of the core reasons we’ve seen such great growth so quickly. We’ve gone this route before — partnering at the community level. That’s something that is typically overlooked in tech models today."
The startup offers users a debit card, peer-to-peer payments, direct deposit, automatic savings options and incorporates financial education into the platform.
Copper also uses youth ambassadors to promote the platform in schools, a strategy that helps the startup lower its customer acquisition costs, Behringer told TechCrunch.