How Google and Apple's youth plays are pressuring banks

• Key insights: Google has launched a new Google Wallet tool that helps parents manage their children's money. 
• What's at stake: The feature is similar to Apple Cash Family, giving the technology giants a potential advantage over banks in attracting a new generation of consumers. 
• Forward look: Analysts say banks need to improve their branding to reach younger consumers. 

Google's latest effort to attract younger consumers should be a wake-up call for banks to pay closer attention to the next generation, according to payment professionals.

Google recently announced it was launching a new Google Wallet tool that gives parents a safe, easy way to manage their children's money, similar to Apple Cash Family, which has been popular with families for several years.

"It's a practical way to teach children smart money habits and give them independence, all without needing to open a bank account," Lisa Yokoyama, director of product management at Google Pay, wrote in a blog announcing the new tool. 

The offering for Android users in the U.S. allows parents to set up a secure balance in Google Wallet for their children and teens under 18. Parents retain full control and can transfer money directly to their children, with a soon-to-launch feature for scheduling automated, regular payments. Parents can also set specific spending limits and track transactions in real time. 

Certainly, Google is not completely disintermediating banks at this time; however, it ups the ante for banks to reposition how they engage with younger consumers so they don't lose them later on, Jared Drieling, chief innovation officer at TSG, told American Banker.

The main attraction for Google is to develop brand loyalty, so when children and teens become adults, they'll look to Google for services like shopping and agentic commerce, Aaron McPherson, principal of AFM Consulting, said. However, it also has a secondary effect: "It encourages children to look at Google as their financial services provider versus their parents' bank," he told American Banker.

The need for banks to offer child and teen accounts is growing

To be sure, several banks and fintechs offer debit accounts and related services to children and teens, including Greenlight, which has partnered with U.S. Bank, GoHenry, and Step. PayPal has launched a Venmo Teen Account, allowing parents to open accounts for kids aged 13 to 17. 

There's certainly a need for these types of accounts. A recent survey of more than 2,100 parents and guardians by Bread Financial found that 46% have been surprised by unexpected purchases their child has made using digital, non-cash payments and spending options like in-app purchases, digital wallets, and online transactions. Digital payment method use also increases with age, with high school students significantly more likely than their elementary school counterparts to have used peer-to-peer payment apps like Venmo or Zelle and digital wallets, the survey found.

Banks have offered basic savings accounts for teens and younger children for a long time, but many of them are mainly for grandparents and family members to help children save and don't have shareability or monitoring functions, McPherson told American Banker. There are, of course, exceptions. Bank of America offers a banking option for children age 13 and above and a parent-owned account with controls for children over age six. Chase First Banking is designed for kids ages six through 12 and is available through age 17. Capital One also has a teen checking account for children ages six through 18 with parent visibility and control.

However, many banks overlook the younger market because they aren't big money makers—yet. Children are expensive to serve because typically they don't carry large balances. You can make some money off the interchange, but they don't move the needle enough. "Potentially they're future customers, but right now they're not very valuable," McPherson said.

This thinking is short-sighted, according to payment professionals. Google's announcement "underscores the importance of having a product that gives you an effective feeder system to pull younger folks in," Eric Grover, principal at Intrepid Ventures, a corporate development and strategy consultancy, told American Banker. "The lifetime value of those customers can be terrific. They're money losers now, but once you get them in, there's inertia, and they'll stay with you for a long time."

A branding problem

TSG's Drieling said many banks aren't doing enough to promote their brands with young consumers, unlike Google and Apple, which interact with this demographic throughout the day. "It's hard to compete with that," he told American Banker. However, banks can continue to focus on what they do well and provide a better proposition beyond a basic debit card for younger consumers, he added. 

The biggest mistake banks are making is treating a youth account like a low-balance checking account rather than a long-term customer acquisition strategy, which is what Google, Apple, and other fintechs are doing, he said. 
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A six-year-old and an 18-year-old are different consumers and don't need the same financial products or tools, so banks need to provide products that become more relevant as children age. This could mean tight, parent-controlled spending or an allowance-savings capability early on, and, later on, a direct deposit option when teens are in high school before they graduate into an adult account, Drieling told American Banker. "That's not how the traditional banks are thinking. They're saying, 'We've got a youth product, and it will work for a six-, 13-, and 16-year-old.' They're taking a wide swath and treating them all the same."