Between downloaded games, ringtones, ebooks, music, videos and mobile apps, minors account for a huge slice of electronic purchases. One online payment vendor is preparing to sell tons of youth purchase data—apparently, this is the first time anyone has tried—avoiding immediate legal problems by offering the data in aggregate.
Selling to children online has always been delicate and dangerous. Do some standard adult practices—such as asking for an E-mail address or a date of birth or a mailing address—and you're in huge trouble. Try to market to them directly? Bigger trouble. And try to force children to pay for a legitimate purchase? You can't, because a minor cannot enter into a legal contract.
A couple of years ago, 7-Eleven ran into its own challenging youth marketing issue. When doing a multi-month promotion in San Diego to collect mobile phone numbers for future marketing efforts, the chain collected E-mails and phone numbers of participants. With the intent to avoid problems, the chain didn't ask age. Ironically, that caused the problem, as 7-Eleven didn't know which customers were adults and which were children. Hence, the chain felt pressured to assume that all particpants were children and to not use the data.
The vendor preparing to market the youth data is called Virtual Piggy. What it has created is a mechanism for parents to put money for their children to use online (and, in the near future, in-store). The parents can dictate the amount, the stores where it can be used and the types of purchases permitted.
The program also has a social element to it—similar to a recent Facebook mobile program—where relatives and family friends can log in and add money, with similar abilities to place limits on how it can be spent.
In theory, this program might also train children to be better consumers, because they would learn how to make purchase decisions in a relatively safe environment. "We're giving the kids some financial literacy," said Virtual Piggy CEO Jo Webber.
Webber said the program addresses the current legal conundrum that retailers face: Children can use a parent's credit card, but if the parent disputes the charge by saying that it was not authorized, there's no legal basis to force the payment, because minors are not allowed to enter into binding contracts.
Given Virtual Piggy's structure and the language in its contracts, it's clear that it is the presumably adult parents who are making the purchases, which keeps the liability intact.
For retailers, Virtual Piggy takes a cut of every transaction. Webber said the initial rate is 1.5 percent, but added that it could increase after the introductory period and would decrease for volume for larger chains.The benefit to retailers—beyond the legal ability to enforce payment—is youth CRM, which is virtually black market today. "Not only do we know what these kids are buying, we know what the kids want to buy" courtesy of the app's wish-list function. "We'll be the first company that will have this data."
There are two levels of aging out at issue. The biggest federal enforcer of child marketing rules is the Child Online Privacy Act (COPA), but it only regulates those 12 and younger. "At the age of 13, the COPA rules go away," Webber said.
That means 13-year-olds can receive offers directly from retailers (although Webber said her company's initial approach will be to send any offers to the parents only) and they are eligible to get their own debit card.
At 18, all restrictions come off, legally.
For retailers, though, there are two categories of youth-marketing problems: First, that which is clearly illegal. Second, that which may be permitted, but it is perceived as offensive and invasive by parents. When selling to children, excessive cautiousness is not a bad thing.
Another delicate issue deals with children who, while online, say they are adults. If an 11-year-old shopper without a payment card says that he or she is 19 years old, can the retailer be penalized for marketing to him or her, assuming the retailer had no legitimate reason to suspect the true age?
At least in-store an associate can make a guess based on physical appearance, clues that do not exist online.
Let's get back to that initial question: If a company such as Virtual Piggy has access to all of these purchases, and then a child ages into an adult, should it be able to sell that data in an identifiable form—thereby tying a specific purchase history to a specific consumer? Webber said she has no intention of doing that, but would it be legal?
The intent of the youth rules is to stop direct marketing until consumers are old enough to make their own decisions, an age the U.S. government has decided is 18. This is not like juvenile criminal records, where the intent is to keep the data secret always, so that that adult need not pay for the things done when he or she was a child.
But here, if the consumer is now seen as having acceptable judgment, why not allow for more targeted messages? After all, this consumer has a healthy purchase history.
This is squarely in the legal but tacky category. Newly authorized 18-year-old shoppers—and certainly their parents—have an expectation of privacy of their youthful purchases. Even if offered such data, a retailer would be wise to refuse to avoid the radioactive fallout.
When Walmart rolled out its E-Commerce cash program, one of the many advantages was that it would provide a mechanism for children to make online purchases, as long as they could later (within 48 hours) get to a Walmart store and finalize the purchase with cash.
Unlike Virtual Piggy, Walmart will likely have no idea of the age of the customer, so the retailer would have no reason to treat that purchase history any differently. In this case, a little ignorance can be a nice thing.