New Payment Options Will Open E-Commerce to Teens

An examination of teenage online spending across seven European countries and the United States by Datamonitor found that teenagers spent $483 million online in 2000, despite their inability to obtain credit cards and low online debit acceptance.

But the development of new payment options, specifically targeted at teenagers, will help online teenage spending to increase to $10.6 billion by 2005, according to Datamonitor’s report “Online Teen Payments.” Teenage payment systems, such as prepaid plastic cards, are currently provided by only a handful of suppliers. That means the sector is potentially lucrative, though to date it has been slow to catch on.

Marketing and advertising to teenage consumers is a difficult task, and Datamonitor suggests teen payment operators look to tie-in with larger, teenage-friendly brands. As teenage payment cards become increasingly commonplace, payment providers should also take responsibility to encourage money-management skills among young consumers, and tout the independence of not using a parent’s credit card.

“There is a need in the market for a teen payment product that allows secure payments online,” said Julie Cunningham, financial services analyst at Datamonitor. “Teens are keen 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.”

Prepaid (where the money is stored in an account) or stored value (which stores the money on the card) solutions allow teens to shop on the Internet securely and without getting into debt.

Datamonitor predicts that online teen payments will grow considerably in the next five years — due in part to general growth in the number of Internet users. However, growth is likely to be very different in the United States compared to Europe. U.S. teenagers generally have much more money at their disposal than their European counterparts. The dominance of the credit card in the United States will allow products connected to parents’ credit cards to flourish. In Europe, more independent solutions will emerge, with products developed by independent companies such as Smartcreds and Splash Plastic, but also from banks.

Teenage payment solutions seem like a win-win situation for all involved. For retailers, they open the Internet to a teenage market. Although individual teenagers may not have much spending power, the entire teenage audience has serious financial pull. For parents and teens, the systems allow teenagers some financial independence, while at the same time keeping them from getting into debt.

“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,” Cunningham said. “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 Web sites. This helps reassure parents that these products can help their children learn about how to manage their finances.”

As attractive as this market can be, it can also be difficult to target, making new payment products difficult to introduce. Part of the problem is teenage skepticism about large-scale advertising and marketing campaigns.

The marketing of teenage payment systems cannot be too over the top or childlike, but at the same time it must be explicit enough to strike a cord with teenagers. Datamonitor found that 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 large brands, like Coca-Cola and Nike, for example. Although brand loyalty is likely to be low, the importance of a strong, fun, cool image is vital. Attaining that “cool” image is key to the teen market, one that relies heavily on viral marketing, as teens are likely to pass on the word to their friends. 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,” Cunningham said. “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.”

The importance of a having a presence in the offline environment should also be considered, according to Datamonitor’s report. The majority of a person’s time is spent offline, making it vital to advertise offline. Products such as Visa Buxx offer both online and offline acceptance, which puts other companies under pressure to provide the same.

The boost that widely accepted teenage payment systems could provide to e-commerce in general has the potential to be massive. According to research by Jupiter Media Metrix, 89 percent of teens ages 13 to 17 have never made an online purchase, but 29 percent research products on the Internet before buying them at stores.

While the social aspect of shopping offline will always appeal to teens, their online shopping behavior mirrors adult behavior — only without the purchases. The Jupiter research found that teens visit the same sites as adults (ages 18 and up), including popular e-commerce sites such as Amazon.com and eBay.

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