Adrian Gore started Dis­cov­ery 25 years ago. To­day, the group has be­come a global leader in fi­nan­cial ser­vices and plans to ex­tend its of­fer­ing by open­ing a bank.

Finweek English Edition - - FRONT PAGE - By Jana Ja­cobs

the day af­ter fin­week in­ter­viewed Dis­cov­ery founder and CEO Adrian Gore – 10 March – marked 25 years since he first sat down at his desk at the com­pany.

When Gore for­mu­lated the orig­i­nal Dis­cov­ery health­care model, the con­cept of re­ward­ing con­sumers for be­ing healthy was fairly alien.

“We started out in the 90s with this Vi­tal­ity idea. It was re­ally op­por­tunis­tic when we stum­bled on it, but it be­came pro­found as we pur­sued it. At the time it wasn’t a nat­u­ral thing to in­cen­tivise healthy liv­ing,” Gore tells fin­week. They faced quite a push­back as it was deemed that the con­cept was wast­ing valu­able scarce health­care re­sources on pay­ing for gym mem­ber­ships.

“Some­thing that has be­come ob­vi­ous to peo­ple to­day wasn’t 20 years ago.” All of Dis­cov­ery’s busi­nesses use this shared-value busi­ness model – fi­nan­cial in­cen­tives and other be­havioural in­ter­ven­tions are used to “nudge” changes in in­di­vid­ual be­hav­iour; and mem­bers are re­warded for their health­ier life­styles. It’s this model that has seen Dis­cov­ery branch out into var­i­ous fi­nan­cial ser­vices of­fer­ings, and gar­nered favour in in­ter­na­tional mar­kets as well. And now it’s build­ing a bank.

“We built the com­pany on quite a sim­ple frame­work: pur­pose, values and am­bi­tion, and the am­bi­tion has got­ten big­ger and big­ger as we’ve evolved,” en­thuses Gore.

In 2014 Dis­cov­ery set the goal to be the “Best in­surer in the world and a pow­er­ful source for so­cial good” by 2018 – a rather brazen am­bi­tion.

Gore firmly be­lieves that this goalset­ting cul­ture is a very pow­er­ful tool in that it cre­ates loss aver­sion. He explains that it is an en­tirely self-cre­ated am­bi­tion and will be self-mea­sured.

“We have tried to de­lin­eate it based on three di­men­sions: How good our busi­nesses are; how good our un­der­ly­ing as­sets are – in terms of our global Vi­tal­ity brand, us­ing data to de­sign the lifeen­hanc­ing prod­ucts, our values be­ing in­tact, and the science of our model; and our over­all im­pact – how many peo­ple we af­fect in terms of well­ness and im­prov­ing their lives. And then re­turn on cap­i­tal and profit growth.”

Trans­lat­ing this into tan­gi­ble mea­sures would see Dis­cov­ery grow­ing earn­ings at CPI + 10%; the Vi­tal­ity Shared-Value model demon­stra­bly show­ing that the 15m con­sumers the group ser­vices are dra­mat­i­cally health­ier; and re­main­ing a dis­rup­tive player in the mar­kets where they have a pres­ence by be­ing num­ber one in new busi­ness growth.

A glob­ally lead­ing or­gan­i­sa­tion

This in­her­ent am­bi­tion con­tin­ues to pro­pel the Dis­cov­ery group glob­ally, where it has en­tered sev­eral mar­kets – from the US, UK and Europe, to China and other Asian coun­tries. The UK busi­ness has seen a tremen­dous push in the last two years. In De­cem­ber 2014 Dis­cov­ery bought out Pru­den­tial’s 25% stake in the UK Life and Health joint ven­ture. The buy-out cost the group R2.8bn and since then it has in­vested R4.5bn in the UK busi­ness, in­clud­ing 60% of the R5bn rights is­sue of De­cem­ber 2015.

The re­lease of the group’s in­terim re­sults in Fe­bru­ary showed that the UK busi­ness was hit quite hard in terms of profit. The first thing that comes to mind is Brexit. This saw cur­rency head­winds in the UK turn into tail­winds, but Gore points out that in or­der to crisply de­fine what af­fected the UK busi­ness, there are two fac­tors to con­sider, one of which is the ex­change rate – some­thing he does not deem a ma­jor con­cern. The other fac­tor that has in­flu­enced earn­ings in the UK is the long-term rates of in­ter­est.

“They’re in­cred­i­bly low, the low­est they

have been for hun­dreds of years. As with any ser­vices busi­ness we do bet­ter with higher rates of in­ter­est,” he explains. “You do a val­u­a­tion that looks at the rates of in­ter­est at that point in time. If the rates are lower than we ex­pect, you get what we call a strain, which puts pres­sure on the busi­ness from time to time.”

That said, Gore doesn’t be­lieve that neg­a­tive rates of in­ter­est can con­tinue for a pro­longed pe­riod of time and that the cur­rent sit­u­a­tion is likely to nor­malise: “It re­mains a risk fac­tor but we are not overly con­cerned.”

For him the UK out­look is good and de­spite the ef­fect on prof­its, the un­der­ly­ing busi­nesses are per­form­ing re­ally well with close to 1m mem­bers and strong en­gage­ment in Vi­tal­ity, and the group re­mains op­ti­mistic about where it is head­ing in that mar­ket.

Gore is bullish about the group’s part­ner­ship with Ping An Health in China.

“Ping An is one of the world’s great com­pa­nies,” explains Gore. From, for ex­am­ple it’s e-health plat­form Good Doc­tor, to its fin­tech prow­ess in Lu­fax, which is the big­gest peer-to-peer lend­ing plat­form. “We are deal­ing with an un­be­liev­able part­ner.”

At present, the ven­ture in China has been cap­i­tal light for Dis­cov­ery, but this could change de­pend­ing on how fast the com­pany grows.

“There are a few clear strate­gies that re­quire cap­i­tal within the next four years that we’re quite com­fort­able with. We’ll strengthen the bal­ance sheet; in­vest more in new busi­ness flow. And we think if we can con­tinue to grow it at the rate that it has been, the busi­ness will be dra­mat­i­cally big­ger. The com­pany has been grow­ing at 55% a year. If you can do that for four or five years, you will see a seven-fold in­crease.”

Gore says there is a strong sense of con­fi­dence that the China busi­ness will be built into some­thing sub­stan­tial, given that gov­ern­ment’s com­mit­ment to build­ing pri­vate health­care in China, and the com­mit­ment of Ping An Group to build­ing China’s largest com­pre­hen­sive health­care player.

Bank­ing on the fu­ture

The Dis­cov­ery group has built an im­pec­ca­ble fi­nan­cial ser­vices stack over the past two decades and while the group con­tin­ues to make global plays, here in South Africa it has em­barked on the very am­bi­tious ven­ture of open­ing a bank.

Last year they re­ceived ap­proval from the Reg­is­trar of Banks to es­tab­lish a bank­ing pres­ence, pro­vided that they meet a set of con­di­tions by the end of Oc­to­ber this year – within 12 months of the orig­i­nal ap­proval.

Gore be­lieves that they are well on track and will make the dead­line. “The chal­lenges have been sig­nif­i­cant, it’s a big un­der­tak­ing. The cap­i­tal spend has not been that big in the con­text of Dis­cov­ery, but it is a full frontal de­vel­op­ment in ev­ery as­pect,” says Gore, in­clud­ing tech­nol­ogy, prod­uct, dis­tri­bu­tion chan­nels and reg­u­la­tion – which make for a com­pli­cated roll-out.

The South African bank­ing sec­tor is strong and com­pet­i­tive, but Gore be­lieves that Dis­cov­ery has a strong busi­ness case for en­try, and given the im­mense pace of fin­tech de­vel­op­ment, Gore would ar­gue that ab­sent to the Dis­cov­ery model, there are many dis­rup­tive op­por­tu­ni­ties in bank­ing. One need only look at the rise of in­no­va­tive pay­ment sys­tems and peer-to-peer lend­ing, for ex­am­ple.

“Don’t get me wrong, our banks are very strong and com­pe­tent,” em­pha­sises Gore, but based on the Dis­cov­ery model of be­havioural-based fi­nan­cial ser­vices, they felt strongly that they would be able to en­ter the sec­tor.

He says it would be “a nat­u­ral ex­pan­sion of the suc­cess of the Dis­cov­ery card and trans­ac­tions around it. And our sys­tem al­lows us to price credit bet­ter.” Add to that the fact that they al­ready have an es­tab­lished client base – one they in­tend to tap into fully.

“On the back of all of this there was a feel­ing that we could build a much more mod­ern bank,” says Gore. “We think we will make it.”

“We built the com­pany on quite a sim­ple frame­work: pur­pose, values and am­bi­tion, and the am­bi­tion has got­ten big­ger and big­ger as we’ve evolved.”

Dis­cov­ery CEO Adrian Gore at the group’s in­terim re­sults pre­sen­ta­tion in Fe­bru­ary.

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