Back to the future Discovery promises a brave new banking world
Lender to scrap ATMs, ‘democratise’ interest rates, shake up sector
● Discovery’s entry into banking is bound to shake up the industry, particularly because of its plan to “democratise” the way it charges customers interest on their loans.
Historically, SA’s banks have charged lower-income consumers higher interest rates because they are deemed to be a higher risk than high-income earners, Discovery Life CEO Hylton Kallner said.
That will not be the case for Discovery Bank, which is due to be formally launched in March next year.
The bank aims to offer “dynamic” interest rates on savings and loans. Kallner said this will be based on a customer’s money management capabilities, instead of the traditional model of automatically charging lowincome earners steep interest rates because they are “deemed to be a higher risk”.
“If you’re managing your money responsibly and effectively, then you’ll be charged the lowest interest rates in the market, lower than the higher-income earner who isn’t managing their money prudently,” Kallner said at a pre-launch event this week.
Equitable banking
“So it effectively democratises the best interest rates to people that are managing their money best, and we feel that’s equitable.”
Kevin Lings, chief economist at Stanlib, lauded Discovery’s approach, saying it was innovative and had the potential to shake up the industry.
Lings said that when SA’s existing banks applied different interest rates depending on customers’ risk profiles, the calculation was based only on risk and not fairness.
“If you were looking at the fairness of it, you could argue that richer people need to be charged a higher interest rate than poorer people because they can afford it. But that is not the principle that governs the banking sector anywhere in the world,” he said.
Risk is assessed on the basis of salary and whether a person is employed full-time or part-time, which Lings said was outdated.
New rules, new bank
“Society changes. If you go and look at many young people in this country, they make money in various ways and not necessarily all in the formal economy,” Lings said.
He said not everyone received payslips or could meet a requirement that they had held the same job for five years. “So the question is, are we assessing risk in the best way possible?”
In his presentation on the bank this week, Discovery CEO Adrian Gore described it as the “world’s first behavioural bank”.
Discovery, whose share price has risen 4.8% in the past year, is one of three new entrants to South African banking — Patrice Motsepe’s TymeBank and former FNB CEO Michael Jordaan’s Bank Zero are also set for launch early next year. Much like its insurance, health and investment businesses, Discovery’s bank strategy is rooted in an incentives and shared-value model.
“The purpose of the bank is to make people healthier in the financial sense,” Gore said.
Company executives said the bank’s Vitality Money programme, based on “behavioural economics”, would offer customers financial education and budgeting advice and access to debt managers and retirement planners.
Digital first and last
The bank will be entirely tech-led in a market traditionally reliant on ATMs and physical
So it effectively democratises the best interest rates to people that are managing their money best, and we feel that’s equitable Hylton Kallner
Discovery Life CEO
branches. Part of its product offerings is a smartphone application that enables users to make instant transactions in five steps.
“The entire thing has been reimagined … the bank itself has been built from the ground on the latest technology.
“It’s extremely flexible, it’s real-time,’’
Gore said.
The plan is to market the bank to Discovery Health’s 3.5-million scheme members and its 300,000 credit card holders.
We don’t do ATMs
Discovery Bank CEO Barry Hore said the bank would not have ATMs and to obtain cash, customers would have to use other bank ATMs or point-of-sale tills at retailers such as Pick n Pay and Checkers.
Hore said he was confident this would be no deterrent to potential clients.
“People say that people don’t move banks, but there’s a bank in SA that lots of people moved to; it didn’t exist 20 years ago,” he said.
Stellenbosch-based Capitec Bank was launched in 2001 and has just under 10-million customers.
In addition to democratising interest rates, Discovery also wants black customers to own 10% of the business.
“The intention is that 10% of the bank will be owned by black clients. It’s effectively giving them the opportunity to become dayone shareholders of a start-up bank in SA,” Hore said.
“It’s a good opportunity … there’s no actual investment required by the client. The desire to have a bank that reflects a modern South African bank is core to the entire offering.”
Nolwandle Mthombeni, equity analyst at Mergence Investment Managers, praised the plan to immediately offer empowerment shareholding.
Discovery’s interest rate approach was “interesting and different”, she said.
“I think in an environment where the equity markets are offering very little returns, depositors will be interested in getting higher interest rates.”