June 2000   

Unless, of course, the only way they can pay is by credit card.

While many college-age students are being targeted by credit card companies, there are others who don’t have access to credit; and the younger end of Generation Y is out of luck as well. Not all of these kids have parents who are willing to let them use the household cards, or parents who are willing to co-sign on an account for their underage dependent. So a sizable market segment has resorted to surfing the Web, finding desirable stuff there...then begging a car ride to the mall to buy it, unfortunately for the Web sites that court these kids.

Why are parents so reluctant to give credit card privileges to their budding consumers? The answers are many and vehement. Mike Frickstad, high-school teacher and parent of a 24-year-old son in St. Michael, Minnesota, says there’s no way he would have given his credit card number to his son, nor would he have co-signed a card with him. "I’m afraid he’d overspend," he says. "And I work with kids this age. They’re not savvy enough to tell which sites are reputable and which sites are likely to misuse their card."

Those are concerns being heard by many e-commerce sites that market to this age group. "Privacy, safety, and ease-of-use are the three most important considerations for consumers when they make a purchase," says Jim Milton, president of Buymp3.com. Parents like Frickstad are nervous about using their credit cards online themselves, much less giving carte blanche, as it were, to their children. They want their children to learn fiscal responsibility, but fear that unlimited access to Mom and Dad’s Visa is going to teach them the wrong lessons.

What does that mean for e-tailers who are trying to get those very kids to shop on their sites? It means finding new ways of handling payments or losing much of that lucrative teen business to the brick-and-mortar mall down the street. "Although it is often reported that the music-buying demographic is between the ages of 18 and 34, most of us really operating in the business know that our bread and butter lies in the group between 14 and 17," says Milton. "So we’ve got to try any and every approach available to get these kids buying online."

"Consumers are starting to create demand for new payment options," says Rebekah Donaldson, spokesperson for iPIN.com, an online alternative payment system. "They are beginning to look for alternatives." In the case of iPIN, those alternatives include a sophisticated system that allows the consumer to have a personal identification number to use when making purchases online. The purchases can then be billed to the consumer’s ISP bill, wireless bill, or credit card (without the credit card number going online), or they can be debited to the buyer’s savings or checking account.

Milton is enthusiastic about options like iPIN. "They place a cap on monthly spending so that unmonitored children don’t break their parent’s bank accounts," he says.

For parents concerned about building up charges on their various monthly bills, other options exist. Some, like CyberGold, take the form of an extended affiliate program, where kids can surf the CyberGold site to earn points that they can eventually cash in as Web currency. Another alternative, Internet Cash, allows consumers to buy a prepaid Internet card that they can use in place of a credit card, much like the prepaid gift certificates many large retailers now offer. Such cards can be bought with cash, and they can be "refilled" when the balance runs low.

Another option that is gaining popularity is the online account. RocketCash is one company that sets up such accounts, where parents send checks or money orders or authorize an amount from their credit card to be placed into an account for their child. The child can then use the RocketCash site as the Internet point of departure, shopping by links to over 80 e-tailers connected to the RocketCash system. When they’re ready to buy, RocketCash takes over, filling in the shipping information and providing a hidden credit card number to cover the purchase. The e-tailers are paid the way they always are, but the young consumers only see their accounts being debited.

"Our primary target is between the ages of 10 and 20," says RocketCash co-founder and vice president, Carol Kruse. "But 20 percent of our members are adults, many of them seniors, who don’t have credit cards or are afraid of making credit card purchases online." She’s quick to point out that RocketCash is not a creditor itself. "We don’t extend credit. While the shopper is filling their shopping basket, there’s a little box at the bottom of the screen, telling them how much is left in their account, or telling them to put something back because they’re over their limit."

RocketCash is also willing to promote itself as family-friendly. "We are not in the censorship business, but we do a bit of filtering," Kruse says. "No one will be buying Playboys from Amazon.com, for example. They’re told that item is not available. We’re constantly walking the line between teen independence and a teen safe zone."

Kruse also points to the company’s compliance with the Children’s Online Privacy Protection Act (COPPA) as representative of their desire to remain family-friendly. "Complying with COPPA is a rigorous process, but we do it. It’s critical to our success. You’ll never see us selling personal information, selling names. That information is just not available." As for the overall security of her site, she points to a recent five-day security check, during which time the site was attacked by a team of professional hackers, none of whom could break in.

With all the currency options aimed at satisfying young consumers while giving Mom and Dad peace of mind, e-tailers have a better chance than ever before at earning their share of the shopping pie. The jury’s still out, though, on the question of which Web currency will be the most successful, due to the recent innovations of most Web cash companies. Milton says, "While all of the companies [used by Buymp3.com] adhere to the three considerations of privacy, safety, and ease-of-use and have interesting alternatives to credit card spending, I see consolidation in this area and/or one competitor emerging as the leader. Personally, I do not want to have three to five different accounts for Web currency."

That could be a concern for even the most Internet-proficient teen. How many accounts would they be willing to manage, and how many types of accounts will their parents support? RocketCash’s Kruse is confident that the prepaid account system her company uses will be the winner for several reasons. "I’ve gotten e-mails from parents who have said, ‘My kids are learning real world shopping from RocketCash.’ By giving them a measure of control, but not unlimited access to funds, the kids have the freedom to comparison shop, learn financial management skills, but they can’t overspend their account. They learn to budget, to plan for the future. It’s a chance for them to learn in a safe environment."

No matter which method proves to be the best, Milton knows it will be driven by the consumers. For him, the needs of his customers are the needs he must meet. It’s a simple philosophy, he says: "Know your audience, listen to their demands, accommodate them." Those are words of wisdom that apply to all commerce transactions, but those are the critical items when it comes to providing the possibility of shopping online to young consumers.