Product trial and feedback via mobile wallets like Apple Pay™

Drive purchases in-store and online to see how customers respond to your products.

Advertisers have long found success in offering consumers a try-before-you-buy strategy. Jib Technologies, a San Diego-based startup, is hoping those advertisers will use Jib’s mobile wallet solution to engage social media audiences to drive that sampling.

Jib recently launched a social media ad product designed to get product samples into consumers’ hands. The ad type, which Jib is deploying in partnership with a youth marketing agency called 540 Productions, gives people the chance to request free samples of a product in exchange for taking a desired action such as downloading a mobile app, visiting a store and/or providing their email address and mobile number. Rather than hand the leads off to the advertisers, Jib enables the product sampling to customers by leveraging mobile wallets such as Apple Pay, Google Pay and Samsung Pay and, if the advertiser wants it, checks back in with sample-takers via email and/or text, soliciting feedback and encouraging users to write reviews for the brand to use.

Advertisers can distribute the sample ads in the form of web-links, QR codes, voice overs or text message calls to action that may be included in existing advertising campaigns or via one or more of Jib’s channel partners with a combined reach of more than 1-billion total mobile app users. In the former case, advertisers can incorporate Jib codes into existing campaigns. In the latter, advertisers target a demographic audience designed using Jib’s data management platform.

Advertisers are only charged a price per lead, or may choose a CPM, which varies based on various factors including the products sampled; the baseline is a campaign based on delivery of 10,000 units of a sample product.

Though Jib expects the product sample ads to satisfy pent-up demand in some advertising categories, particularly beauty, skincare and food, product leaders also expect that it will give them access to a whole new class of advertisers, who would prefer to pay for a business outcome, rather than top-of-funnel metrics such as brand awareness.

If the advertiser wants, Jib can retarget people who claimed samples across channels, including websites and on social channels, though that would have to happen as part of a subsequent campaign.

From left to right: A screenflow of how Jib’s ads will work on Instagram.

What science says about discounts versus promotions

Companies that understand the psychology behind special offers create a favorable brand image, deliver happiness to new and returning customers, and boost long-term profitability and sales.

In 1887, Coca-Cola distributed the first-ever coupon. Little did the company realize how important the concept would be in shaping the future of commerce.

With the Coca-Cola voucher, recipients could redeem one free glass of Coke at any dispensary. Coke, which was introduced a year earlier, benefitted from this marketing strategy as it encouraged both consumer and vendor adoption. Families would visit their local pharmacies to get their free Coke and give it a try. In turn, pharmacy owners would tap Coca-Cola to replenish their supply as demand grew. The coupons worked, and it was just the beginning of something much bigger.

According to Coupon Sherpa, “Between 1894 and 1913, an estimated one-in-nine Americans had received a free Coca-Cola, for a total of 8,500,000 free drinks. By 1895, Coca-Cola was being served in every state.” Coke had solidified its brand as a household name. Today, Coke is the world’s best selling carbonated beverage thanks to more than a century of clever marketing strategies including coupons, incentives and free offers.

Today, nearly every brand and retailer uses discounts or other promotions to grow their businesses too. Companies that understand the psychology behind special offers create a favorable brand image, deliver happiness to new and returning customers, and boost long-term profitability and sales.

Below are several studies that reveal how consumers react to discounts vs promotions and how strategic brand incentives and freebies can contribute to a company’s success.

Incentives create happiness

In 2012, a study led by Dr. Paul J. Zak, professor of Neuroeconomics at Claremont Graduate University, was commissioned to learn how incentives impact people’s happiness, health and stress. The study discovered that recipients who got a $10 voucher experienced a 38% rise in oxytocin levels and were 11% happier than those who did not receive a voucher. Furthermore, respiration rates dropped 32%, heart rates decreased by 5% and sweat levels were reportedly 20 times lower. Consequently, they felt more relaxed and less stressed.

Free offers influence purchases

A 2013 global survey by RetailMeNot, found that of its 10,009 participants, 51% agreed that they were influenced by deals, promotions and free offers when shopping online. In the U.S., 56% felt the same. Using free offers, retailers can encourage customers to:

  • Add specific items to their cart including excess inventory, higher-margin products or out-of-season goods
  • Discover new, related products to complement product launches
  • Spend above a specified minimum order total

Shoppers reciprocate samples

For an article in The Atlantic, associate editor Joe Pinsker explains, “People love free…. Retailers, too, have their own reasons to love sampling, from the financial (samples have boosted sales in some cases by as much as 2,000 percent) to the behavioral (they can sway people to habitually buy things that they never used to purchase).” Samples or free trial products are a major revenue driver both online and offline. Brands offer a risk-free proposition to consumers who can try something new, for free. Brands that manage to impress shoppers with samples earn consumer loyalty and trust and generate profitable sales due to our natural desire to reciprocate goodwill. Brands that give away free value start new customer relationships off on the right foot. Over time, the brand’s perceived “generosity” makes it more likeable which also leads to positive brand associations, which generates customer referrals and sales.

The price of free

According to academic and behavioral scientist Dan Ariely, zero is a special price. To many, it is worth a lot more than its face value. Almost irrationally, consumers “perceive the benefits associated with free products as higher” than their absolute value. In a paper for Marketing Science journal, Ariely found that, “People appear to act as if zero pricing of a good not only decreases its cost, but also adds to its benefits.” Therefore, brands who price items at a cost of zero or give things away for free offer special appeal to everyday customers. People value it more, which is why so many brands take advantage of the “free gift with purchase” tactic to increase average order totals among shoppers.

The power of free

Defying conventional logic, consumers are more drawn to free items more than they are to discounted products, even when the discount helps shoppers save more money or get more value from their purchase. In 2012, The Economist published a post titled, “Something doesn’t add up.” In it, the author explained that researchers from the Carlson School of Management at the University of Minnesota conducted an experiment to learn more about how consumers reacted to discounts and freebies. The conclusion was, “Shoppers… much prefer getting something extra free to getting something cheaper.” Sadly, the explanation for the behavior is less than flattering. “The main reason is that most people are useless at fractions.” As emotional creatures, people are more inclined to accept free offers than discounted ones. The results speak for themselves. “The researchers sold 73 percent more hand lotion when it was offered in a bonus pack than when it carried an equivalent discount.” Whether they are right or not, shoppers believe they get a better deal when they walk away with something for free instead of spending less on their overall purchase.

Final thoughts

Ultimately, the best deal, promotion and freebie strategies help you:

  • Avoid bargain hunters who may overuse your customer service resources and never convert into loyal, returning customers.
  • Preserve your brand’s integrity by limiting the number of coupons customers can use and steering clear of deep discounts.
  • Encourage new product trials, repeat purchases and higher average order totals through incentives that motivate buyers to add more items to their cart and to complete their order.

Bottom Line 

In 1887, Coca-Cola didn’t discount their brand by introducing coupons. Instead, Coke promoted their brand by sharing one free Coke and delivering happiness to recipients while creating a favorable brand image and becoming the world’s best selling carbonated drink. Companies that understand the psychology behind special offers create a favorable brand image, deliver happiness to new and returning customers, and boost long-term profitability and sales. Don’t discount your brand, promote your brand while rewarding your customers, delivering happiness and creating a favorable brand image!   

Payments are an opportunity to reinforce branding

Think of store cards like your billboard in consumers’ wallets — or, a digital wallet
when referring to smartphones and mobile devices.

Building a brand is no longer a one-dimensional goal. Take your product or service as the base, add engagement, and you have your formula for building brand loyalty. The traditional methods of marketing are now elevated through experiential marketing in lieu of standardized ads, events and emails. Experiential marketing is the action of creating unique, face-to-face branded experiences.

Companies think of branding in terms of advertising, mailings, inserts, logos and social media. However, payments, and all the touch points associated with digital and plastic payments, are an equally important opportunity for branding.

Marketers are diligent in ensuring that the brand is consistent throughout all aspects of consumer contact. Signage, logos, websites, mobile and online shopping are all inspected for consistency with the brand. However, payments should be included in this thought process too. 

Payments are more activity based, while other branding elements are more passive. Nevertheless, from a branding perspective, payments can be far more memorable, both positive and negative, because people are more likely to remember the experience in doing an activity. 

Every step along the customer’s payments journey, as well as every touch point, should be considered. When loading a card into Apple Pay, the text message to authenticate, the email to confirm enrollment, and every aspect of friction, or lack thereof, is an opportunity for branding. 

Marketers should take great effort to ensure that their card art reflects the company’s brand. But once the card is entered into the Uber or Lyft app, for example, that card art has been exchanged for 12 X’s followed by 4 digits. This is when a focus on experience becomes even more important because the ultimate goal is to have customers make their company-branded card the default card in these apps. Any rewards or incentives that will encourage continued use of the company-branded card should be incorporated into the customer experience.

Millennials spend a lot of time browsing content. Within seconds, you either intrigue or disinterest a potential consumer. Focusing on the client experience, Ulta Beauty incorporated a full-service salon in their stores and, in 2014, announced its Ultamate Rewards program. The concept was basic with a reward system of one point for every dollar spent. Members were awarded with opportunities to receive bonus points throughout the year including their membership anniversary and birthday. This created a cyclical consumer base where guests would make purchases to increase their points which would later be converted to free rewards. Consumers no longer come in just to purchase when they absolutely need a product. With the opening of its 1,000th store in 2017, and a goal of opening 100 stores each year, Ulta Beauty has successfully developed relationships with more than 500 brand partners to develop its loyalty base.

The P2P experience is another branding opportunity. When a customer wants to send money to their friend who is a customer of a ‘big bank’, is your card P2P compatible? Is it frictionless? Is it accessible from your mobile app like their friend’s is? When it comes to branding, the customer might not remember the placement of the logo, but he/she will remember that they had to shop with their parent or pay with cash when all their friends had access to a digital P2P app.

Branding opportunities are not limited to digital payments. There are several elements to using plastic that equally reflect the importance of branding. A balance left on a gift card is a major branding consideration, in fact, a very negative one; And, like other negative experiences, one that will be remembered long after the customer forgets the many great things they have purchased from you. When a customer who was unable to easily spend the balance on their gift card calls into the number on the back of the card, how that customer is greeted, what questions are asked, and how the issue is resolved, is an equally, if not more, important element of branding, which should be the purview of marketing, even though these aspects of customer interaction are usually left up to customer care or operations. 

Unfortunately, oftentimes, it is when something goes wrong, like a remaining balance or a lost gift card, that a customer most associates their experience with your company – that is branding. But the flipside is also true, when everything is working perfectly; making mobile payments with your company-branded debit card and getting a reward, and making  P2P payments from your mobile app – that is also branding. Branding is at every customer touchpoint, it is not just a visual element, it is an experience that is a part of every action and interaction.

Put some thought into how you want your next customer to experience your brand. Make them feel like their business and loyalty is appreciated. Like in any relationship, each consumer wants to feel unique and wanted. It’s your responsibility to encapsulate that experience to have them coming back for more. Need some help in taking advantage of branding opportunities throughout the payments experience? Contact the experts at Jib Technologies.  

Harnessing mobile payments to deliver business results

Everything we do better connects fans with brands they already love,
and elevate fans’ relationships with those brands.

Many consumers use their credit cards to rack up rewards to be used toward travel. 

But what if you’re an action sports fan, and using your payment card could lead to a virtual freeride session with your favorite surfer, skater or snowboarder? Thanks to San Diego-based Jib Technologies, that opportunity may be less of a stretch than you think.

The financial technology (FinTech) startup is out to give brands and tech companies a way to launch custom co-branded prepaid, virtual and debit cards as well as customized payment enabled wearables.

Put simply, Jib aims to help consumer brands launch their own co-branded Visa or Mastercards very quickly and easily by handling the program creation, card issuance and customer service for brands. The startup has already launched several co-branded card programs.

The company is out to modernize the whole concept of co-branded payment card programs. There are close to 200 brands with traditional credit card programs but they are often old legacy businesses such as Costco and Sam’s Club. Of the 200 that exist in the U.S. today, only one is from a company that is less than two decades old. Jib wants to connect folks with brands they love, and elevate fans’ relationships with those brands.

Jib’s customized rewards programs are catered to very specific demographics that actually truly appreciate the value that that brand is providing. 

Our first programs helped fans get things like action sports  athletes’ autographs and event sponsors product samples as well as experiences that money can’t buy.  The company plans to announce more programs this year and says that it’s able to do so in a matter of weeks compared to traditional issuers, which can take months or more than a year to issue similar programs.

Jib is attempting to shake up a massive market. Consumer credit cards yielded an estimated $150 billion in revenue for traditional banks in 2019, but startups only captured a small fraction of the value. Jib aims to help brands and tech companies snag a larger piece of the huge market by working with a bank issuer to provide simple card issuance and bespoke digital payment programs for customers of those brands.  

This data-driven insight enables us to build dynamic and creative
loyalty marketing programs that strengthen and deepen relationships
between our clients and their customers.

Branded prepaid store cards versus gift cards

Traditional gift cards, while helping facilitate an increase in both brick-and-mortar and online store traffic, have one major downfall — they only encourage a one-time use.

For a long time, gift cards have presented retailers with a prime awareness-building opportunity for both existing and new customers. Gift cards encourage consumers to interact with a business and purchase its goods or services. Whether gifted as a birthday present, a thank you, or just for a friend to try a new experience, consumers’ demand for gift cards offers retailers plenty of opportunities for business growth.

Traditional gift cards, while helping facilitate an increase in both brick-and-mortar and online store traffic, have one major downfall — they only encourage a one-time use. Consumers will either spend it and forget it, or throw it away when their $20 purchase amounts to $18.95. Retailers that rely on one-time use cards miss out on an enormous opportunity to establish a more dynamic relationship with increasingly fickle consumers whose shopping experiences have evolved with technology. Thanks to advances in prepaid card and mobile technologies, retailers now gain increased access to their customers and more chances to keep consumers coming back. Prepaid open-loop card programs and the evolution of store card technologies multiply the number of touch points retailers have with current and prospective consumers.

Here are some of the factors that allow retailers to rethink loyalty with prepaid and store card programs and open doors to additional consumer touch points.

Reloadable Prepaid Cards

One of the major benefits of a reloadable prepaid or “store” card is an increase in transaction count, which, over time, can have a large effect on consumers’ buying habits. As opposed to traditional one-time use gift card programs, retailers will start to see the number of transactions increase with reloadable prepaid or self-use store cards. Why? Because the consumer will no longer throw away the leftover cash on the card (or dismiss the card itself) — they will reload the card and start using it as a form of payment because there is an incentive for doing so. Reloadable prepaid cards present retailers with the opportunity to further capitalize on the effort and marketing dollars put behind personalized prepaid and store cards.

New Promotional Capabilities

Think of store cards like a billboard in consumers’ wallets — or, a digital wallet when referring to smartphones and mobile devices. Whether a physical prepaid card program or one that is enabled by a smartphone application, retailers can take their brands’ promotional capabilities to new heights. With access to customers’ basic contact information, retailers are now able to send email notifications alerting consumers of special deals and promotions to use the card. Whether consumers are opening their wallet or checking their email inbox or text messages, retailers are increasing the chances of remaining top-of-mind among their customer base.

But where the promotional capabilities of store card and loyalty programs really set themselves apart is in the mobile world. According to Pew Research, 64% of U.S. adults now have a smartphone, up from 35% in 2011, and technology is enabling consumers to connect store card and loyalty programs to their mobile devices. This advancement opens the doors for retailers to send push notification with card balance, rewards, and promotions that encourage consumers to come back into the store — creating a constant touch point with customers.

A Seamless Checkout Process And Cash Back Rewards

Advances in payments technology enable prepaid and store card programs to offer a seamless purchasing experience. Consumers often have trouble understanding overly complex reward points systems, which increases the chances they will abandon a gift or loyalty card program. Additionally, rewards that require the additional scanning of tickets or receipt coupons are often lost and forgotten. However, with the ability to now reload funds directly to a prepaid or store card and earn cash back rewards, monetary value is automatically loaded and consumers are rewarded instantaneously for their purchases.

For retailers, many gift card and loyalty programs can be difficult to manage, and tracking points against revenue presents a new set of challenges. Now, with seamless payments and cash back rewards programs, retailers can define a reward amount of choice; set it and forget it. Additionally, when transactions take place and consumers are rewarded for their purchase, email or push notifications are sent to the consumer sharing their updated card balance and thanking them for their business. These are touch points that retailers wouldn’t have once a printed receipt is tossed away. This instantaneous response promotes continued loyalty from consumers because it shows the retailers care.

Near Field Communication (NFC), And The Future Of Geofencing And Wearable Payment Technology

We are only in the early stages of geofencing and wearable technology; however, there have been significant advancements to allow retailers of all sizes to participate. Specifically, as retailers undergo reterminalization to support EMV technology, they also plan for the future by installing hardware that is NFC capable. But what does this have to do with loyalty?

Mobile payments technology will allow retailers to put the digitized promotional capabilities and seamless checkout process highlighted above in the palm of consumers’ hands. As wearable payment technology evolves and becomes accessible for retailers of all sizes, the “billboard in the wallet/phone” concept is no longer static — it becomes dynamic. Consumers that have push-notifications attached to a prepaid or store card program offer retailers the opportunity to engage whenever they are nearby. Importantly, mobile payments and NFC terminals allow for the seamless integration of geofencing into the consumer buying cycle, as a customer’s loyalty is rewarded by simply tapping their phone or wearable payment device to receive a good or service.

Stored value and loyalty programs are growing at a fast pace thanks to the premium placed on the consumer shopping experience. More and more retailers hoping to attract new consumers or win over infrequent shoppers will look to adopt a branded prepaid store card or loyalty program. As we continue to migrate away from physical cards to digital technologies, retailers will see branded prepaid store card programs grow in the mobile space, enabling retailers to provide the instantaneous, customized services that today’s consumers’ demand.

So, whether a small, medium or large retailer, the choice is yours on how you want to participate in a gift card and rewards program. Although the benefits are clear for retailers, remember it all comes down to the consumer. Retailers should support their consumers’ major touch points to ensure a seamless customer experience and keep them coming back for more.

For retailers, custom branded prepaid store cards really are the gift that keeps on giving!  

#StopHateforProfit

‪I invite all of the brands — especially those who have pulled all or part of their social media budgets until those channels more stringently moderate hate speech and disinformation — to use a new tool we developed on our FinTech platform to promote togetherness and sharing. 

We will offer this sharing feature for free to any business who signs up prior to the end of July and invites their social media followers to share that business’ product or service with a front-line worker, friend or neighbor in an effort to foster togetherness and unity.  

This new feature leverages mobile wallets such as Apple, Google and Samsung Pay enabling any business to send products and services directly to anyone by SMS/text, email or any messaging app such as WhatsApp.  

For example, Coca-Cola could use our platform to enable anyone to “Share a Coke” with anyone else — simply by sending a message. 

For a live demonstration showing how simple it is to share, simply text #StopHateforProfit to +1-650-999-0253.

Happy Saturday,

P A U L  M Y E R S

Cofounder / CEO

@JibTechnologies

Payments are a form of branding.

Building a brand is no longer a one-dimensional goal. Take your product or service as the base, add engagement, and you have your formula for building brand loyalty. The traditional methods of marketing are now elevated through experiential marketing in lieu of standardized ads, events and emails. Experiential marketing is the action of creating unique, face-to-face branded experiences.

Companies think of branding in terms of advertising, mailings, inserts, logos and social media. However, payments, and all the touch points associated with digital and plastic payments, are an equally important opportunity for branding.

Marketers are diligent in ensuring that the brand is consistent throughout all aspects of consumer contact. Signage, logos, websites, mobile and online shopping are all inspected for consistency with the brand. However, payments should be included in this thought process too.

Payments are activity based, while other branding elements are more passive. Nevertheless, from a branding perspective, payments can be far more memorable, both positive and negative, because people are more likely to remember the experience in doing an activity.

Every step along the customer’s payment journey, as well as every touch point, should be considered. When loading a card into Apple Pay, the text message to authenticate, the email to confirm enrollment, and every aspect of friction, or lack thereof, is an opportunity for branding.

Marketers should take great effort to ensure that their card art reflects the company’s brand. But once the card is entered into the Uber or Lyft app, for example, that card art has been exchanged for 12 X’s followed by 4 digits. This is when a focus on experience becomes even more important because the ultimate goal is to have customers make their company-branded card the default card in these apps. Any rewards or incentives that will encourage continued use of the company-branded card should be incorporated into the customer experience.

Millennials spend a lot of time browsing content. Within seconds, you either intrigue or disinterest a potential consumer. Focusing on the client experience, Ulta Beauty incorporated a full-service salon in their stores and, in 2014, announced its Ultamate Rewards program. The concept was basic with a reward system of one point for every dollar spent. Members were awarded with opportunities to receive bonus points throughout the year including their membership anniversary and birthday. This created a cyclical consumer base where guests would make purchases to increase their points which would later be converted to free rewards. Consumers no longer come in just to purchase when they absolutely need a product. With the opening of its 1,000th store in 2017, and a goal of opening 100 stores each year, Ulta Beauty has successfully developed relationships with more than 500 brand partners to develop its loyalty base.

The P2P experience is another branding opportunity. When a customer wants to send money to their friend who is a customer of a ‘big bank’, is your card P2P compatible? Is it frictionless? Is it accessible from your mobile app like their friend’s is? When it comes to branding, the customer might not remember the placement of the logo, but he/she will remember that they had to shop with their parent or pay with cash when all their friends had access to a digital P2P app.

Branding opportunities are not limited to digital payments. There are several elements to using plastic that equally reflect the importance of branding. A balance left on a gift card is a major branding consideration, in fact, a very negative one. And, like other negative experiences, one that will be remembered long after the customer forgets the many great things they have purchased from you. When a customer who was unable to easily spend the balance on their gift card calls into the number on the back of the card, how that customer is greeted, what questions are asked, and how the issue is resolved, is an equally, if not more, important element of branding, which should be the purview of marketing, even though these aspects of customer interaction are usually left up to customer care or operations.

Unfortunately, oftentimes, it is when something goes wrong, like a remaining balance or a lost gift card, that a customer most associates their experience with your company – that is branding. But the flipside is also true, when everything is working perfectly; making mobile payments with your company-branded debit card and getting a reward, and making  P2P payments from your mobile app – that is also branding. Branding is at every customer touchpoint, it is not just a visual element, it is an experience that is a part of every action and interaction.

Put some thought into how you want your next customer to experience your brand. Make them feel like their business and loyalty is appreciated. Like in any relationship, each consumer wants to feel unique and wanted. It’s your responsibility to encapsulate that experience to have them coming back for more.

Need some help in taking advantage of branding opportunities throughout the payments experience? Contact the experts at Jib Technologies.

“The Snapchat Generation Is Shaping The Future Of FinTech” by Savannah Dowling ~ April 26, 2018

Savannah Dowling is a writer at Crunchbase News. She’s a Cornell graduate and a Fulbright scholarship awardee.

More influencers, developers, and founders are looking to the generation that will shape outcomes in the startup world for years to come: Generation Z.

Follow Crunchbase News on Twitter & Facebook

Consensus surrounding what the cut off year is for Gen Z (or iGen) varies across publications and studies. For the most part, though, Generation Z is the coined term for children who are growing up on Snap and can’t remember a life without makeup gurus on Youtube. To be safe, let’s call it kids born after the mid to late nineties. That would make the oldest members of the group college-aged today.

Fintech is one industry that is both particularly challenged and enthralled with this population. The group is predicted to represent roughly 40 percent of all consumers by 2020, and their current purchasing power is about $44 billion, according to Forbes.

Fintech startups are starting to catch on to both of those statistics, looking to cash in and lay the groundwork on these future customers.

FinTech Goes For Gen Z

Crunchbase News has covered a lot of fintech in the past year. One of the trends for early-stage companies and large banks alike is the desire to tap into that grand purchasing power of our current credit card fledglings. Of course, when it comes to finances, teens can’t sign up for bank and credit cards on their own. But their parents can.

According to a 2017 report by the IBM Institute for Business Value (IBV), which surveyed 15,600 Gen Zers between the ages of 13 and 21, 59 percent of those surveyed said that they received an allowance. And, in a report by PwC, 81% of “young Gen Z” consumers (those aged 13 through 16 years old) said that they preferred to shop in stores as opposed to online. So for credit card companies and banks, reaching out to the parents of Gen Z is critical.

Take Greenlight Financial Technologies, which Crunchbase News reported as having one of the highest early-stage investments for a southern company in early 2018. The company provides its subscribers with kid-friendly, permission-based debit cards that can be tracked, filled, and monitored by their parents.

Greenlight told Crunchbase News in February that the 50 million families in the U.S. with at least one child living at home represents a opportunity for growth for the company. Crunchbase News also identified at least nine other recent apps similar to Greenlight Financial Technologies, which appeal to parents’ desire to teach financial literacy. But it’s not just startups trying to capture the market.

In 2017, Amazon announced a new feature called Amazon teen, which provides teens with an account to spend their parent’s money online—and a convenient way for the ecommerce giant to convert future customers. According to Bloomberg, Amazon may also be looking to partner with banks to launch a bank account made specifically for teens.

No Big Screens

Fintech startups are also planning for the future by engaging with Generation Z’s mobile first preference.

A shining example of the opportunities that present themselves within the mobile first generation would be Tencent’s WeChat pay and Ant Financial’s Alipay, through which hundreds of millions of mobile users in China and abroad purchase goods and exchange money with just a few taps on their cell phones.

Mobile savings and banking apps like Digit, Chime, and Varo Money have also looked to capitalize on the increasing dependency on mobile in the U.S. Varo Money, which raised a $41 million Series B in January 2018, says that mobile first was always a part of the company’s platform.

“[Young people] don’t want to pay fees or read through obscure fine-print; they want a brand that represents their social missions and outlook,” Varo spokesperson Emily Brauer Gill told Crunchbase News in February.

Insurtech company, Root Insurance, raised a $51 million Series C in March for its platform. To say that the company is mobile first is an understatement. The startup collects data about driving habits through its users smartphones to come up with an automated insurance quote. The company is looking to appeal to younger drivers who are at once accustomed to immediacy and demanding of transparency.

The targeting of Gen Z by financial companies looking for lifelong customers isn’t a surprise, but the timing of the shift may be. Perhaps millennials expected a few more years in the limelight. All the same, it’s early days for Gen Z. The kids aren’t rich. Yet.

“Amazon Wants to Get to Teenagers Before the Banks Do” by Jennifer Surane ~ March 29, 2018

But one group of potential customers has eluded the world’s biggest Internet retailer.

Teenagers, otherwise known as Generation Z, with their lack of debit and credit cards, their absence of bank accounts and their overwhelming preference for actually putting on clothes and going to physical stores to buy things they could purchase online, pose a big challenge to Amazon.

Amazon’s answer: The internet behemoth is in early discussions with banks including JPMorgan Chase & Co. and Capital One Financial Corp. to create a product similar to checking accounts, according to people familiar with the matter who requested anonymity. Amazon aims to tailor the accounts to appeal especially to youngsters and those who own no plastic in their wallets, the people said.

Debit Devotees

Consumers between the ages of 18-24 prefer debit cards to other forms of payments

Source: Total System Services Inc.

“The sooner you can start collecting information on them, the better prepared you are,” said Tim Barefield, a managing director at the consulting firm Kotter International. “For Amazon, it’s another way to expand their brand. Their brand is reaching out every place that their tentacles can reach out to.”

The move shows Amazon’s recognition that digital accounts for minors potentially lock in lifetime customers before they even leave their parents’ house. Amazon is savvy about its users’ life cycles. It offers new parents discounts on diapers and baby food. It gives college students discounted Amazon Prime memberships, providing free shipping and access to streaming video so young adults will already be Amazon shoppers when they start making more of their own spending decisions.

Pseudo Card

Since many young people don’t qualify for credit cards, Amazon created a pseudo-debit card called Amazon Cash that lets teenagers drop off money at drugstores such as 7-Eleven Inc. and CVS Health Corp. and add it to an Amazon wallet they can use online.

But Amazon has long known the process is clunky and has wanted to take steps to make it easier for customers without bank accounts to shop on its website. Walmart Inc. and American Express Co. offer accounts called Bluebird that have made inroads with teens.

Amazon, led by billionaire Jeff Bezos, is trying to stay on top even as it had revenue of $178 billion last year, a 31 percent jump from 2016 and an almost 2,500 percent increase from 2004, when many of these potential new customers were born.

Service Charges

Children under the age of 18 typically aren’t able to sign up for a bank account without parental consent. Checking accounts for high school students often come with monthly service charges and overdraft fees.

So there’s a chance for Amazon to improve the banking experience, said Stuart Sopp, chief executive officer of Current, a startup that offers debit cards to teens [for a fee].  Current accounts require parental consent and comes with monthly service charges of $3/month for the first teen billed annually at $36/year plus $1/month for each additional teen billed annually at $12/year.

“I’m sure Amazon is scaring the hell out of every single regional bank and credit union right now,” Sopp said. “The banks have very clearly not serviced these demographics, so there’s opportunity.”

Check Yes

Consumers said they were open to banking with Amazon, even if it came with a fee

Source: Cornerstone Advisors, StrategyCorps

Note: Cornerstone Advisors asked consumers about their attitudes toward Amazon offering a banking product similar to a checking account that had a monthly fee between $5 and $10 that included basic checking account services plus cell phone damage protection, ID theft protection, roadside assistance, travel insurance and product discounts.

If Amazon could deliver a better banking experience for digitally savvy youngsters who are used to getting what they want with a few swipes or clicks, they might have banking customers for a long time, said Eric Marks, a senior director at the financial consultancy West Monroe Partners.

Amazon might also entice teens with its personal assistant Alexa. Such devices are popular among teens looking for a convenient way to pay, said Gavin Rosenberg, a senior director at the payments processor Total System Services Inc.

“The younger generations are less concerned about privacy, so they’re more apt to use them,” Rosenberg said.

Adults, Too

The marketing opportunity doesn’t end with teenagers. The e-commerce giant could also end up persuading people to close their existing bank accounts and open a new one with Amazon, according to a Cornerstone Advisors study published in January. It would also be a chance for a bank to partner with the online gargantuan.

“Right now, banks might not be offering exactly what millennials want or need,” said Marielle Schurig, a financial adviser at UBS Group AG who works with high-net-worth millennials. “A lot of monthly statements don’t offer insights or tools to manage your records or analyze your spending to budget or save for the future” — something Amazon might provide.

Even with as much as a $10 monthly fee, 27 percent of young millennials polled said they would open an additional checking account with Amazon. One-tenth said they would close their existing account and go with Amazon.

“This is music to Amazon’s ears,” Cornerstone said in its report. “Why would they want to offer a free checking account when they can bundle the services of various providers on their platform — merchants and financial services providers — and charge a fee for it. A fee that consumers are willing to pay.”

— With assistance by Spencer Soper

“Why your wallet is becoming the next platform” by Alex Rampell ~ Apr 24, 2016

Alex Rampell is a general partner at Andreessen Horowitz and previously served as the chief executive and co-founder of TrialPay.

The “wallet” in the modern sense of “flat case for holding paper currency” dates back almost 200 years. The word itself goes back 700 years, and the concept (minus paper currency) for millennia.

Leather wallets were not “smart,” of course; they were atom agnostic, payment type agnostic, even, as credit cards and the like started proliferating in the mid 20th century. But today the payment type is almost a pointer — in computer science vernacular — to a source of money. And the wallet itself is the master pointer, used for opening and closing a transaction, and choosing which sub-pointer to assign.

Because intercepting the payment leads to a whole downstream treasure of goodies, the wallet — once tanned animal hide — is going to be the ultimate financial platform. As digital wallets increasingly become the origination point for consumer spending, they will become THE platform for downstream financial services — creating an opportunity for startups and a problem for established players.

The problem, of course, is that a payment type can become a wallet, and a wallet can become a payment type. So which is which? If a ridesharing company has 100 million credentials, they’ve solved half of the network effect problem of being a payment company — so you could imagine using that app as your wallet at, say, Walmart . Or Starbucks, which is one of the biggest wallets, has a pointer within its wallet to Visa Checkout, another wallet, pointing to a card type (a Visa card, or even a MasterCard/Amex/Discover card), pointing to a “loan” (the “credit” part of a credit card), ultimately pointing to a bank account.

As a stack, we have hardware — your mobile phone — at the top and bank accounts holding the actual treasure at the very bottom. But it’s better to think of this “stack” as really a system of pointers, in this case downwards. And the goal for businesses is finding and occupying a defensible position in this stack that allows them to intercept payments, capturing and controlling value to become that ultimate financial platform.

On my Apple iPhone, I can run the Uber app and pay via PayPal, which deducts the money from my American Express Card. For the first four components of the stack — hardware, operating system, app, and cloud backbone — the heuristics of success for capturing value are the number of integrations (i.e., the number of places people can use the wallet) and number of credentials (users who have committed more than one tender type).

Given the massive number of credentials they have and the controlling position as the “start” of the stack — unlike other players, Apple has both hardware and OS — Apple’s wallet as platform could deal a crippling blow to everyone down the stack.

Especially because the flow in this stack only goes one way: players below don’t get access to the resources up the stack.

In a mobile-only world, a well-coordinated effort to let you simply touch your thumb to your iPhone to pay on any ecommerce site or app could wipe out probably 20% of PayPal’s revenue, overnight [two-thirds of PayPal revenue is merchant services off eBay; assume 25% iOS share].

The real value of occupying a defensible place in this stack is not even in processing the payment, however. Capital One spends a lot of money every year convincing you to apply for and use its credit card. Once subsumed under a digital wallet, though, that “usage” component gets further and further out of Capital One’s control, with tremendous implications on downstream interest (lending) revenue.

One change in Apple’s product design — for example, something as simple as alphabetization, which a leather wallet doesn’t do! — could move Bank of America ahead of Capital One as a “default,” moving more purchases in that direction.

The “end result” of this whole system of pointers is usually an increasing balance on a revolving credit facility — a credit card. Take LendingClub and Prosper, the two biggest marketplace lending companies.

About half of LendingClub’s loan originations come from refinancing credit card debt, which they source via U.S. Postal Service mail ads, Google ads, etc. But controlling a position in the purchase stack could and arguably should replace their normal customer acquisition process; rather than waiting for a consumer to accrue a large balance from a series of purchases (at a ridiculously high credit card interest rate) and then refinance, catch it as the balance comes in from purchases.

The next large consumer finance company is likely to interrupt this chain of pointers. But at which point in the stack? It will be very challenging to attack the top of the stack as that would require a hardware+OS wallet with massive adoption and a massive number of payment credentials. And attacking the bottom of the stack is challenging as well …and relatively unprofitable at that.

Right now, LendingClub will take your 18% APR Chase/Citi/et al interest rate and refinance it down to 10%. But in a world where ApplePay controls the front and existing banks like WellsFargo provide the source of funds at the end, there’s no reason not to “automate away” the credit selection process. Why wouldn’t they just skip right to the rate LendingClub would have given you, or even skip to the best “marketplace lending” rate?

The biggest dislocation once that happens will be that your “credit card” will no longer be the default source of medium/long duration credit. This has major implications for all of consumer finance.

The future: Wallet apps, rewards, insights

For credit card companies, the smartest thing they can do is to not build their own cloud wallet, which creates an unnecessary “sub-pointer”. Yet many of them are doing this because they’re missing the full view of where value lies in the stack and how to better leverage their position within it.

For cloud wallets — which are facing the existential challenge of being caught, literally, in the middle — the smartest thing they can do is align themselves with a winning application wallet if they’re losing in acquiring enough credentials on their own. Because payment companies (e.g., Chase, Citi, etc.) risk being abstracted into irrelevance, attaching themselves to the winning application wallets (the likes of Amazon, Lyft, Starbucks, Uber, etc.) is one of the only ways to prioritize their existing “pointer” vis-a-vis others.

So what does this all mean for startups? Well, it will become easier to address the most profitable part of the stack — lending — without getting into the herculean and quixotic path of payments. Companies like PayByTouch over 8 years ago and Powa more recently together evaporated over $500M before dissolving into bankruptcy. Today, there are many other parts of key infrastructure that can be rewritten with access to digital wallet-as-platform: rewards, PFM (personal financial manager, à la Quicken/Mint), merchant recommendations, offers, etc.

There is also a whole generation — millennials — who don’t understand the notion of balancing a checkbook because they don’t even have a checkbook.

It’s an anachronism, as are the PFMs that grew up around that notion, including long delays before purchases show up in “modern” PFMs.

This is because the purchase goes from merchant, to merchant bank, to network, to issuing bank, to aggregator, to PFM. But in digital wallets, purchases show up instantly — allowing recommendations, offers, and discounts to be instantaneous. Digital wallets may finally enable the long-sought “taste graph” (the mother of all “people who bought this, also bought that”) to be built.

All of this will require the “top” of the stack to open up — for Apple, Google, and other players to recognize they are building a financial platform, which like all platforms are most valuable when developers have access. Given the size of the market, it’s a question of when, not if, this will happen. And once it does, it’s likely to be a game changer for the banks that for decades have relied on branches and consumer branding, and for startups who will finally find themselves with a capital-efficient entry point for disrupting consumer finance.