As a parent, you want your kids to grow up with a healthy understanding of personal finance. But as any trip to the mall with a teenager will remind you, the urge to spend now and worry later is strong at that age. So when PayPal launched Student Accounts in 2009 to give teens a taste of digital money management, it seemed like a promising tool for many families.
PayPal Student Accounts allowed users as young as 13 to create a sub-account under a parent‘s regular PayPal account. Students could shop online, send money to friends, and even get their own debit card, while parents could monitor transactions and set limits. It was pitched as a way for the digital generation to learn financial skills with guardrails.
Despite early growth and positive feedback, PayPal made the surprise decision to sunset Student Accounts in 2016, along with a branded student debit card. So what happened, and what can we learn from the rise and fall of PayPal‘s first youth offering? As a retail and consumer expert who‘s admittedly a bit of a money nerd, I dug into the saga of PayPal Student and the broader teen banking landscape.
Inside a PayPal Student Account
When active between 2009-2016, PayPal Student Accounts mirrored the core capabilities of standard PayPal accounts with some key tweaks:
- Parents created a sub-account for teens 13 and older linked to their own PayPal account
- Students could fund accounts via transfers from parents, gifts, or payment requests
- All transactions were visible to parents, who could set spending limits and restrict purchases
- Student accounts had no fees beyond standard PayPal transaction fees
- A refillable PayPal Student Debit MasterCard was available for offline purchases
PayPal promoted Student Accounts to both teens eager for financial freedom and parents looking for a way to guide their spending (while also having a handy place to send allowance and emergency cash). Account creation grew steadily in the initial years after launch.
While PayPal didn‘t regularly break out Student metrics, a 2010 article noted that over $41 million had been sent to Student Accounts in the first year, funding 1.3 million transactions. By 2013, Student sign-ups had reached 100,000 per quarter. Those aren‘t huge numbers compared to PayPal‘s overall scale, but show that Student Accounts were gaining real traction.
The Demise of Student Accounts
So if PayPal Student Accounts were a hit with teens and parents, why pull the plug? When PayPal nixed the program in 2016, they simply said they decided "to focus our business on other projects." Reading between the lines, a few factors likely played into the decision:
Regulatory overhead: Any financial product aimed at minors comes with extra legal and compliance hurdles. As PayPal grew and matured as a public company, the resources required to run Student Accounts may have been tough to justify.
"Teen banking tends to be a trickier regulatory space, both because minors have unique protections and because these accounts have limited direct revenue potential," said personal finance expert Janet Alvarez. "I suspect PayPal ultimately decided the squeeze wasn‘t worth the juice."
Stiff competition: By the mid-2010s, a new crop of teen-focused fintechs and challenger banks had emerged. Startups like Greenlight and Current built their entire business model around family banking. It would have taken significant investment for PayPal to keep pace in features and mindshare.
Shifting priorities: As digital payments exploded, PayPal zeroed in on serving its core users and winning big retail partnerships. Niche segments like teens likely took a back seat, especially with more competitors in the space.
"PayPal has evolved from a consumer-centric wallet to an infrastructure and platform company powering all kinds of payments," said fintech analyst Melody Brue. "Serving minors is still worthwhile, but not the strategic focus compared to areas like crypto and in-store checkout."
Whatever the exact reasons, PayPal‘s exit left a hole for existing Student Account users and younger teens shut out from regular accounts. Other products have stepped in to fill the void and pushed teen banking to new heights.
The New Teen Banking Boom
In the years since PayPal Student Accounts faded away, youth-focused fintechs have become big business. As of 2021, over 15 million U.S parents and kids used digital family banking products. Leaders in the space like Greenlight and GoHenry have raked in hundreds of millions in venture capital. Even traditional banks have joined the fray with new teen checking accounts.
So what features are table stakes for modern youth banking? Any contender needs to nail a few basics:
- Easy transfers between parent and child accounts
- Configurable spending limits and activity alerts
- Kid-friendly spending/saving tools and financial literacy content
- A linked prepaid debit card with parental controls
- Chore tracking and automated allowance payments
Most of these aim to replicate the oversight and training wheels that PayPal Student Accounts offered. But now fintechs are in an arms race to add more value through investment accounts, giftcards, customizable debit card designs, and robust financial education platforms.
Compared to PayPal Student‘s basic feature set and standard debit card, the bar has been significantly raised for capturing the hearts and minds of teens. The additional perks and branding also allow fintechs to justify monthly subscription fees that most parents are willing to pay. In the fourth quarter of 2021 alone, Greenlight brought in $19.5 million in subscription revenue from over 4 million parent and child accounts.
"The market has proven that parents deeply value these tools to teach their children critical money skills. As fintech capabilities advance, so do family banking solutions," said youth finance expert Anton Simunovic. "The products keep getting ‘smarter‘ to reflect the realities of how modern teens spend and save."
What PayPal Can Learn from Student Accounts 2.0
As the OG player in youth digital finance, PayPal deserves credit for validating the early demand for teen accounts. But as new entrants lapped Student Accounts with premium features and slick marketing, PayPal seemed content to exit quietly and let others fight over the space.
That may have been a missed opportunity. By some estimates, Gen Z already controls over $140 billion in purchasing power. That figure will only balloon as more of the generation ages into their prime spending years. 80% of teens now use a smartphone and shop via social media. PayPal is largely on the sidelines in these channels and trends.
To get back in the game, PayPal could take some cues from the new wave of teen neobanks. A modern Student Account reboot optimized for how Gen Z spends would be a powerful funnel for the next generation of PayPal users. Some potential additions:
- Social saving/giving goals and P2P payments
- Rewards tailored to popular teen brands
- Virtual cards for safer online shopping
- Budgeting tools for things like gaming and entertainment
- Integrations with youth-friendly platforms like Twitch or Depop
- Curated financial content from relevant creators
Of course, this is all easier said than done. Any new PayPal Student offering would face stiff competition from fintechs who have been honing their products for years. The regulatory hurdles of banking for minors remain thorny. And PayPal would have to weigh any youth initiative against other priorities like in-store payments and its push into cryptocurrencies.
Still, there‘s a big potential prize in building relationships with young consumers as they form financial habits. If PayPal wants to cement its status as a consumer finance icon for another generation, it may be time to go back to school on Student Accounts.
