‘Discovery Bank attracting deposits at massive rate’, says the group’s CEO
Discovery Bank plans to nearly triple its customers over the next five years as it intensifies its drive to attract clients from the “big four” and other financial institutions.
Adrian Gore, CEO of Discovery Group, said last week: “Our competitors are the major banks. The clients that are coming across to us are the mass affluent who are banking with Standard or FirstRand or whoever they might be.”
He said Discovery Bank has about 270,000 customers and just under 500,000 accounts as clients often have more than one account.
The plan is to increase the customer base to between 500,000 and 700,000, which will probably result in up to 1.2million new accounts.
The bank’s strategy is based on the group’s Vitality model, which rewards customers for good behaviour — in this case, good financial habits.
Discovery Bank is making pleasing progress, said Gore, considering it has to negotiate an economy hit hard by the pandemic and has been growing through customer deposits rather than issuing credit.
“There is work to be done but it’s a year into the bank. It’s been a great year despite the difficult pandemic and we’re not granting much credit, which is the way most banks grow.”
He said that, “amazingly, it [Discovery Bank] attracted deposits at a massive rate”.
The R3.7bn in deposits matches the bank’s credit book, which also includes legacy Discovery Card customers brought over from First National Bank.
The fact that its credit book includes the R3.5bn Discovery Card book shows Discovery Bank has been conservative as far as credit is concerned.
In fact, Gore said, the bank probably turns down about 70% of credit applications.
“We are very careful about granting credit. It’s easy to sell credit, it’s much harder to attract deposits. I think the test of real growth is deposit-led. It’s been really good.
“We are in the process of using data to be able to grant credit in the right way, but the whole idea of the bank is it is for people who manage their money well.
“That’s the whole idea of the bank. It’s not about people who are rich. No matter what you are earning, we are trying to get you to manage your money well.”
Gore was speaking after the release of the group’s annual results for the year to June, which showed Discovery Group’s profit for the year decreased 97% to R176m.
The group has also put aside R3.4bn for future potential policy lapses or Covid-19-related claims.
“The actual operating performance was very resilient through Covid-19. That was up 9%,” Gore said.
Vestact portfolio manager Michael Treherne said: “I would agree with Adrian’s sentiment that in turbulent times like this you need to be looking at operating numbers and probably more so at new business numbers.
“The only division that went backwards in terms of new business numbers was Discovery Invest. Everything else did relatively well. They look on solid ground.”
He said “you could probably criticise” the bank with growth “a lot slower than expected”, but it was “still early days and they need to spend money to keep growing the business and get their solutions right”.
“Once it becomes a mature business it will make a lot of money and contribute to the overall group.”
But Treherne said because Discovery Group is so big in SA, its performance is closely linked to the local economy, which could affect it negatively.
“We need to help SMEs because that is where the real pain is. We need to make sure that schemes to fund them work so that the money can be given to SMEs. That is where jobs are created, not big business.”