Discovery Bank’s ‘familiar ’ clients
• Initial data points to the more well-heeled taking up the behavioural bank accounts
Discovery Bank’s launch into the competitive local market is yielding strong growth in deposits from a mostly upper market clientele that resembles the demographic of clients in its dominant medical aid scheme.
Discovery Bank’s launch into the competitive local market is yielding strong growth in deposits from a mostly upper market clientele that resembles the demographic of clients the group enjoys in its dominant medical aid scheme.
“The client demographic almost exactly matches our existing Discovery [Health] client base whose members are found in the predominantly higher LSM [Living Standard Measure] categories. But there is a wide distribution where the product appeals to both graduates and millennials but is also equally strong amongst pensioners,” says Discovery Bank CEO Hylton Kallner.
The trend might be of particular interest to the existing premier banking — private banking incumbents such as Rand Merchant Bank and Investec that enjoy substantial market share among SA’s well-heeled.
While other new banking entrants such as Tyme Bank and the soon-to-be-launched Bank Zero appear to be positioned for the mass market segment, Discovery Bank has been touted as the biggest threat to the status quo at the upper end of the market, even though the bank is not targeting this segment.
Kallner succeeded Barry Hore as the bank’s leader three months ago to steer it into the “growth and integration phase” as it looks to pay back the more than R2bn the group has invested in, what it calls the world’s first behavioural bank.
Discovery CEO Adrian Gore underlined the strategic importance of the bank’s success by calling Kallner’s move a “big appointment” for the group.
Discovery’s “new bank clients” — those that have recently opened an account and who did not previously have a Discovery Card (developed as part of a joint venture with FirstRand), overwhelmingly comprise families (70%) with clients having an average age of 42 years.
Kallner says different things about the offering appeal to different age groups.
“Millennials love the digital nature of the offering while older clients like pensioners are attracted to the appealing interest rates, that because of our shared value model, allows them to earn high interest rates even on savings and transactional accounts,” says Kallner.
Post the reporting period, the bank now has deposits of R6.3bn, and advances of R3.9bn. With the advent of the pandemic, the group opted to focus on growing the deposit franchise while being ultra-cautious in extending credit. The bank says it is rejecting 75% of all credit applications.
Kallner says deposits continued to grow at R700m-R1bn per month, with the bank adding about 350 new clients daily. It has almost 300,000 clients with 556,000 accounts.
But the bank has growing to do. The group reported interim results for the six months ending December that showed the bank generated net interest income of R137m and fees and commissions (non-interest revenue) of R219m. It burnt a nearly R1bn hole in Discovery’s pocket for the period by way of a normalised operating loss.
Kallner expects to make further announcements regarding enhancing the offering and attracting new clients in the near future.
“The cost base of the bank is stable and should remain fixed moving forward. The scalability of a digital bank is one of its greatest assets in a sense. We can now add clients at almost no marginal cost. So we are pleased with the progress and we can scale easily from this point.”