This isn't about an "app". This is about a business that initiates transfers of money from one account to another. The people behind this didn't realize what business they were in.
If you want to initiate transactions in the financial system, you have to work through what happens when things go wrong, and be prepared, financially and operationally, to handle them. How does the money get from the parent's account to the kid's account? Note that if the kid can get cash out, you can't fund this with a credit card. Visa and MasterCard don't let you buy money with a credit card; that's too fraud-prone.
So, as someone pointed out, you're back to ACH debits. Getting set up for those is hard, for good reasons. It gives you a connection to other people's bank accounts. So you need financial strength, bonding, and good references.
Note that the chore list has to be secure, too. Otherwise the kid can add "Mow lawn, $1000", check off the item, and drain the parent's account.
If you try to do this by having the parent transfer money to you in advance, and you then release it to the kid later, you're now a depository institution. In most states, you have to be a bank or a money transmitter to do that. (It's so tempting to take the money and run, and that's happened enough times that such businesses are regulated.) Also, that's a pain for the parent. They might as well use Venmo.
PayPal was successful partly because, back when they were above the bike shop on University Avenue in Palo Alto, they started as a security token maker. So they had security people and were familiar with the problems. A big portion of PayPal's operating costs come from dealing with fraud. The legit transactions are fully automated; the problems require a big call center.
I don't understand why they couldn't simply release the app without the money transfer part, and it would just keep a tab of how much the parent owes the kid. Then, when the parent gave cash or whatever, the debt would just be wiped.
You don't get to say what people like about something unless you let it out into the world. There are so many cases where people built and released something just to find out people love it for the reasons they never expected. This guy makes it sound like he knows why he failed but it's far from it. The biggest reason they failed was because they never released anything. The first thing you learn as soon as you release a product into real world is that people say one thing but do another--so many people say they love something but they never use it. Only way to get around is to release it in public and find the early adopters who WILL actually use it (instead of just saying they like it).
>> The first thing you learn as soon as you release a product into real world is that people say one thing but do another--so many people say they love something but they never use it. >> @galostoca above
That right there, is the whole truth. Not only do they not use it, they don't buy it to begin with. What sells and what people like are not the same as what they need or think they need.
Case in point. I developed a process, software and hardware, to take an ordinary photo and turn it into a 3D carving in the early 2000s. There were CNC programs that could do it with a lot of human touch-up, mesh manipulation, and machine coding, but mine went pretty seamlessly from photo to 'send it to the machine'.
Everybody, everybody is not just family and friends, loved it when they saw the photo and sample maple hardwood output side-by-side. People made statements like, 'I would pay an arm and a leg to have a door carved for my house'.
I brought the carvings to wooden boat shows with my and my partner's handmade seagoing kayaks, and people flocked around our table/booth. 'Can I get this on the kayak too?' Not one sale! The only money ever made by it was doing carvings on wooden urns for a local animal or pet cemetery. In similar fashion, I had an offer from a company that did bronze bas relief plaques for tombstones for a one-time purchase of my software! Needless to say, this didn't help with my emotional state, Stephen King references aside.
Thanks for sharing your experience. Yeah for the first couple of times I was heartbroken (It still happens), but now I've learned to embrace it. Nowadays when I have an idea, instead of asking the same dumb question to people "Would you use this?", I try to build an MVP as quickly as possible and let the product do the asking, and users answer with action instead of words.
Like Steve Jobs said, people don't know what they want. This is not a condescending comment, it's a great insight that comes from being able to understand how human mind works.
Where "reinvent" = something totally different. For one, it's not reciprocal, only the kid side gets money. Second, it involves chores, not splitting bills etc where money are shared. Third, it was supposed to use the currency to be able to buy apps etc, not get actual money. And lastly, there's the kids angle. Sure, it's about debt and value exchange, but that can be said for tons of apps, even a bitcoin exchange.
Would be a perfect way to introduce kids to cryptocurrency. No need to deal with regulatory agencies. The "points" (btc/ether) are actually worth something (whether more or less in the future).
kid marks they've completed task, parent xfer bits to kids wallet. Kid can now buy games at newegg or gift cards from tons of stores through Gyft.
the smart kids (like my oldest daughter) roll the dice and Alex p. Keaton it for long term savings that has decent potential to multiply in value.
I do this with my kids already, but with no app..just verbal "do this and I'll pay you $0.25 in bitcoin" an app with actual chore list they can work through and automate fund transfers would be awesome.
If you're a rich VC make sure you PM me to partner up. There's only one way to successfully monetize this, and I'm the only one who knows it.
Small target market but growing every day...the power of "frictionless transfer of value outside the insanely regulated walled garden of fiat banking and high finance"
Very close to what I was thinking. BTC or possibly a credit card for the kid to use. Doesn't need to go through a bank. Kid gets a card, parent accepts chore, piggybank charges parent, piggybank credits kid.
The problem as I see it is the founders didn't think about what they were doing, and didn't have the right attitude to find another way.
There's plenty of exchanges outside USA. Safello is currently the big local one here in Sweden, and there's plenty of bigger ones in other European and Asian countries.
It sounds like they did the user research and found that having an actual debit card was a big part of the draw of the app.
I could believe that. When I was a college student, it was a big deal when my parents got me a credit card. Even if you are limited in what you can spend, it shows that you're integrated into the same financial system that adults are and can make your own choices with money. You don't get that with a virtual currency or parents dispensing out $20 bills.
Couldn't you just piggyback another service like PayPal to process the payments? The PayPal student debit Mastercard is/was available to anyone over the age of 13. Then when you specify the chore and amount, the app sends the amount to the kids' account and therefore the card.
The card doesn't seem to exist any more, but it sounds almost exactly like what this app does (without the todo list functionality). It's linked to a parents' account so they can provide cash for fuel/going out and can keep track of the kids' expenses.
The challenge is storing money, legally, on behalf of a customer. No normal startup can afford to get licensed.
So you need to legitimately work around the 'stored value' problem, i.e. you need to find a 3rd party with a legal solution. That's either a real bank account or a prepaid card. And the 3rd party has to have an API that allows you to open accounts, execute transactions, etc.
The card program requires a bank partner too. And card programs cost 10K+ a month to run, regardless of whether or not you have 1 card issued or 250,000. Lots of cash burn early.
So that's the target state. Johnie outlined some nice interim steps below, but this is not simple. Oscar took on a challenging business problem.
If you're generating suitable income, which many college students are not, and have a suitable credit history, which many college students do not. Credit card companies want to make sure they'll be repaid. It's pretty common for them to require parental co-signers (or just issue an additional card on the parent's account) for people who don't have a full-time job.
For a debit card - yes, you can just open a bank account and get one. You need money in the bank account. If you arrange a way to automatically transfer money into a kids' bank account at the touch of the button, you end up with an app much like this postmortem.
Because then it's basically just another todo-list app that shares lists between parents and children. That's neat, but hardly the kind of thing that needs a whole company behind it with lots of funding.
Right on. If you're getting into the ACH debit business there's also a set of rules established by NACHA (aka 'NACHA compliance') which regulates the transactions and controls them to the point where you have to obtain payees explicit approval to move the funds.
Which is why if you pay your credit card statement by phone for example, you'll hear the service rep read the consent form for you to say 'yes' once they are done before they can withdraw the funds.
Yes! Look up ACH fraud. ACH is such an antiquated system. The only pieces of information that you need to do an ach pull (transfer) is the routing number and account number. Lo and behold, this is the same information that is on every check that you give out.
Edit:
To answer the other part of your question, originating financial institution (ODFI) can issue a chargeback up to 60 days after the money was sent. Unlike credit cards, there isn't a process for the merchant/service provider to refute the dispute.
So, the bank account owner can dispute the ACH transfer with their bank a month and a half later and it pretty much assured that they'll get their money back. Their bank isn't going to fight their own customer for it.
This information from my landlord is written into my lease agreement on my home. Every month I use his routing and account number to pay rent. I cringed when I read about ACH fraud.
One bank I worked with essentially had two separate routing numbers - one for the checks vs one for ACH along with separate check and ACH/wire accounts for their corporate customers.
There are a few factors involved. If this is your personal checking account you're almost (lol) 100% safe.
If this is a merchant account which it needs to be if you're pulling from other ppl's accounts then yes. Hence the very strict consent rules. At the end of the day there's no guarantee of course but if it comes to litigation a recorded message with a verbal approval might tip the scale in your favor. Most merchants don't bother of course and just write this off as a cost of doing business and recoup the funds by factoring fraud costs into their prices.
Right. And yet, it is an app. They wanted to start a money transmitting business so they could provide the questionable value of a chore list app. And that is a big part of why this was a bad idea.
The easy way to do this would be to have it be an add-on feature for something like Wells Fargo Teen Checking.[1] That gets teens a debit card. The only allowed operation would be a transfer from the parent's account to the teen's account. It's not a standalone startup then, though, so you don't make tons of money. But Wells Fargo is having trouble in the mobile space, so credible app developers might find it worthwhile to talk to them.
I'm not sure why they couldn't have used Stripe's "send money to debit card" feature [1]. Or they could have integrated with Paypal's API. Or they could have integrated with Square Cash, for near-instant debit card to debit card transfers [2].
Finally, they could have simply kept track of a kid's balance for their parents, and made a button to send mom and dad a push notification that they would like their money the next time they are together. That probably would have been the most useful of all these things.
They certainly didn't have to let the fact that they couldn't do things exactly as seamlessly as they wanted be a startup killer. I have had this attitude in the past, but then I would look around and discover people doing similar things with great success, using the alternative methods around roadblocks that I had dismissed as unacceptable.
If they really wanted to pursue this project, they could have done it.
That's only allowed if the destination is a "seller", and the debit card is tied to a bank account. You can't send to random pre-paid credit cards. That would be the scammer's dream.
Also, Stripe transfers funds to recipients only once a day at best. For many accounts, it's once a week. (This is also true of Venmo, but they hide it from you in the app. Send some money to a nearly empty account with Venmo and then try to spend that money, and it becomes clear that Venmo's immediacy is an illusion.)
In the US that's true. Here in 21st century Britain I can initiate a bank transfer to another person from my phone, and they can immediately spend that money.
In fact, for much of the world, this "deposit a check" is definitely from last century. Instant transfer is reality in Europe, and even many countries in Africa and Asia operate mobile banking services where transfers happen right away.
The currency is not necessarily cryptocurrency; it can be "air-time".
Here is a dirty little trick to make sure your check appears instantly in your account -- first you cash the check, then you deposit that cash to your account.
I'm working on a fintech startup where the product is backed by a company with a ton of experience and cash. The complexity around moving money around and even advertising financial services is almost mind boggling. Doing this as an "outsider" seems downright impossible.
I'm surprised anyone thought this was a good venture funded business idea. And there's no reason to use cash. "Points" would be totally sufficient. In fact probably a lot better for the demographic.
It seems like this could have worked if the parent bought points and the kid could redeem earned points for gifts like Amazon gift cards, etc. This model is used by a lot of corporate reward programs.
Buyer beware. May of the things you mention are regulated or banned should be allowed, and let the buyers and businesses handle differences in court via contact law.
Contract law is just ~wonderful~ when you can't track down the person who's just run off with your life savings, or has invested it all badly and lost it entirely and no longer has any money to return to you. But let's punish people by destroying their lives for making bad decisions about who to trust, right?
If you want to initiate transactions in the financial system, you have to work through what happens when things go wrong, and be prepared, financially and operationally, to handle them. How does the money get from the parent's account to the kid's account? Note that if the kid can get cash out, you can't fund this with a credit card. Visa and MasterCard don't let you buy money with a credit card; that's too fraud-prone.
So, as someone pointed out, you're back to ACH debits. Getting set up for those is hard, for good reasons. It gives you a connection to other people's bank accounts. So you need financial strength, bonding, and good references.
Note that the chore list has to be secure, too. Otherwise the kid can add "Mow lawn, $1000", check off the item, and drain the parent's account.
If you try to do this by having the parent transfer money to you in advance, and you then release it to the kid later, you're now a depository institution. In most states, you have to be a bank or a money transmitter to do that. (It's so tempting to take the money and run, and that's happened enough times that such businesses are regulated.) Also, that's a pain for the parent. They might as well use Venmo.
PayPal was successful partly because, back when they were above the bike shop on University Avenue in Palo Alto, they started as a security token maker. So they had security people and were familiar with the problems. A big portion of PayPal's operating costs come from dealing with fraud. The legit transactions are fully automated; the problems require a big call center.