Why is “neo-banking” for kids an underserved market and a long-term opportunity
FamPay is building a neobank for teenagers — having initially launched an app-based smart prepaid card
They make it incredibly easy for parents, from anywhere in the world to send pocket money to their kids, without opening a bank account for them, giving access to all the digital payments (UPI & P2P transfer) and wallet services, that are typically inaccessible to teenagers. The FamPay ecosystem allows both parents and children to save, monitor and track expenses.
These smart cards replace the fixed or ad-hoc pocket money, typically given in cash whereas the spending is shifting to digital avenues.
What intrigues me about FamPay however is not just this initial beachhead (i.e. the opportunity of creating a financial ecosystem by capturing users early in the lifecycle and becoming their single source of truth), but them playing a key role in making kids financially literate by educating them about financial goals and savings.
1: This is a rapidly growing and underserved market
There are 13.5MN kids & teenagers (studying in private & elite schools) spending a total ~$1.5BN every year across online and offline channels. Parents give cash to teens to spend outside and allow them to make online purchases using parents’ cards.
The digital (internet, payments, social) and consumption (e-commerce, OTT/videos, food delivery) economy boom in the last 5 years has increased the awareness and financial literacy. All other data confirms this trend of teenagers being at the forefront of this boom, creating a need for financial services for teenagers.
- Covid digital adoption boost: Edtech’s user base has grown 2X from 45MN to 90MN (paid user base grew from 2.5MN in 2019 to 4.5MN in 2020)
- UPI has breached 2BN transactions per month with ~150MN unique users
- Growth of prepaid cards in India: expected to grow at a 35% CAGR ($38BN in 2018, expected to grow to $130BN by 2023)
India offers tremendous head-room given under-penetration. Even for the elite customers & millennials, there is room to offer superior customer service & leverage tech.
Another interesting behaviour that’s come across is that in some urban and tier-2 centers, parents rely on kids to complete online transactions, which could expand the overall market a bit for this product.
2: Solid traction, with the foundations in place for repeatable growth
In just about a year of working on this business, the company is well past 150K+ FamPay cards distributed, with consistent growth now happening with a manageable (but high) blended CAC of ~$300.
I believe they can sustain/accelerate this rate of growth for quite a while to come, since in addition to paid acquisition, there are a myriad of partnership opportunities in place with all the large consumption platforms to handle this side of the business for them.
That, plus by virtue of owning the financial services layer for teenagers, they are very well suited to sell additional services in the future, leading to lots of opportunities for expansion revenue.
They’re also planning to grow primarily via organic channels and native channel partnerships, and are ramping back up paid acquisition with improved CAC + top of funnel marketing. With all acquisition channels improving, I believe that growth can further accelerate.
3: A bet on the founders
I’ve been spending some time following the team, particularly the founders Sambhav Jain and Kush Taneja. I encourage you to listen to this podcast – I was super impressed with how he is thinking about the business.
FamPay was originally in YC S19 and the founders are expansive in their thinking around the business model by taking a community-focused approach, enabling a reselling and collaborative behavior that’ll lead to higher engagement and retention.
Prior investors include Sequoia, YCombinator, Venture Highway, Kunal Shah.
4: Business model – a niche segment & low opex
By regulation, neobanks in India are not allowed to take deposits from their customers and also lend on their own book, since they do not have a banking license. As may be the case, most neobanks partner with traditional banks/NBFCs to offer digital banking services, while for regulatory purposes the monetary transactions are routed through banks. As a result, the key focus of neobanks then is to offer a ‘Bank in a box’ kind of service stack.
Key features include:
- Targeted customer segment, easier acquisition- customers include tech savvy millennials and Gen-Z which are not the focus areas of legacy banks
- Lower costs, due to lack of physical branches and low capital investment
- Lower fees/charges and easier customer acquisition
- ‘Born in the cloud’ tech platform
The business model is expected to be similar to traditional banks. FamPay differentiates itself on superior service and customer experience. The path to profitability is expected to be longer given the long gestation period and overcrowded market.