Discovery to take on big five banks
Insurer to establish a retail service lender
DiscoveryCard to 74.99 percent earlier this year, while FirstRand Bank would retain 25.01 percent.
Over the next few years, Discovery will move the card off First National Bank’s systems and onto Discovery’s systems and platform.
Gore said a specialist team would be appointed to get it off the ground. It could take up to two years to have a full-service retail bank up and running as the company had yet to apply for a banking licence, he added. “The success of the DiscoveryCard has demonstrated the efficacy of the Discovery model, which utilises the Vitality capability to leverage behavioural economic insights and incentives to encourage better behavioural choices, when combined with marketleading banking capabilities.
“This has resulted in a fastgrowing, profitable credit card of excellent quality that offers unique value to members, and ongoing value to shareholders. It is this shared value model that Discovery intends to build on,” Gore said.
He said from a regulatory perspective, the ambition to establish and build a bank involved a lengthy and complex process, in which the outcome was not guaranteed.
“A two-step approval is required. Firstly to obtain authorisation to establish a bank – and thereafter, post complying with all the conditions, to apply for registration as a bank. Banking business may only commence once registration as a bank has been granted. Discovery is about to embark on this process,” Gore said.
He said Discovery would then take operational control of the asset, and eventually build additional banking products on its chassis.
Justin Floor, an investment analyst at Kagiso Asset Management, said the key challenge would be in overcoming the strong incumbent competitors, who would look to fiercely protect their profit pools.
He said Discovery’s key weapons were its brand and ability to use data to drive profitable behaviour in a context of a very good consumer understanding.
“If they get that recipe right, they could be successful, as we think some innovation is overdue in the local banking space. However, we would expect it to be some time before this became a material contributor to group earnings and we expect an incremental build-out as opposed to a big bang approach,” Floor said.
Gore conceded that, saying: “This is a multiyear process and Discovery will communicate its progress periodically.”
PSG Wealth portfolio manager Adrian Cloete said Discovery was onto something special. “They have a very strong client base and the quality of their clients is very high. Their rewards system is quite compelling; they carry less risk. Other banks must be careful here,” he said.
He said Discovery had good distribution systems locally and globally, and could drive its systems quite strongly.
Cloete said the limitation was that it would only be a retail bank, while other banks had corporate and other divisions of clients that they could count on.
Floor said management had not yet set out a comprehensive strategy, and which product lines they would want to enter was still unknown.
In its financial results for the year, Discovery grew new business by 51 percent to R17.5 billion, boosted by Discovery Health being awarded the business of Bankmed Medical Scheme – without which core new business only grew by 15 percent.
Normalised profit from operations went up 17 percent to R5.8bn while normalised headline earnings increased by 16 percent to R4bn. – Additional reporting by Reuters