Discovery squares up to big players with new bank

DISCOVERY will have to entice its customers into its new financial services venture as it is looking to build scale with the opening of its full-service retail bank.

The company, which has diversified revenue streams across medical insurance, investment and life insurance, caters for more than 5.1 million customers across South Africa, the UK, the US, China, Singapore and Australia.

“We want to be an institution that has a big and almost focused footprint in that [retail banking] space,” Discovery CEO Adrian Gore told Business Times.

But he added that building scale would be a challenge in the competitive financial services environment.

Singa Gungqisa, a retail analyst at Vunani Private Clients, said Discovery’s strong client base would allow it to lure in customers, while at the same time using a rewards system such as its Vitality model to maintain relationships.

“Discovery’s business model is a behavioural science model. What they tend to do is study the behaviour of a client through their different platforms,” said Gungqisa.

“Once they understand your behaviour, they know what kind of credit to sell to you and how to sell it to you.

“That underpins their strategy for growth.”

Gore said Discovery had invested R2-billion in starting up the retail bank, with R800-million contributing towards the initial working capital.

The remaining R1.2-billion has gone towards the purchase of a 75% stake of DiscoveryCard from First National Bank.

As the new inductee, it is expected to compete against es- tablished players such as Standard Bank, Absa and Capitec Bank in offering transactional banking.

Gore said strong competition was a concern for the company as it entered into the new venture.

However, he said, Discovery would position itself differently.

“I have a fairly old-fashioned view that if you can offer something that is of real value, the other challenges tend to disappear.

“I think the value proposition would make sure that we have something exceptional to offer,” he said.

Adrian Cloete, a banks analyst at PSG Wealth, said old banking “legacy systems” would pose an advantage for Discovery, as it would be looking into innovative technologies to build its client base.

“If you are a new player and you have enough clients, then you can get the scale, which will give you advantages on the operational side, because you will be able to interface with customers much better.

“It would be very wrong to underestimate Discovery because they are very entrepreneurial . . . they have built huge businesses out of nothing," he said. AMBITIOUS EXPANSION: Discovery CEO Adrian Gore