JOHANNESBURG – Insurer Discovery, which in September unveiled plans to launch a retail bank, said last week that it expects the process to obtain a banking licence to take at least another two years.
“We are still in the process of applying for the licence and are working on fulfilling all the requirements needed by Sarb [the South African Reserve Bank],” Discovery CFO, Ricky Farber told Moneyweb.
Stating that it will not buy Absa – should Barclays Plc opt to sell all or some of its stake in Barclays Africa, as market participants have speculated – Discovery seems set on obtaining its own licence and not buying a smaller local bank.
Discovery CEO, Adrian Gore, first announced plans to build a full-scale retail bank out of its credit card offering, DiscoveryCard, at its full year results presentation in September last year. DiscoveryCard is a joint venture with the FirstRand Group and Discovery last year spent R1.35 billion to increase its stake in the business to 74.99%.
FirstRand currently operates the DiscoveryCard through the FNB platform. “This will continue for the medium term,” confirmed Sam Moss, head of investor relations at FirstRand.
Following Discovery’s cash purchase of an additional 55% stake, FirstRand retains only 25.01% of the profit. Since the business remains on the FNB platform and is not yet transferable, FirstRand has issued a preference share to Discovery to facilitate Discovery receiving the profit of what it has paid for, Moss explained.
The business will be transferred once Discovery Bank has the platforms and processes capable of offering and operating a credit card product, she said. “This could take a few years and at that point FNB operations and management will not be involved.”
When that happens, according to Moss, FirstRand and Discovery have agreed various options on how to manage the structure with FirstRand’s continued involvement.
“Competition is one of the many issues that have been considered around this transaction and we have identified a few options on how to manage those issues as they arise. However, it would be premature to comment as they remain subject to various regulatory and governance processes,” Moss said.
With a focus on retail customers and small businesses, Discovery will spend R800 million to R1 billion developing its bank, Gore said.