SIMON BROWN: I’m chatting now with Hylton Kallner, the CEO of Discovery Bank. Disclaimer: I am a Discovery shareholder, which means I own some Discovery Bank.
Hylton, I appreciate your early morning. I remember reading the book ‘Nudge’, oh, 10 or 12 years ago or so, and I remember chuckling to myself because in many senses it was describing the Discovery business model. Discovery, of course, by that point had been doing it for an age. It certainly worked incredibly well in the health space.
How’s it going in terms of the venture into sort of nudging people towards being better with their money?
HYLTON KALLNER: Good morning, Simon. Discovery Bank has essentially really been alive now for 18 months or so and it’s going very, very well. I think everything that we’ve seen in the health space is directly replicable in banking and money, in terms of how people save, manage their debt, and save for retirement in the long- and short term, and in the kinds of outcomes that you’d like to see. So it’s entirely behavioural.
If you manage your money behaviour better, in the same way as you manage your health better, you get better outcomes. That’s the sort of the model. And it’s exactly about nudging, as you say, our clients in the right direction: doing things that are good for them today that ultimately benefit them in the long term as well.
SIMON BROWN: And it is that sort of nudging. It’s almost was like a carrot – I do something that’s good for me in 20 years’ time. Typically, as a human being, I’m not interested in the long term – but [I may be] if you give me a small reward today to make me do that: it might be a smoothie, it might be a slightly better rate.
Your sense of your customers who are coming through? Are they signing up because they want the better rates? Is it because they want to be better financially fit, or a combination?
HYLTON KALLNER: It’s definitely a combination of these. First of all, we built a completely new and different bank. It’s an entirely digital bank, and so it’s easy to use. It’s very simple. It’s very accessible. Especially in a Covid environment, where branches are obviously not even necessary, or you don’t want to be in one, our bank is perfectly built for that. So it is a different bank. The model itself of shared-value banking is really about ensuring that the value that’s created in the bank through better behaviour through savings, through lower defaults, we can then return directly to the customers who create that behaviour, to things exactly as you say, like better interest rates through very, very deep discounts at retailers, and our rewards currency, which is Discovery miles. So all of these things go to offering a better proposition for clients at the end of the day. It’s simpler to use, more accessible, and fully digital.
But, as you say, the sort of core fundamental banking elements of interest rates and the associated rewards are higher for people that manage their money well. So they are definitely being attracted by both of those aspects.
SIMON BROWN: This might be me being ageist, but you are, as you say, an online bank, and certainly this is the future. And in fact, we’ve had them before in South Africa. Remember 2020, which sort of got stymied by the Saambou explosion back in the early 2000s. Do your demographics skew younger, because you are online – or is that just being ageist?
HYLTON KALLNER: No, I think that that’s a common misperception. The reality is that people who are seeking out the best rates are managing their money well, cover every demographic. And it’s independent of income levels also. So we’ve been appealing to all income levels, all sorts of age demographics, and it works really, really well. If you think about it, a senior or a pensioner is very much focused on the interest rates and managing their money well, and so the appeal of being able to improve your interest rates by demonstrating that you can manage your money well and use these nudges and behavioural incentives is really appealing to the seniors.
At the same time, millennials love the sort of gamification of it, going online, understanding exactly how they can improve their money status and do the right things and learn the right financial behaviours in the short term that are going to stand them good stead for their entire life. So it really does appeal across the spectrum.
SIMON BROWN: You talk around the “shared value” that the customer is a good money manager in a sense. Is that sort of simple stuff like “don’t have returned debit orders” because of insufficient cash, and don’t use debt recklessly. Is it as simple as sort of Money 101, almost?
HYLTON KALLNER: It’s literally that simple. It’s translating something fairly complex into literally something as simple as that.
So it’s about having the right level of savings, managing debt, having insurance or protection in place for unforeseen expenses, and especially retirement funding, and owning property on retirement.
Those are the five behaviours that we’ve seen account for 80% of the long-term and short-term defaults among clients and members of the public.
So if you can manage those simple things in the short term, in the long term that will pay off. It’s really about education and creating life incentives because it’s about telling somebody to go out and have a run early in the morning, as opposed to having cake or lying in bed. The one is immediately valuable to them, the other one pays off in the long term, and managing your money is exactly the same,
SIMON BROWN: And the beauty these days of big data is you’re able to distil it down to those five points, and you know that if people do that over a lifetime of banking, they will be better off in retirement. It’s just that simple.
HYLTON KALLNER: It’s literally just that simple. And because they’ll be better off in retirement, we also know that they’ll be better off along the way, so they’ll have lower defaults for us as a bank. So we do better as a bank. We can return that value directly all the way through to the individuals that are creating that value. And it becomes a sort of a self-fulfilling cycle that they earn better interest rates, and they do better in the long term. And it really does work.
SIMON BROWN: That’s a Hylton Kallner, CEO at Discovery Bank. Hylton, I appreciate your early morning.