Business Insider spoke to Step founder and CEO CJ MacDonald in October about the startup's launch. The story has been updated to reflect Step's most recent funding round.
Banking isn't typically top of mind for teens, and teens aren't typically top of mind for banks. But as Gen Z comes of age, fintechs are starting to pay attention to the digitally-savvy segment.
Step, a digital-only bank for teens, recently launched, and it's using influencers like TikTok superstar Charli D'Amelio to spread the word.
D'Amelio, 16, is the most-followed individual on the app, with nearly 90 million followers.
When Step founder and CEO CJ MacDonald first met D'Amelio and her family, he says her parents were drawn to the product given their own challenges helping their daughters manage their finances.
"It was interesting to hear their journey trying to set up bank accounts and financial literacy for their daughters. Her mom's exact words were, 'I didn't even know where to start,'" MacDonald told Business Insider.
On Wednesday, Step announced it closed a $50 million Series B that included participation from D'Amelio. Justin Timberlake, The Chainsmokers, former NFL star Eli Manning, and current NFL and NBA stars Larry Fitzgerald and Andre Iguodala, respectively, also were brought on as new investors.
Step's platform is free, and it comes with a Visa-powered secured credit card that users can spend with, via both the card and mobile wallets.
Step isn't the only fintech targeting younger customers. Players like Current and Greenlight, for example, offer debit cards for kids that parents can monitor. They both charge families a monthly fee for the service.
To be sure, Greenlight is further along in its journey, offering debit cards and savings accounts. It's also developing an investing product, Business Insider reported in August.
D'Amelio is also no stranger to corporate partnerships, having announced a deal with Dunkin' in September that included the launch of new drink option "The Charli."
Anyone over the age of 13 is able to sign up and create an account on Step, but in order to actually open an FDIC-insured account, users have to be at least 18 or have a parent or guardian set up the account on their behalf.
Step has raised nearly $75 million to date from investors including rapper Nas, Will Smith, and payments fintech Stripe, who led its Series A in 2019.
Step wants to teach teens how to manage their money
As any founder of a personal-finance startup would say, young consumers are often under-educated when it comes to managing their finances. And Step's problem statement is no different.
"It's always bugged me that schools don't teach kids about money and families don't talk about money," MacDonald said.
And while financial literacy might not be top of mind for the average teenager, it's a compelling offering for parents.
"The value proposition to a parent is much different than the value proposition to the teen. The parent obviously is really sensitive to security and financial literacy," MacDonald said. "The teen is not going to care as much about those things. They're just super excited to have a card and have access to money on their phone."
But starting the financial journey early can ultimately influence the way teenagers manage their money as they grow up. Designing the product so teens feel a sense of ownership and responsibility was key, MacDonald said.
Step is banking on influencers and brand ambassadors to acquire users
Step's marketing strategy is rooted in influencers and network effects.
Beyond D'Amelio, Step has a brand ambassador program called Step Squad, which will work with middle and high school students to grow brand awareness. And in the app, users can send referral codes to friends and earn cash for each referral.
MacDonald says that keeps customer acquisition costs low, a key concern of consumer-facing startups, and is part of the reason it's able to offer the service for free. Another reason is that processing fees (known as interchange) on a credit card, secured or otherwise, is typically higher than a debit card, MacDonald said.
On Wednesday, Step announced it has 500,000 users.
"A lot of fintechs have referral programs, but I think the unique thing with ours is it would take a lot for you to post something on social media about your bank," MacDonald said.