DEEP DIVE: GreenLight’s Family-Friendly Banking

Greenlight’s App and Card (Image - Greenlight)

DEEP DIVE is a series of in-depth articles on FinTechtris that explores a particular fintech leader, discussing its history, products / services, and how it has grown to be an industry leader.

“We won’t stop until every family has the tools to set their kids on the path to financial independence.”

Greenlight (Company Profile on LI)

In today’s economic climate of uncertainty, financial literacy is a critical topic that many struggle with. The need for solid money habits, avoiding debt, and emergency savings isn’t discussed in school or popular in social media forums. Many parents (my own included) did not discuss money, credit, or investing with kids as they are growing up. Families that have financial difficulties of their own feel overwhelmed in educating their children properly about personal finance.

Going to a bank branch to open a student checking account is common. At the desk of a personal banker, the first conversation on financial literacy begins. Starting my banking career about 14 years ago, I was the banker talking to a highschool / college student about their first account. Most kids were accompanied by their parent. The mom or dad sat next to them silently as I explained online access and how to manage their account. The student was excited to have their own account and card, and not concerned about potential pitfalls with fraud or bank fees. Banks didn’t provide any additional resources about financial education with their disclosures.

With innovation from FinTech ushering the ability to open accounts anywhere, new startups emerged with a focus on early banking for kids (under parent supervision). A conversation on financial literacy can start at a young age (such as middle school) and help build money habits that make them less dependent in adulthood. Parental support is still common for most post-college graduates who move back home rent-free or struggle to find their financial footing. Ongoing financial education from pre-teen to early adulthood is the solution.

An early leader in the family banking and education space is Greenlight — an Atlanta-based startup known for its family-friendly app and debit card. Let’s take a look at how this unicorn got started, its platform and product that helps both kids and parents, and what’s ahead for this and other similar neobanks.

Greenlight gets KIDS Started

Greenlight was founded in 2014 by Tim Sheehan and Johnson Cook. Sheehan and Cook are experienced entrepreneurs, having built new companies in the past — Sheehan founded Reachable (a social media marketing platform) and Cook founded Atlanta Tech Village (a tech startup hub). Their industry expertise is in both finance and venture capital, with roles at FiServ, Yahoo!, and Atlanta Ventures.

With four kids, Sheehan was fully aware of the challenges that parents face in teaching kids about personal finance. Weekly allowance and encouraging savings over spending isn’t enough. Schools don’t discuss the topic in the classroom. Large banks provide general products like an account and card, but little support in the form of features, controls, and education. There was an addressable gap from the time kids add coins in a piggy bank to students buying school supplies for college.

With this vision in mind, Greenlight started its journey towards family-friendly banking. There were other providers in the space that offered spend card functionality, but the emerging startup looked to differentiate itself with the parent-child user experience.

The startup raised $7.5M in their seed round (announced after onboarding their 10K milestone customer in June 2017). Relay Ventures, Social Capital, New Enterprise Associates, and TTV Capital were all investors. Series A (Feb. 2018) of $16M added new investors such as SunTrust Bank, Ally Financial, NBKC Bank, Canapi, and Amazon Alexa Fund. Their Series B of $54M came in Sept. 2019 with JPMorgan Chase and Wells Fargo as notable participants.

In Sept. 2020, the fintech achieved unicorn status with $1.2B valuation after closing on a $215M Series C round with new investors — BOND, DST Global, Goodwater Capital, and Fin VC. Total funding raised since Greenlight started is at $297M.

Greenlight now serves over 2M parents and kids in the banking and financial education space.

THE RIGHT MIX OF banking and education FOR FAMILIES

An early question in this sector — what is the right age for kids (or teens) to have their own account and card?

Within a household or set of siblings, there is typically a “saver” (child who keeps every dollar set aside) and “spender” (who is quick to spend money as soon as they have it). Families can raise kids with varying attitudes towards personal finance. Among financial services organizations in this area, the time between middle school and highschool is the defined as the “sweet spot.” Young teens have a need to purchase items at this age independently on a recurring basis, or for an upcoming offsite school trip.  

This detailed analysis on users (both parents and teens) is the true value of the Greenlight experience. Downloading a mobile app is the first step in the customer journey — spending, limits, notifications and goals are set. Parents have control of where transactions are authorized (by category). The card wouldn’t be approved for a transaction that causes a negative (nonsufficient) balance. Guardians create separate spending buckets within the app, such as “spend anywhere” or restricted.” Kids also have a “giving” category for making charitable donations. Allowance can be transferred electronically from a parent to child on a recurring basis, or on a one-time basis to cover unplanned expenses.

Families can encourage positive behaviors and rewards for completing chores or stellar performance in school through Greenlight. Kids can develop an earning mindset at a young age and the concept of delayed gratification. Parents also have the ability to ‘pay kids interest’ on savings balances monthly — the payment is calculated and deducted from the parent account automatically and transferred to a child. The details (of how much or how often) can be discussed as family in a series of money conversations.

Cards can be locked or closed as needed by any family member, and transaction summaries are available daily or weekly. Parents also have controls on PIN and ATM access, which includes withdrawal limits. Any non-standard banking activities such as issuing checks, wire transfers, or money orders would be automatically blocked.

Despite the company existing for over 6 years, this signature product and card program wasn’t launched until 2017. At $4.99 per month for family (with up to 5 children), Greenlight is priced higher than other competitors (such as gohenry, FamZoo, and Current) who also aim to create financially smarter generations. New FinTech companies being added to the mix include Step, Copper Banking, Mozper, and CapWay.

WHAT’S NEXT for family banking through fintech

Similar to other sector-based neobanks, Greenlight looks to expand outside of deposits and cards. Its initial target is in investing. Beyond a general savings fund, teens can think about long-term planning before going to college and learn growth potential in starting to invest early. This added feature in the next year would help Greenlight stay ahead of the competition as new players still need to establish a base of existing users.

A category with more complexity that makes sense for the future generation of banking is credit. With record levels of credit card and student loan debt for adults in their late 20s and 30s, proper education at a young age is critically important.

Teens can easily confuse the debit cards in their mobile wallet for credit cards. Parents need help in explaining the difference and building a positive mindset towards healthy credit. The recent popularity of credit builder products and apps, such as with Chime, and hybrid credit-debit cards is a strong indicator for improved tools.

The rapid growth of Greenlight over the last 3 years and the family banking sector is expected to continue over the next decade. Connecting financial education with products is valuable in establishing customer relationships, and also deepening them over time. There will be opportunities to bank kids as they become adults. Increased income and deposit balances as teens become independent and enter the workforce leads to additional revenue streams and growth.

The recovery from the COVID-19 pandemic is unknown as we head towards 2021. Themes of emergency savings, long-term planning, and reducing debt all have an immense impact in how families move forward. Educating and building solid financial behaviors helps younger generations face future recessions and economic challenges on their own. Banks and fintechs like Greenlight can pave this path forward for teens starting today.

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