I've mostly just observed the Twitter phenomenon, following a few people and seeing how banks and credit unions are using it (see my previous post for financial institutions on Twitter). However, I'd not fully embraced Twitter either as a publishing device or research source. The 300 or so RSS feeds, emails and news items that cross my desk each day seemed like plenty of intelligence to sift through.

But now, I'm reconsidering my priorities after learning about an interesting new alt-payment company BillMyParents from Twitter activity (see notes 1, 2).

How it works: BillMyParents is a new service from IdeaEdge's Socialwise (press release). The service is primarily designed for kids to shop online. They select what they want, then at checkout, redirect the bill to their parents via an email alert to PC or mobile phone. Parents login and complete the payment process at their convenience using MasterCard, Visa, Discover Card (no American Express; see third screenshot below). Card info can be stored for one-click future approvals.

The company charges a $0.50 transaction fee for each purchase. But like PayPal, the real money will be made when the company pushes purchase transactions through the ACH system.  

Currently, BillMyParents is selling prepaid gift cards from its site as a proof-of-concept. I tested it yesterday and everything seemed to work as described (see second screenshot below).

The opportunity: The service reminds me of the unmet need that PayPal filled nine years ago. Purchasing at eBay was a major hassle due to the lack of online payment capabilities. Kids have similar problems when trying to buy things online.

The service could also be adapted to other situations where one party does the shopping but wants someone else to authorize payment such as small businesses, nannies, or even spouses. It could also be used for extra security when the shopping is done in a non-secure environment such as public terminal and payment is redirected to a more secure device, such as your mobile phone.

Like any alternative payment, BillMyParents requires the merchant to add the option to its ecommerce platform and consumers to set up accounts. Both of those are time-consuming and face the chicken-and-egg dilemma, i.e., it's hard to attract merchants without a substantial user base while its difficult to add users without merchants.

Bottom line: This is a winning idea. The massive discretionary purchasing power of teens and pre-teens is a tempting target in this difficult retail environment. And financial institutions, or their payment partners (e.g. Visa, MasterCard), looking to differentiate themselves with the youth market, could jumpstart the program. Or more likely, PayPal and/or Amazon will dive in, either acquiring BillMyParents outright, or building their own version(s).  

BillMyParents homepage after setting up an account (26 March 2009)
Note: Split login screen for kids (left) and parents (right)

Proof-of-concept: Gift card purchase (26 March 2009)

Parent's approval screen (26 March 2009)

Notes:
1.  Thanks to Frederic Baud (@fredericbaud) who was the first in my network to Tweet about BillMyParents; and to Glenbrook's Scott Loftesness (@sjl) who's retweet is actually what caught my eye.

2. BillMyParents appears to have grabbed its Twitter page name (@billmyparents), but it's not yet active.

Earning interest is a great incentive for kids to save. Even a couple bucks in "free" money earned on their deposit is a great motivator. But with many savings rates below 1% annually, it doesn't add up fast enough for lower balance levels. At US Bank's 0.10% rate, my son's $1,700 in savings would only earn him $1.70 per year, or 14 cents a month. There is no incentive there.

But at Patelco Credit Union, with its kid-friendly "gr8 r8" account (see note 1, 2), he would earn 8% on the first $1,000 and the going rate on the rest (1.51%). And the 8% is guaranteed through the end of 2008. So his annual return increases to $81, or almost $7 per month, 50x the US Bank return. Seven bucks extra a month is real money to a pre-teen, and gives him a good taste for the benefits of saving and investing for the long-term. Even more important, it positions the CU as family friendly, impressing the parents and maybe hooking the kids as future members as well.

Granted, the business case is tricky. Does subsidizing junior to the tune of $5/mo really benefit the credit union and its members. If the CU had 20,000 of these accounts, that's an extra $1.2 million per year in interest expense. Might the credit union's other 220,000 members prefer an extra $5 in their accounts at the end of the year? I'm guessing most members would support efforts to instill savings discipline in today's youths. And the marketing and PR benefits are excellent. The CU even features the account on its homepage (see screenshot below).

So, overall I r8 it gr8. Thanks Trey (see note 2).  

Patelco CU homepage (19 Oct. 2007)

Notes:

1. Must be under 21 when account opened. No maximum account balance, but only the first $1,000 earns 8%. The special rate is good through the end of 2008, when the account reverts to a regular savings account.

2. I just realized the account name, gr8 r8, is a double entendre, not only being SMS-speak for "great rate," but also with an eight-percent rate. [My family has to spell these things out for me.]  

3. Thanks to Trabian's Trey Reeme for the tip (here). And I agree with him, gr8 r8 savings absolutely must have an SMS component, at minimum a message each month when the "free money" (interest) is added to the account.