IdeaEdge Inc. and ModaSolutions Corp. are two companies that have set their sights on teen spending, only to find that their online security approaches were, in effect, working too well and needed fine-tuning.
IdeaEdge introduced its BillMyParents service last month; using it, children select products online and send the bills to their parents for approval. But the company found out the hard way that some of its safeguards designed to ensure that children were actually billing their own parents alienated the kids themselves.
"Things have to be easy. Things have to be intuitive. Things have to work well," said Jim Collas, the San Diego company's president and chief executive.
Online merchants are watching, executives say. A viable payments system could generate significant sales gains beyond the current primary payment method, prepaid cards, as online socializing and general interactions rocket among youths.
Give teens money and they will spend it, Collas says. Research cited by IdeaEdge says the youth market accounted for more than $132 billion of spending in 2007, of which $40 billion was for products researched online and then bought in stores. About 40% of teens said that the lack of a credit card is the main reason they do not shop online.
ModaSolutions, an Ottawa provider, also had to adjust the security measures when it adapted its eBillme system to support online purchases by children. EBillme was designed to let online shoppers pay for purchases through their banks' online bill payment systems, but the system governing risk decisions required that the person initiating the purchase also control the associated bank account, according to Marwan Forzley, Moda's president and CEO.
"We had to adjust the risk management so that it does not throw this capability into exception," he said.
On the eBillme Teens service Moda introduced last month, the company's systems make separate risk assessments of the child and the adult. Even if the last names and addresses do not match, the system will approve the transaction if the child and adult are independently confirmed to be low risks, Forzley said.
The payoff, he said, is well worth the effort it took to rewrite the technology underlying eBillme. "Teenagers are incredibly good at lobbying their parents," he said, and online merchants are eager to gain a larger share of their allowance money.
Research cited by IdeaEdge says that the youth market accounted for more than $132 billion of spending in 2007, of which $40 billion was for products researched online and then bought at stores. About 40% of teens said that the lack of a credit card is the main reason they do not shop online.
Collas said that IdeaEdge has already adopted 30 tweaks of BillMyParents to make it more appealing to teens.
Among the most important adjustments were security procedures that could block a transaction. Children initiate purchases at e-commerce sites, generating a notification to their parents to log in to a BillMyParents account to review the items their child wants and fund the purchase with a payment card or by entering their own bank account details.
As part of this, children had to validate their own e-mail addresses, which they use to sign up for the BillMyParents system.
This turned out to be more than children were willing to do.
"Validating their e-mail address by going to their account and clicking on a link is something that they procrastinate on," Collas said. "We had a lot of pent-up requests to parents that weren't getting there."
