Something really interesting is happening in South African financial services right now – something the world’s biggest banking group is watching developments from a front row seat. Discovery’s new challenger bank, into which the group is investing the equivalent of almost 10% of its market cap, opens to the public today. Not surprisingly, it has consumed much of CEO Adrian Gore’s time in the past few months, as he articulates in the Rational Radio interview embedded below. A mostly ignored aspect of the innovative project is the connection with the western world’s biggest banking group. HSBC’s chairman Mark Tucker is also the chairman of Discovery Limited. As you’ll hear when listening to the interview, Gore plays down the association, he played it down. But given uncertainty faced by all banks globally, we can bet Tucker will be keeping a very close watch on the Discovery Bank’s disruptive model in the South African market. – Alec Hogg
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In this podcast, cut from a live interview on Rational Radio, Discovery CEO Adrian Gore talks about the group’s challenger bank which opened for business today (July 1).
Gore explains that there is still another R1bn in investment required, and the first returns on the project are only expected when in “three to five years we get to profitability.” He says like other challenger banks, advances in technology led to the belief at Discovery that incumbents whose histories stretch back to 1838, are now vulnerable.
Discovery Bank’s model is based on changing behaviours through incentivising clients, using the group’s experiences in health insurance where four behaviours account for 60% of the disease burden. In managing money there are also identifiable problem areas – unsecured debt and not providing for retirement – which Gore says are caused by behavioural biases.
The bank will focus on incentivising “healthy financial behaviour” and just like it does with health insurance, rewarding clients with Vitality points.
A pilot programme of 1,000 clients revealed the complexities of an ecosystem with 120 interconnected parts, into which Discovery invested 1.5 million man hours. Putting this together took longer than expected, but Gore says it was more important to get it working properly than to meet deadlines. There are 3m Discovery Card clients who will be the immediate target for the new bank.
The system is “mobile led” with clients able to conclude a task in “three or four clicks”. The complexity of integrating all of this pushed the timing out by about three months. Among the appeal is an interest rate of 7% on “lazy deposits” – cash balances which currently earn zero interest at SA’s Big Four banks.
