Step, a challenger bank aimed at the Gen Z market, announced a new round of high-profile investors Wednesday, just two months after the platform's official launch in late September.
The San Francisco-based startup said it raised $50 million in a Series B funding round led by Coate Management, with new investors singer Justin Timberlake and music group The Chainsmokers joining returning investors Stripe, Crosslink Capital, Collaborative Fund and singer and actor Will Smith's Dreamers VC.
The latest funding round also brought on current and retired sports stars such as Eli Manning, Andre Iguodala, Larry Fitzgerald and Kelvin Beachum, as well as TikTok star Charli D'Amelio, who will also use her platform to promote the digital bank to her more than 100 million followers, the company said.
In the eight weeks following its launch, the startup has attracted 500,000 users and is gaining 7,000 to 10,000 new accounts per day on average, Step founder and CEO CJ MacDonald said.
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.
"I'm a firm believer in the fact that good habits and bad habits are formed in your earlier years," MacDonald said. "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. When we looked at it, we said, 'What if we can build something where we become that first bank account, that first spending card?'"
Users under 18 need a parent or legal guardian to cosign a Step account. The fee-free account is Federal Deposit Insurance Corp. (FDIC)-insured through Step's partner bank Evolve Bank & Trust, and comes with a secured spending card that allows users to build credit. The platform also features a peer-to-peer payment function.
"There is parent involvement, which helps us operate and deal with people that are under the age of 18, but essentially, the way we designed the card, the card is in the kid's name," MacDonald said. "And once they start using it they're building and establishing credit."
MacDonald describes Step as "Venmo meets Chase for the next generation."
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. We fundamentally believe that your journey starts as a child or a teenager, and we just want to be there with you from the beginning and grow with you. And if we do our job right — offer relevant financial products and services — hopefully we have a customer for life."
Like other challenger banks, Step makes money off of interchange fees through the use of its secured card. But MacDonald said the fintech plans to eventually offer lending products as an additional way to monetize the platform.
Other banking platforms targeting teens include Seattle-based Copper, Atlanta-based Greenlight and the U.K.'s gohenry.
"This is a demographic that doesn't have a bank account. They still have money underneath their bed, and we are providing them access to the digital economy," Copper CEO Eddie Behringer told Reuters last month.
Traditional institutions like JPMorgan Chase have also launched products targeting the Gen Z market.
The nation's largest bank partnered with Greenlight in October to offer an account designed for kids.
Kavita Kamdar, who heads the venture, called Chase First Banking, told Reuters the bank's aim for the account is to get lifelong customers.
"Banks have had products for teens and for young adults for years, they're just not great products," MacDonald said when asked if we can expect to see more traditional institutions target the Gen Z crowd. "They're not built for that generation. They're just their app or their infrastructure, reskinned for the younger generation, but it's not really built for them."