School banking targets loyalty but does not encourage saving: ASIC

School banking does little to educate kids about saving, but is good at generating brand loyalty in a vulnerable group of consumers, report finds.

Hermit Park School students Drew and Reya Blackman with Commonwealth Bank Dollarmites account books.

School banking programs have come under fire from the corporate regulator, which says they do little to drive money saving they’re supposed to encourage among a group it describes as “vulnerable consumers”.

A report from the Australian Securities and Investments Commission into school banking programs found the banks were “unable to demonstrate that these programs in and of themselves improve savings behaviour”.

But despite the limited evidence for the success of the programs, schools and parents were unwilling to end them, ASIC found.

“Young children are vulnerable consumers and are exposed to sophisticated advertising and marketing tactics by school banking program providers,” ASIC’s report says.

Rewards programs from the banks, of toys and stationery, were seen as holding a “persuasive impact” in building brand loyalty.

“Advertising and marketing is persuasive and children can develop attachments to brands. The use of brand personalities and humanisation of brand imagery can help to develop children’s brand salience,” the report says.

Almost 4000 schools were enrolled in school banking programs, with almost 180,000 accounts held by students, report said. It also found it was uncommon for schools to offer more than one partner for such programs.

Commonwealth Bank was the largest school banking prover, with at least 175,138 accounts as of 30 June 2020. The bank’s Dollarmites program has come under fire in recent years, with consumer group Choice repeatedly calling for the program to be scrapped.

CBA said it did not agree with the findings from the regulators. The bank said the findings were not “entirely consistent with international research or our own.

CBA executive general manager customer service network Mark Jones said the bank’s school program “reinforces the importance of regular savings, equips students with the knowledge of how to access and use a bank account, and provides structure for parents to support their children to save regularly.

“We are proud of the program and the positive impact it delivers,” he said.

CBA said it had made significant changes to its school banking programs and had worked closely with ASIC during the review. Material in the program had been updated in line with feedback from ASIC, schools and parents, he said.

“We made changes to our School Banking contribution payments framework to better align the fundraising resource to regular savings behaviour in students,” Mr Jones said.

“Importantly, the payments we make to schools are not linked to the number of new bank accounts created or to the monetary amount deposited by students.”

“In consideration of ASIC’s feedback, to improve transparency we have published our school payments rationale on our website, including a state-by-state breakdown of contribution payments made to schools.”

ASIC’s report also comes after the Victorian government moved to ban school banking programs from state schools.

In recent months several banks have moved to voluntarily wind up their school programs. IMB’s program was wound up on 31 August 2020, with Bendigo Bank following suit on 30 September, and Northern Inland advising ASIC on 2 December it also would look to end its program.

However, a full picture of the program is difficult to reach with school bank accounts held at Bendigo, Heritage and The Mutual banks not tracked.

The report noted the marketing of banks within a school environment created a “trust halo” which incentivised “teaching staff and schools to promote particular school banking programs”.

“Brand loyalty is developed over time. Customers build a relationship with their bank over time and don’t switch banks regularly for a variety of reasons, including because they were introduced to a bank at school,” the report said.

The regulators found financial payments from banks provided incentives for schools to keep the programs.

Commonwealth Bank alone paid $2.5m in incentives in 2018, an amount which fell to $2.1m in 2019 and $1.3m in 2020.

The report noted how banks claimed the school programs educated young children on the value of saving but “limited cognitive ability” from kids coupled with “marketing tactics” kept kids with the same banks for years.

“We found that providers made little or no assessment of the effectiveness of their programs in achieving these goals,” the report authors said.

“There is limited evidence among past students that school banking programs have a lasting impact on their behaviour, and recall of the programs is often limited to the ritual involved.”