Millennials Move Fast, Pressuring Payment Tech to Keep Up

Even an entrepreneur who specializes in products for young people can be taken aback by how fast a new mobile technology becomes an everyday necessity for its users.

"I asked one of the guys who works at Oink if he uses Venmo, figuring that most young people test the technology because they work at a payments company," said Jo Webber, CEO and founder of Virtual Piggy, the company that operates the Oink youth payments service. "He said 'I use it all the time.' You figure that they were using it to split tickets, but they are using it for almost everything."

Venmo, the person-to-person payment app PayPal picked up as part of its Braintree purchase in 2013, has brought P2P out of its "dinner check split" shell by adding a social component, which has proven extremely popular with people in their 20s.

The Venmo app looks more like a Twitter feed than a banking tool, and many pure social media apps — such as Facebook Messenger and Snapchat — are adding their own payment capabilities.

Oink’s main product is a prepaid account for teens. This audience's habits give the company a clear view of where it needs to go to meet their needs, particularly as they transition to adulthood and their financial activities get more complex, according to Webber.

This insight can be gleaned only from observing the young adult customer base; it doesn't come from the executives who have years of experience in the financial services industry. Merchants and payment companies have less than a decade until Oink's teen demographic is the financial and merchant consumer mainstream, and their current tastes suggests issuers, processors, merchants and other companies will be seen as dinosaurs if they don’t have the right mix of social and shopping tools.

"Things like Venmo weren't around when I was a young adult but they are there now, and the generation that's coming up enjoys the social aspect of payments," Webber said. Products that let users share the details of a night out as part of paying their share of a check hold more appeal than those that simply mimic (in digital form) the stale process of writing a check.

Just five years ago, the concept of a blending social media with payments was the subject of ridicule. A startup called Blippy attempted to create such a system by letting users link a credit card to its site to publish the details of purchases at merchants like Amazon.com and Apple's iTunes. But early on, the company discovered a glitch that made some users' card account details visible via the Google search engine. Since that incident, Blippy struggled to gain user engagement, and began to fade away.

But five years is an eternity in Internet time, and in that time new platforms like Snapchat, Instagram and Yik Yak joined the likes of dominant players like Facebook and Twitter, with one common thread connecting them: They are all designed to work smoothly on mobile phones.

"I don't work for Apple, but we have teen ambassadors who ask other young people about their tastes, and they almost always say they want an iPhone; it's something that they aspire to," Webber said, adding relatively older iPhone models frequently get passed down from parents as they upgrade to newer handsets, creating a family following for Apple devices.

The same dynamic is likely to play out with smartwatches, she predicted. "Young people are also very big into wearables."

About 92% of teens report going online daily, with a quarter saying they go online "almost constantly," according to the Pew Research Center, which also reports that 75% of teens own or have access to a smartphone.

To address the trend, Oink last month released the Neon version of its iOS app with support for P2P transfers initiated from either an iPhone or an Apple Watch. Oink is also working on similar apps for other operating systems, Webber said.

"We heard a rumor that the next version of the Apple Watch won't need to be tethered to a mobile phone, and if this is the case, you will see much more adoption of the watch," Webber said.

Oink enables teens to make payments within parameters set by their parents or guardians, and the new P2P features are designed to adhere to that model. Parents can set up notifications to provide details on the user's payment activity.

These notifications also provide visibility into the "social" part of the transfer, including the funding source.

"You can find out if a payment is for babysitting, for example," Webber said. "It's easier to pay a babysitter through a P2P transfer than going to an ATM. The babysitter's parents would then know that the payment was for babysitting."

The updated app also makes it easier to know how much money is in the Oink account, and the transactions that led to that balance, Webber said.

"If you are a parent, you'll be able to know what is going on with the account," Webber said. "And the [Oink account] can be shut off. It's not like a credit card where you have to cancel it and wait for two days to get it back."

These controls, transparency and similar risk tools are a particularly good fit for younger consumers, said Zil Bareisis, a senior analyst at Celent.

"We're seeing an increasing number of companies that are putting customers in control over their payment instruments…mobile apps and new authentication technologies are obviously playing an important role in enabling these features," Bareisis said. "However, nowhere are controls more important than in helping ensure that children and young people manage their money safely and prudently."