Independent market analyst, Datamonitor’s new report, Online Teen Payments finds that teenagers are
spending millions of dollars online across the US and Europe.
Teenage payment systems, such as prepaid plastic cards, are currently
provided by only a handful of suppliers. As such, the sector is lucrative,
but marketing and advertising to teenage consumers is likely to prove
difficult and operators should look to tie-in with larger teenage-friendly
brands. As teenage payment cards become increasingly commonplace, payment
providers should take responsibility to encourage money-management skills
among young consumers.
Datamonitor looked at teenage online spending across the US and 7 EU
countries and found that teenagers spent $483 million online in 2000.
Datamonitor’s forecasts reveal that this figure will increase to $10.6 billion
by 2005 with the development of new payment options, specifically targeted at
teenagers. Teenagers are among the most likely groups to pay on the Internet,
however, their inability to obtain credit cards and low online debit
acceptance has historically made online payment difficult.
Despite being one of the main groups of users on the Internet, many
teenagers have no way of purchasing goods online. With a low number of Web
sites accepting debit cards there is often no way a teen can independently
shop online. The primary means of payment used on the Internet, the credit
card, is not available to them. This implies that a market for an alternative
payment system targeted at teens (i.e. those who cannot apply for a credit
card) exists and that web merchants must integrate new solutions if they want
to target the teen market. Although teens can make purchases indirectly using
a parent’s credit cards, the buying experience is not the same due to the loss
of independence for the teenager.
Prepaid or stored value cards (with the former the money is stored in an
account whereas the latter stores the money on the card, like an ePurse) allow
teens to shop on the Internet securely and without getting into debt. It is
this type of product that is currently growing rapidly, both in use and the
number of competitors in the market.
Prepaid Cards Could Encourage Responsible Spending
“Payment providers must take responsibility for the product that they are
providing. In giving teens a card of any sort they are familiarizing them
with plastic. However, it is does not necessarily follow that they are
encouraging a debt ridden society. Prepaid cards reinforce the idea of using
plastic to pay for what you can afford, by only allowing transactions where
there are sufficient funds loaded onto the card. Payment providers should
encourage responsible spending behavior. Some operators are doing this
through the provision of money management information and tests on their
websites. This helps reassure parents that these products can help their
children learn about how to manage their finances,” comments Julie Cunningham,
Datamonitor financial services analyst.
An Attractive Target Market, Potentially Being Ignored by the Banks
Customer segmentation is increasingly vital as the card payment market in
general moves towards tailored solutions, providing differentiation and a
competitive advantage. Although individually teenagers have limited income,
together their income amounts to significant spending power. Combining this
with the fact that all teen income is disposable makes teens an attractive
segment for companies to target.
If banks and card issuers fail to target teenage business, other companies
providing tailored products will not only gain this business but also retain
it at later stages in the customer’s life.
“There is a need in the market for a teen payment product that allows
secure payments online. Teens want to have their independence and to shop
online. Both traditional players and new entrants have a part to play in this
market. New entrants can attract teens through the ‘cool factor,’ while
traditional players should use their established role in society as a way to
convince parents and to gain their support. If traditional players ignore
teenagers they face losing future, profitable customers and they will face an
uphill struggle against new, ‘cooler’ brands,” comments Ms. Cunningham.
Consolidation is Inevitable
Online teen payments will grow considerably in the next five years. This
is in part due to the growth of the Internet that will be seen across society.
However, growth is likely to be very different in the US compared to Europe.
US teenagers in general have much more money at their disposal than their
European counterparts. The dominance of the credit card in the US will allow
products connected to parents’ credit cards to flourish. However, Europe will
see more independent solutions emerging, with products developed by
independent companies such as Smartcreds and Splash Plastic, but also from
banks. Although the teen payment market seems large, it must be remembered
that teens have limited income and although there are possibilities to extend
this market, this will not stop consolidation occurring. As more companies
launch products aimed at this market consolidation is inevitable.
Tie-ins With Large Brands could Prove Successful
Teenage skepticism about large-scale advertising and marketing campaigns
makes them difficult to target. Marketing cannot be too over the top or
childlike, yet at the same time, the concept must be explicit enough to strike
a cord with teenagers. Teens are likely to switch as new products enter the
market and become ‘cool’ and cutting edge. One way branding can be used is by
creating links such as discounts with the large brands, for example Coca-Cola,
Nike etc. Although brand loyalty is likely to be low, the importance of a
strong, fun, cool image is vital. If something is seen as ‘cool,’ teens are
likely to pass on the word to their friends. This can be the strongest form
of marketing possible. Operators such as Splash Plastic and Visa Buxx have
found that when teens like the product, they are quick to pass on the details
to their peers.
“Teens may be hard to target but it is possible. The need for a payment
product that gives security and allows them to do something they currently
cannot do is almost enough to sell cards in itself. However, as competition
in the market increases, marketing will become more important. An offline
presence will be necessary, as will linking the products to current trends.
Care must be taken not to let the product get outdated as holding the interest
of the teen consumer is vital,” comments Ms. Cunningham.
Teenagers’ Will be Able to Use Plastic Offline
The importance of a presence in the offline environment should not be
underestimated. The majority of a person’s time is spent offline and as such
it is vital to advertise offline. With products such as Visa Buxx offering
both online and offline acceptance, this puts other companies under pressure
to provide the same. Currently, this is only true in the US, but as products
continue to be launched this will extend to other countries. With more
companies entering the market, it will be the one with the most features that
will survive. As such, offline acceptance will become a matter of course.
Online Teen Payments forms part of Datamonitor’s Cards & Payments Briefing
Service; a series of 12 monthly strategic briefings, providing in-depth market
analyses, case profiles, forecasts and action points for success.
Datamonitor plc is a premium business information company specializing in
industry analysis. We help our clients, 5000 of the world’s leading
companies, to address complex strategic issues. Through our proprietary
databases and wealth of expertise, we provide clients with unbiased expert
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