The Editor’s Desk: Discovery Bank is on to a winner & where to for Tiso

Discovery has long been one of South Africa's most innovative companies, and it looks like Discovery Bank is no different from, say, Discovery Health. Alec Hogg recently caught up with Discovery founder Adrian Gore to talk about the company's plans for the banking sector. In this episode, Alec and I look at what makes Discovery Bank unique and how the company may just have a global impact. We also look at the week's other big news, Tshepo Mahloele's acquisition of Tiso Blackstar. The media industry has been through a huge period of disruption, and Alec and I ask whether Mahloele's Lebashe Investment Group can turn things around for Tiso. We also take a look at the latest developments on Naspers' international listing. – Felicity Duncan.Hello and welcome to this week's episode of The Editor's Desk right here on Biznews radio. I'm Felicity Duncan. And with me is Biznews editor-in- chief Alec Hogg..___STEADY_PAYWALL___.Now Alec, one of the industries that has been most profoundly affected by the disruption that comes with technology, I would say, is financial services and we're still in the early days. We're still seeing a lot of new developments in things like payments and all the rest of it. I'm thinking here about things like the Facebook Libra coin, which is coming out and that poses a challenge to financial institutions that do payment systems and things like that..There's just a lot happening in the space, it's a space of enormous and fast-moving changes, but it's also a space that is very sensitive and subject to a lot of regulation, especially at banks..So, for banks responding to the disruption posed by fintech companies has been a particular challenge and in South Africa, one of the companies that you see approaching disruption from a slightly different angle – not a purely technological angle, but also a behavioural angle – has always been Discovery. And I know that this week you spoke with Adrian Gore about Discovery Bank, which is trying to do banking a little differently, but is not necessarily relying purely on a clever piece of technology, but rather on a different relationship to the customer..And I think, to me that's really interesting, because that's a way that maybe banks can evolve and stand up to the challenge posed by fintech without losing the core of what they do and the value that they bring.You're so right, Felicity, and what makes Discovery so interesting is that they are plugged into what's going on in the rest of the world, but they've also got their own strategy. So, the behavioural, or influencing behavioural activities of human beings by incentivising them in certain ways is a very new science and a new era of endeavour and Discovery is actually world leading on that. I've seen pieces in all of the major publications around the world focusing on this from time to time. They've also got some very substantial partners Ping An in China, for instance, John Hancock in the USA, AIA in Southeast Asia, and so on – Generali in Europe. So, when you look at that, it's really a particularly interesting company, because if you then come back to a South African context, for the most part in South Africa, this country is behind the rest of the world. So, you've almost got a country that's lagging the rest of the world by two to three years. Then you've got one of its players, which is leading the rest of the world perhaps by two to three years..Now, the context of this is interesting. You know, on Biznews Radio, we are now starting to bring in quite a lot of new content from our partners at Bloomberg and the Wall Street Journal, and I was listening to one of the interviews this week with Jeff Bezos. And Bezos said he cannot believe that the world gave him – at Amazon Cloud – seven years before anybody else followed him. He said usually what happens in pretty much everything else they did – they would do something on bookselling, for instance and in a year's time or 18 months' time, Barnes and Noble would follow them. They would do something in another area and a competitor would be straight after them. But, he said, what gave Amazon this enormous advantage that they have now in the cloud – I think they got more than 50 percent of the global market – was that the tech companies looked at them and said, these guys are just online retailers. They haven't got an idea on how to do anything significant in the tech world, they must be wasting their money. And, he said, as a consequence of that, Amazon was able to move into that field and get a huge advantage..And I'm seeing this as well with Discovery. And what was always interesting about talking to Adrian Gore… Remember this guy is super smart. He's an actuary. He started discovery with Barry Swartzberg from scratch. They have built it into not just the dominant player in South Africa, but now becoming more and more of a major player in the UK, with Vitality, and with their international scenario. You know, they're now talking about millions, tens of millions, even hundreds of millions of people that they are going to be covering, whereas in the South African context, with 60 million people in the population, maybe 10 million in the bankable population, it's a much smaller thing. So, it's a very, very interesting company in this context..Talking to Adrian, you really do learn a lot and I was asking him about this disruptive approach towards banking and why so many other challenger banks are coming in in the rest of the world and starting to come into South Africa as well. And it's exactly what you put your finger on. You've got the fintech on the one hand. And they're applying fintech and you he said as a consequence of that, Discovery Bank is taking longer than they thought to bring to market..They've had a thousand customers on a pilot program and they've learnt a lot from there. The reason I spoke to them this week is that they've now finished the pilot and now they're moving into the next step, which brings them ever closer to competing with the other banking counterparts in South Africa..But, the second thing is applying the behavioural issues. And he's saying, for instance, they're going to offer higher interest rates, because that will give the incentive to the to the customer to keep their money in a current account, where you're going to get 7% interest, whereas most banks give you zero and actually penalize you with higher fees. And there's so many of these changes that they're making. He says there are about 150 different moving parts. And that's what's making it longer for them to keep going. But keep your eye on this. And particularly, somebody who's really keeping his eye on this is Mark Tucker, who's the chairman of Discovery. He's also the chairman of HSBC, the world's biggest bank. Now you start putting those two together… Adrian was a little bit noncommittal on this. He said no, Mark is the chairman of Discovery Group and, of course, he's looking at it from governance perspectives etc..But what you can be sure of is Mr. Tucker, if he's chairing HSBC, is looking to see what is going on in the rest of the banking world and where are the disruptive forces. So, we might have something very, very interesting in gestation here in South Africa, and one to keep a close eye on. And anyway that interview with Adrian helped me to do that..Yes, very interesting, and I love to see innovation in South Africa, because I always think it's one area where we have a lot of potential and that sometimes it isn't fully exploited, it isn't fully capitalised on, in part because of some of the market structures that we see..Now, another company that is in an industry that faces a lot of disruption is Tiso Blackstar. Now media, as you and I know, has spent the last call it 25 years, maybe 30 years, really just being disrupted left right and centre, with the development of the Internet, with the development of faster Internet, with online video, with online audio – it has just been a period of really significant change for media companies..And a lot of legacy media companies have struggled to adapt to that. I'm thinking especially of very traditional newspaper companies. It was very difficult for them to take what they did and jam it into an online format and to do that successfully. And, of course, on top of that, media companies today have lost out in the advertising wars, because most digital ad revenue goes to either Facebook or Google – about 60 percent of it goes to those two companies – and everybody else shares out the crumbs, because of the structure of how digital advertising has worked out..So, media companies have been faced with a lot of challenges and they haven't always responded very well, and they haven't always responded very successfully. Now, this week we saw the announcement that Tshepo Mahloele is taking on Tiso Blackstar, one of South Africa's large media conglomerates – and not only South Africa, of course, it also has a bunch of international operations. I'm interested to see what he's going to do with Tiso, to deal with all of these different aspects of disruption. Do you think we're going to see some changes?.It's a very, very interesting deal. Tshepo is from the class of FirstRand and what they do these is – Paul Harris started this many years ago, one of the co-founders of FirstRand – where he'd go and find the brightest that he could tap from universities around the country and bring them into FirstRand and put them in a little group, which gets fast tracked and put into various areas of the banking organisation, with the intention of keeping them in the group, of course..And the year that Tshepo Mahloele was there, his contemporaries were Michael Jordaan – who is very well known as an innovator and the CEO of FirstRand, and now a venture capitalist in South Africa – and Herman Bosman, who's the CEO now of RMBH, the holding company for FirstRand and so on. So, you've got Herman and Michael, and he's in the same league but he's very low profile. Tshepo went off, after doing pretty well at FirstRand, he went off to the PIC. He was working there for a couple of years. But I guess the entrepreneurial spirit that was engendered in the FirstRand group got him thinking about other ways. He then put his own money up, together with backing from the PIC, to create what is called Harith. Harith was way early in the game on infrastructure funds in Africa. He struggled to get international companies to back it. Now, of course it's a huge area, where many of the world's big players are going into infrastructure funds, so he was ahead of the market there..But his really big hit was when he was involved in a BEE transaction with Capitec right in the early days. I think, if memory serves, they bought the Capitec shares for R30. He doubled up a few years later at about R300. And those Capitec shares, of course, are around R1,000 today..So that's given the firepower that he needed, or Harith needed, or this fine entrepreneur, as we now know – in fact, he was also acknowledged as the entrepreneur of the decade by the Association of Black Securities and Investment Professionals..So, he's a guy who's been under the radar, for the most part, but is now coming very much above the radar. And what's he going to do with Tiso Blackstar? You know, you and I worked together at Moneyweb. It's 22 years ago that Moneyweb started now. And when we began the company, it was – we were looked at askance by the establishment, because they thought it was insane. What was the internet ever going to do? How would it ever disrupt the established organisations? That what we were charging for advertising was a pittance relative to… In fact, they thought it was so funny that they didn't charge at all for advertising, the big media groups back then, on Internet advertising, which brought its own challenges..But the reality is the way that the industry has changed since then. But the incumbents have battled to do that. Now you've got Tshepo coming in, with some nice brands – Business Day, Financial Mail, The Sunday Times. Some really nice radio stations in Africa, which are profitable – Kenya, Nigeria, Ghana, which to me are maybe the jewels in the crown here. And he's now paid a billion rand for those assets. And he's now going to have to do something with them. Where he goes to from here will be very interesting to watch..From where we're sitting, at Biznews, we just think that it's great to see more money being invested into media, because hopefully that will bring the media environment more into the new age – the media environment in South Africa more into the new age – and let it continue to play this incredible role that it's played over the past three or four years in ridding the country of state capture and on the other hand, you know, promoting democracy..So, you need a strong media sector in a democracy, for a democracy to work. As we've often said, it's the court of public opinion. And you need the court of law, on the other hand. But the court of public opinion moves very rapidly. Now that you've got a serious player coming in here, a guy who's been extremely successful elsewhere, who's pretty humble – I've met him and interviewed him a few times. He's got his feet on the ground. He's been successful. He is black, which is very important in the South African context. The fact that now this whole group is going to be fully black-owned is also a great development for a country with the demographics of South Africa. It's fascinating Felicity. I'm watching this with a lot of interest and hoping that the changes that are wrought there are going to put Tiso into a different league. I think the people who work at Tiso are probably very, very nervous at the moment, because for the most part, they would be concerned that if the company is not really making a lot of money and now you've got a big investor, is he going to be cutting jobs et cetera? He doesn't strike me like that. He strikes me more as the type of person who actually wants to invest in South Africa and understands the value of media in a democracy. So, it's an interesting ride for them. But in this sector, a very welcome development..Absolutely and we'll be looking for more of that Discovery-style South African innovation on the Tiso Blackstar side. And you know, honestly, I agree with you – I think that anything that strengthens the media system in South Africa is good news for us. And one just really wants to see that happen..Now, another company, another South African champion that's attracted a lot of attention, especially internationally, of course is Naspers. And we had the news recently that they will be postponing their much-anticipated unbundling and listing of the Tencent and some other internet assets up in Europe..You know, I read something the other day that really made me think and that was very interesting and it said that the Naspers listing, which is scheduled for the stock exchange in the Netherlands, is going to be a very rare major tech company listing in Europe..Europe has very few big tech companies listed – all the or the biggest players are – you know Google Facebook – all of them are listed on the New York Stock Exchange or Nasdaq. And then things like Tencent or Alibaba, obviously, are listed in Shanghai and Hong Kong. And Europe has had very few big tech listings. So, for European investors this is a huge opportunity, to actually have a major tech counter that's trading on a European exchange. And, of course, I'm sure everybody a little frustrated about the delay..And from a South African point of view, you cannot overestimate the impact of Naspers' success on the people of this country, because it's got a massive weighting on the JSE indices. Depending on which you look at, it's between 20% and 25%, and that flows straight through to retirement funding. And if you took Naspers out of the indices in the last 10 years, South Africans would have had zero increase in their retirement funding. But because of Naspers' incredible success, it hasn't looked too bad at all. Naspers will remain around three quarters-owned – three quarters of the shares in the new listing in Amsterdam – it's only coming in September..But it is going to give a lot more exposure to the non-Tencent slice of Naspers. And up to now, people have been looking at this company and saying, well it's a discounted way to buy into Tencent in China, but once they start unpacking the $20 to $30 billion other part of this listing, which is the international classified advertising, it's the… they're the world leader in that field, they're the world leader in online delivery, food delivery. We know that through what's called Delivery Hero in Germany, it's been a highly successful company which Naspers is heavily invested in as well. But elsewhere around the world they've got this market pretty–not sewn up –but they are one or two in most geographies in the world..So, there's lots of new areas that investors are going to be discovering as a result of Naspers' listing there. And that, surely, is going to flow back to what's going on in this country..Just to give myself a little bit of an advert here –I did the most fascinating interview… Naspers guys are really, they work on a different level to most in South Africa – I've had interviews with Koos Bekker in the past and Bob van Dijk, and they really are impressive. But with Basil Sgourdos. He's 45, he is the financial director. He's been doing that job for five years, so he was not even 40 when he took it over. Imagine for this huge big group. And he's been with the company for, I think, something like 20 years. And when you have a look through his eyes at the development of Naspers – as he was explaining to us – it really puts things into perspective. This is a bit like Discovery. You know, we've got these two companies in South Africa, outside the mining industry, that are playing on the global stage and really are playing successfully. They need to be maybe a little more appreciated by South African investors and paid a little bit more attention to what they're doing, because they're hitting it and they're hitting it out the park in a number of ways.

The Editor’s Desk: Discovery Bank is on to a winner & where to for Tiso

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