Discovery Bank is success so far
PROMISING: LENDER HAS 78 000 ACTIVE CLIENTS
Its proposition is premised on Vitality Money, which rewards clients for changing behaviour.
Discovery Holdings says its newly launched bank “performed ahead of expectation” in the six months to end-December. As at 18 February, Discovery Bank had 78 000 active clients with 180 000 accounts. Nearly half, it points out, “had never held a Discovery card before”.
Contrast this with the 22 000 customers it had signed up in the first three months after launch in July last year.
Three-quarters are on bundled accounts (transaction account plus credit card); 40% hold Black accounts, 35% Platinum accounts and 24% Gold accounts.
These customers have deposited a total of R1.2 billion, with R1 billion of the R2.5 billion in granted credit being utilised.
More of its customers keep credit card balances month to month, thus paying interest, than those in the legacy Discovery card book.
Total transacted over the last eight months is R2.6 billion and it says its customers spend three times the market average.
Credit arrears are, on average, five times less than the market.
This is not surprising for a bank targeting the “mass affluent” (LSM 8 to 10) market.
Capital spend to date is R3.7 billion (versus an expected R4.1 billion) and the bank is costing less to run from a capex point of view than expected (R1.178 billion versus R1.511 billion).
Discovery expects a structurally lower cost-to-income ratio (30%) versus the typical 50% elsewhere in the market.
The proposition of Discovery Bank is premised on Vitality Money, which rewards clients for “banking healthier” (in other words, driving behaviour change) with dynamic interest rates on savings and credit, as well as boosted Vitality discounts and cashback.
Discovery was taking a calculated bet that the Vitality model could provide the foundation for a bank. So far, it says the correlations are “promising”.
There are “strong correlations being observed by Vitality Money status in credit utilisation, deposits, spending and defaults – across the client base and account types”.
“Engagement and correlations are even stronger for clients with multiple Vitality products”.
Discovery has not said whether the migration of existing Discovery card members from the FNB joint venture is tracking expectation.
Of the original 300 000 customers to move, it still has to move 192 000. Of its 78 000 customers, around 45 000 previously held a Discovery card.
This means only half of those who could migrate have actually moved to Discovery Bank thus far.
The rest would have closed their credit card account and stayed at their main transactional bank.
Those who find the Discovery Bank proposition compelling would surely have moved already.
One would expect the “conversion” rate to decrease across the remainder of this base.
Discovery expects this migration to be completed by the second half of this year.
The fundamental question Discovery poses is whether it can build a retail-heavy bank of scale?
It has said it needs “roughly 500 000 to 600 000 clients” to break even.
Hilton Tarrant works at YFM