Although the youth market is too big to ignore, banks have managed to do just that. But there are signs that may be changing, and the Internet is the medium of choice for those few financial institutions showing the first stirrings of interest in the market.
One obvious rationale for winning the not-very-lucrative business of a high schooler is the prospect of establishing a relationship that could endure for half a century. Even if the customer retention rate is minimal, the few customers that stick around will pay dividends for a lifetime- literally.
"What we consistently find is that brand awareness starts early," says Ekaterina Walsh, an analyst at Forrester Research Inc., Cambridge, MA. Young consumers, she says, are brand loyal, in addition to being brand conscious. In a survey Forrester conducted of youths who use the Internet, she says, "We found that four in 10 say they buy the brands they grew up with, and that they would not buy a new brand just to try it."
Teenagers, as a demographic segment, are growing at twice the rate of the population overall and they control, by some estimates, more than $300 billion in annual expenditure. Offering banking services to young people is also good public relations, of course.
"Among our aims is generating goodwill by giving back to the community," says Todd Haedrich, director of online business development at FleetBoston Financial Corp. Fleet Financial, before its merger with Bank Boston Corp. established in October 1998 a children's Web site, FleetKids. "It's a way for us to generate good press," Haedrich says.
The effort, he adds, is in no way connected to sales and there are no advertising messages on the site beyond the Fleet name. "We don't collect any students' names nor do we collect any marketing information. It's a way for kids to learn about money. It's a tool for teachers."
More than 2,500 schools have registered on Fleet's Web site, and more than 400,000 children use it.
Beyond the PR value, some vendors argue that there can be dividends for banks in the fulfillment of their Community Reinvestment Act requirements. CRA requires banks to take deposits where they offer loans and banks get CRA credit for a broad range of community outreach activities.
Banking on Kids, Milwaukee, contends that its for-profit educational banking program is one such activity. It arranges for banks to introduce their services to students in primary schools.
Edward Anhalt, the founder of Banking on Kids, says the banks using his services-which include coming up with a "curriculum" and the printing of materials-realize also that going into the schools is a way of attracting the attention of the parents.
Establishing a relationship with the kids in a family is an effective and inexpensive way to bring the name of a bank to the attention of the parents, according to those who argue in favor of paying attention to the youth market.
"We say to the banks, instead of putting their message on television and on radio, here's a direct way of reaching 600 kids in a school, which reaches 1,200 parents, plus other relatives," says Anhalt.
He also notes the educational value of programs such as his, adding that you have to start early. "If you wait for the kids to reach high school to teach banking skills, you'd better be concentrating on ATM machines because by that time they only know how to take money out."
The benefit of teaching kids the basics of banking is a mantra among proponents of reaching out to this segment.
The American Bankers Association, Washington, held in spring its fourth annual "National Teach Children to Save Day," designed to promote good money habits. ABA notes that the personal savings rate has declined to levels not seen since the Great Depression. Under the auspices of the ABA's Education Foundation, and with the involvement of New York-based Citicorp., some 2,500 bankers across the country made presentations to students.
"Teaching kids to be financially literate benefits not only banks but the U.S. economy as well," says Catherine Pulley, an ABA spokesperson.
Mark Rodgers, a Citibank spokesperson, says the bank does "a lot of financial outreach programs. We think it's good for the community and good for our business."
Yet Citi, the nation's largest bank, does not have a childrens' Web site. Nor do several other banks that one might expect to.
Among financial institutions that do offer a section of their Web sites for kids is First Union Corp., Charlotte, NC, which did so, it said, to "address the needs of a rapidly growing market." As with other such sites, kids can log on and play interactive games to learn the basics of investing, handling financing and balancing a budget. According to a spokesperson for the bank, young people not only would benefit from learning about money, but are clearly sophisticated enough to handle the information.
KidsBank.com, a site of Sovereign Bank, Philadelphia, is another that attempts to make learning about money interesting and fun for kids. Sovereign did not return calls regarding its site.
Banks' efforts to reach out to what the consensus says is a booming market have been modest. Yet, it's easy to understand why banks would be disinclined to put much effort into attracting the business of the under- 18-year-old crowd: There's no real money in it, at least not initially. In fact, unless the bank is charging the kind of fees it would on a regular account that falls below a set minimum balance, these accounts for kids are money losers.
But things have changed because of the Internet. For one thing, basic banking functions can be done more cheaply. There needn't be any checks, or statements sent via the mail. Also, the Internet is a way of cost effectively reaching a narrowly defined audience, in this case kids.
There's also the fact that the youth market has a significant amount of money at its disposal.
According to Ginger Thomson, chief executive officer and co-founder with her husband of DoughNET Inc., a San Francisco-based financial portal for teenagers, the 31 million teens in the country have a total of $151 billion in annual discretionary income, or $5,000 each on average.
DoughNET, which began operations last August, has relationships with 90 online merchants through its DoughNET.com site. Essentially, it's a shopping portal which, ordinarily, children could not use because they lack credit cards. Minors can't open bank accounts in their own right' they can only have accounts co-signed by their parents or guardians. Through special arrangements with a bank partner-hoped soon to be partners-DoughNET makes it possible for children to spend all that discretionary income.
Bernell Wright, principal of Advanced Business Concepts, an online marketing consultancy based in New York, proclaims: "The kids segment is the last great unmined market for new customers."
According to Teenage Research Unlimited, Northbrook, IL, the number of Americans between the ages of 13 and 19 will grow at twice the rate of the overall population over the next seven or eight years.
And, says Wright, the Internet is ideally suited to tapping this segment, with research showing that young people are "highly receptive to the online presentation of data."
And, according to Jupiter Communications, roughly 38.5 million kids and teens will be online by 2002, up 126% from 1998.
Making the effort to establish relationships with the teenage or sub- teenage market may make economic sense, but only if the cost of reaching this audience can be held in check.
Banks themselves are likely to have a hard time attracting kids to their individual Web sites unless the sites are promoted, for instance, through schools, such as in the case of FleetKids.
George Barto, a research director at the Gartner Group, Stamford, CT, says that it's through the "communities of interest" that banks have the best chance of capturing this business.
"Banks, in general, aren't out spending a lot of money trying to attract minors to open bank accounts, there just isn't a lot of money in it for them," he says. At the same time, though, he says the time may be coming for a change in this since "kids use the Web and banks are moving to that channel."
And, he says, businesses recognize that the Internet allows for segmentation of buyers, making it possible to pitch one's services very precisely. "If you as a bank decide you want to target kids, then clearly the Web is the way to go."
At the same time, though, Barto has his doubts about any long-term customer retention prospects. "Holding onto to these customers from early on-that's what you'd hope would happen. But the reality is that it's unlikely," he says.
DoughNET, one of the sites serving a "community of interest," has recently switched to Philadelphia-based USABancShares.com as its online banking partner, replacing USAccess Bank, the Internet subsidiary of Central Bank USA Inc., Louisville, KY. DoughNET would like eventually for DoughNET to have a number of banks around the country that offer accounts to teens interested in using its shopping and financial portal. "We say 'brand with them early,'" says DoughNET CEO Thomson.
"Here is a way to gain customers at little or no cost," adds the former investment banker. She suggests that it typically costs banks $1,200 to acquire a customer, whereas DoughNET supplies pint-sized customers for free.
DoughNET makes its money from purchases made on its site. "Merchants pay us a fee, essentially for bringing them our customers," says Thomson. "And these are customers who typically would be unable to make purchases online since they lack credit cards."
She contends that DoughNET offers smaller banks another way to compete, saying that the bigger banks will find it difficult to drive their costs low enough to offer services such as USABancShares is providing online via DoughNET.
USABancShares has expectations that it will attract business from parents as well. "I think we'll get a lot of parents' accounts" by virtue of their children's linkup with DoughNET, says Kenneth Tipper, the bank's chief executive.
DoughNET.com members can open an account modeled after the USABancShares.com energyONE account, which earns a 5% annual percentage yield and charges no monthly maintenance fees.
DoughNET.com bills itself as a "manage-your-money" service for young adults, a place where they can bank, shop, save and donate online without a credit card.
In addition to opening a custodial savings account, (which is in their parents' names) teenagers can draw on amounts deposited into prepaid accounts. Such accounts can also be linked to the parent's credit card with a predetermined amount allowed for purchases via DoughNET.
Teens are able to use money in their accounts to shop at online retailers such as Barnes & Noble and CDNOW, or donate to non-profit organizations including Rainforest Alliance and the Humane Society of the United States.
Apparently in response to new competitors, which introduced credit cards specifically for teens, DoughNET introduced a teen debit card, in conjunction with USABancShares.com. DoughNET's competitors, such as ZPass, San Francisco, and PocketCard of Gurnee, IL, introduced cards that work wherever Visa or Discover cards are accepted, online or off.
DoughNET's subsequent introduction of a debit card effectively answers critics who say the teen credit cards would eliminate the need for teen shopping portals.
The DoughNET-USABancShares card allows teens to withdraw money from their online bank accounts and spend it online at DoughNET.com, or to withdraw cash from Cirrus, Plus, Mac, Most and Honor automated teller machines nationwide. The no-fee ATM card, which must be part of a custodial account, limits withdrawals to $40 daily and refunds five surcharges (up to $10) monthly.
But some critics look askance at what they see as the myriad ways companies are finding to part young people from their money, and in general promote a spending fever among kids.
Gary Ruskin, director of Commercial Alert (www.essential.org/alert), Washington, D.C., a nonprofit advocacy group that "opposes the excesses of advertising, marketing, and commercialism," says that "corporate marketers increasingly view kids as a kind of cash cow- though, that's not news."
The size of the market has just proven irresistible, he says. According to him, the kids market is divided into three parts: the spending kids directly control, which amounts to about $24 billion, annually; the spending kids influence through their parents, which amounts to an additional $300 billion; and then, he says, "There's the amount that these same kids will spend during the rest of their lives, which, speaking loosely, is enormous."
There is, he says, "without question, an enormous effort to influence children to develop brand recognition and brand loyalty, and get them to be as materialistic as they can. I don't say that this is companies' intention, but it may be the effect."
Yet, consultant Wright says programs for the youth market are generally not marketed aggressively to a clearly defined audience. "Banks don't know how to deal with the phenomenon of a kid's market except as a promotional activity, so they defer to the parent's involvement or custodial arrangement," he adds.
Banks, lacking experience in marketing to kids, may do best working through intermediaries, such as DoughNET, that specialize in communicating with youngsters, he suggests.
In some ways this situation parallels the situation 20 years ago when banks for the first time started marketing credit cards to college students, Wright says. "Citibank was the first to do this. It recognized that this was a group worth targeting, a group that was to become disproportionately professional. It worked well and now it's hard to find a reasonable bank that lacks a college marketing group," Wright says.
And though today the number one reason banks bother to market to kids is to attract the attention of the parents, "in the next stage, banks will begin to recognize that they need staff dedicated to nurturing the kids' market itself."
John Hackett is a freelance writer based in New York.