PayPal targets students, parents with debit cards

(Credit: PayPal)

PayPal on Tuesday is introducing a new service for parents with kids who are in high school or college. Called Student Accounts, it centers on the use of a special PayPal-branded Mastercard debit card that's tied to a parent's PayPal accounts. The parent acts as the provider and can funnel money in whenever they feel like it at predetermined dates, or--at what will most-frequently happen--the behest of their kids.

Some of the perks include no overdraft fees and the use of a debit card that's not tied to a particular bank account, meaning the balance can come from a variety of sources.

The system has more of an allure for parents though. It's easier for them to dole out cash and track where it goes. In other words, your kid can have the $20 they said they needed for gas money, but if it ends up being for the late-night beer run, you're going to know about it.

The other design behind the card, and one that goes far beyond tracking beer money spending, is to create an ecosystem of PayPal users that become acclimated to handling their finances within the service's confines. Considering parent-child money transfers may happen long after college attendance is complete, PayPal has incentive to get both parties used to dealing with its system.

A good example of this is that these students will one day have the option to "graduate" to having their own full PayPal accounts that they manage on their own and that includes a complete history of transactions they made when they were in school. Don Fotsch, who is PayPal's VP of user experience and design, told me that you cannot currently do this--but that it would be worked in by the time some of the early users reached that point. PayPal will also be working on a way to let students integrate any outside income they're getting from an after or during school job to be able to continue using that debit card on other purchases.

Subaccount pages let parents monitor activity, set permissions, and make new transfers.

(Credit: CNET )

Of course, PayPal being PayPal there is a cost to this service. PayPal takes a $1 cut for every ATM withdrawal, which comes on top of any ATM fee considering the card is not affiliated with any banks. There are also the typical PayPal percentage fees for using that debit card outside of the U.S. either on purchases or trips to the ATM. For things like online purchases, or in-store purchases, there are no fees or limits though. There also aren't any sign up fees, load card fees, or annual fees.

One thing that makes the service really neat is that if the child runs out of money, they can send a text to PayPal to request more. The parent then gets a text message from PayPal asking if they want to transfer the money and can reply with a simple yes or no. The money is then piped into the account within two minutes.

As Fotsche explained to me, this system worked out great for him when his daughter needed to spend an extra $10 on a checked bag at the airport. But parents could also just set up one of these cards for their kids as a real emergency credit card and one they wouldn't have to worry as much about if it were stolen since it couldn't be maxed out. And even if some parents do end up setting up one of these cards for such a purpose, that's two users already in PayPal's pocket.

[wjsteele]

They only problem with this is PayPal can freeze your accounts without any notice or even explaination if it is associated with the PayPal account. For my Daughter, I'll stick with a second bank account from my local bank, thank you. That way, I know what is in it and that it will be handled correctly by me.

[mbenedict]

Agreed. A second bank account is the way to go. With online banking these days, it's easy for parents to transfer money in or out of a secondary account anyway, without using PayPal as an intermediary.<br /><br />Plus the $1 per transaction fee is expensive since kids tend to withdraw small amounts (like $20). Bank debit cards are typically free when used with the bank's own ATM machines.

[cyclonica1980]

Yeah I think my family will avoid scam-pal. No non-federally regulated money system is going to have control of my money.

[cnet_user_0]

Nazis! <br /> <br />Why would you want to control your kids' finances when they are starting out in college?! Shape their minds to be able to handle the responsibilities like money management! <br /> <br />Paypal, go away!

[john5263]

Don't know why everyone is so down on Paypal. I have been looking for a card like this for my high schooler, and this seems much better than offerings from visa, and amex. They charge to load the card and to start the account. As long as you are not withdrawing money from an atm or using it outside the US (and they ALL screw you for that) it seems like a good deal. And I have used Paypal for years for ebay stuff and never had a problem.

[pamelanella]

I think this is a great idea for the biggest reason it will not let the student account holder spend more than what is in the account. No crazy overdraft domino effect!! I am signing my teen up, to use mostly for emergencies.

[spinsonic]

this is a great! <br /> <br />By the time, they get their own credit card. They've been exposed to using credits for years and not go charge happy when they get a real visa/mastercard. Good training in my opinion! <br /> <br /> <br />how can any of you complain when there are no fee's for charging or loading the card? complain about fee's for atm withdrawl? well, tell your kids not to do it? sheesh... oh and ya, i dont think my 14yr old daughter will be oversea's anytime soon.

[daniinnc]

I came across this article while I was doing research on prepaid card systems like Visa Buxx and PayJr. I also looked at my credit union's accounts for kids. One thing the PayPal offering has going for it is fewer fees. I don't give my kids a regular weekly allowance; our system is based on chores completed. I don't want to pay $2 to transfer $5 to a Visa Buxx card! Also, my kids mainly want to spend their money in online purchases since we hand them cash for other stuff like school events, so I don't think we will run into much trouble with the ATM fees. This sounds like a bargain.