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Is Discovery Bank the fastest growing bank in SA?

Plus, Adrian Gore on why growing during difficult times is a good thing.
Group CEO Gore stresses that the group has not built a ‘digital bank’ but a ‘bank that is digital. Image: Moneyweb

Discovery contends that against certain key metrics at least, its venture into banking is the “fastest growing” in the South African market.

At the end of November, it had crossed the 500 000 account mark, with R5.1 billion in retail deposits and R15 billion in cumulative spend. Its customers are using a total of R3.7 billion in credit, with an arrears rate 65% lower than the market. This has been achieved in 14 months.

The half-a-million number is laudable, given the proposition, but other entrants have blown past this with a simpler proposition targeting a different segment of the market. TymeBank is acquiring 110 000 customers a month – on par with larger rival Capitec Bank – and has a total of 2.4 million customers. However, only around 56% of this base has actively transacted (in the past 30 days).

Discovery Bank added around 15 000 new accounts in November, a number it sees growing substantially in the new year.

‘Dramatic effect on growth’ likely

Its well-established network of 1 200 tied agents and brokers will start actively selling the bank proposition in January and February and Group CEO Adrian Gore expects that “to have a dramatic effect on the growth of the bank”.

Even when benchmarked against local and UK digital-only new entrants, Discovery Bank compares very favourably at this stage (14 months since public launch). Exchange rates mean that the deposit bases of UK-based Monzo and Revolut are substantially higher, but on a per-customer basis, Discovery says “average deposit levels are significantly higher than other entrants reflecting the quality of the client base”.

Of the four, Discovery Bank was the only bank to launch with a credit offering, and its total book was larger than Monzo’s after 14 months, even with the exchange rate differential.

After 14 months Discovery Bank TymeBank Monzo (UK) Revolut (UK)
Retail deposits R5.03bn R1.5bn R28.7bn* R48.6bn*
Deposits per customer R17 700 R1.20 R7.40 R6.30
Credit issued R3.67bn 0 R2.9bn 0

* Exchange rate at November 30, 2020

Source: Discovery (various underlying sources referenced)

Gore stresses that the group has not built a “digital bank”, rather that Discovery Bank is a “bank that is digital”.

He says this an important distinction precisely because it is a full-service bank versus a “skinny” digital one with a limited offering.

In November, it attracted R700 million in new deposits and processed in excess of three million transactions, with spend of R1.9 billion.

The bank is entering its next phase, one of “growth and integration”, says Gore. This explains the announcement on Thursday that Hylton Kallner, its most senior South African executive, would take over as CEO of the bank from January.

Gore says the core proposition of the bank – the shared value model – is a “very powerful” one in a post-Covid environment.

If anything, many of the trends it articulated at the launch of the bank have “accelerated”. This makes it “perfect from a timing perspective,” says Gore.

Read: The science behind Discovery Bank

He admits that the group didn’t do the best job of selling the proposition to clients originally. This has been refined and the Vitality Money interface in the app has been completely overhauled.

Certain behaviours in five areas (savings, debt management, insurance, retirement and property) translate into your Vitality Money status (spanning the well-known tiers of blue to diamond). Based on this status, a customer has a rewards stack, including preferential interest rates (on savings and credit) and spend discounts. And Discovery Miles are earned for spending (the better your Vitality Money status, the better your earning rates) as well as driving (for Discovery Insure clients) and exercising.

The model is working.

Vitality Money Diamond status customers have a 99% lower arrears rate and 17 times higher deposit levels than those on Blue status. They also spend 4.5 times more. The bank passes this value back to engaged customers who are managing their finances best through, for example, interest paid on ‘lazy’ cash balances of as much as 3.75% (1.5 percentage points better than its base rate) and a credit card rate of prime less 2%. There are also dynamic discounts at Vitality partners (such as up to 75% back on HealthyFood at Woolworths, versus the typical 50% for an engaged Vitality member).

Gore says this shared-value banking is the antithesis of what happens in traditional banking, where economic value is “not shared with the customer”.

Generally, he argues, banks’ rewards programmes only ‘reward’ the most profitable customers.

Discovery takes criticism of its bank customer service levels, especially at the beginning, on the chin. “Our servicing model at the start was not ideal. We did poorly on social media.”

The BrandsEye survey rated the bank “worst-in-class, which is not our style”, says Gore.

Read: SA’s best and worst banks

It has “learnt a lot” and is “using the power of an emerging digital world” to put in place a service model that it believes works. Call volumes are up almost 100% between January and October this year, with the “abandon rate” of calls down 92% over the same period. The rate at which it is resolving customer queries is showing steady progress.

Zooming into the future

The future – at least the foreseeable one – is a ‘Zoom’ banker model, where trained, qualified bankers are able to offer full ‘branch’ functionality in an encrypted and secure virtual environment.

Some of this change in approach has been accelerated by the pandemic, but the bank was never going to have a physical footprint to rely on.

“Rolling out a bank in a Covid period is not exactly the ideal launchpad, although I’ve learnt that growing during difficult times is a good thing,” says Gore. “It makes you resilient and robust.”

COMMENTS   18

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I wonder what these key metrics they look at are? Tyme Bank has R10 billion in deposits according to a July 2020 article. I know I have put decent short term savings into Tyme, who can beat that 6% interest rate at R0 pm cost?

Maybe the key growth metric Discovery Bank use is “profit per customer” if I look at those fees? 😉

Point is to compare after 14 months.
Run rate of deposits at Discovery Bank is nearing R1 billion a month. Going to be interesting to see this play out over next 24 months.

Where can you buy a Bank share for R3?

These new customers are in for a shock. As I was. There is a complete lack of service and willingness to retain clients. I gave up on this bank in August. They have a 3-5 business day response time on queries. For a financial institution that is shocking. After those 5 days I had to call them back and I could hear from the reaction of the consultant nothing had been done on my query. And it was not an isolated case. On each query I’ve had since joining in February this has happened.

I have come to learn that Discovery wants to sell themselves as an integrated one stop shop for all your financial service needs but in reality everything operates in silos and no one division knows what the other is doing or even how to approach a query that crosses those silos. You transact with the bank for an iphone but all the criteria runs through vitality. Good luck getting that sorted. I got bounced back and forth so many times I can’t even count. All this with complete apathy for my query. Complaints fall on deaf ears. After the second time I stopped getting emails asking me to rate the service. They never even contacted my to ask why I wasn’t satisfied.

I am not the only customer complaining. I have heard of many more who like me will take their banking business elsewhere. My insurance will follow shortly after that.

Buyer beware.

Until DB gets the basics right, I.e. having a web banking interface, they cannot claim to be a full service bank. Add to this, they are not even listed as a bank (for real time eCommerce EFT payments) on most online stores.

Fully agree on the web presence. If you have a brand dubbed Discovery Bank but your branded website can’t be found on the web by simply typing in that name then you have a major marketing issue at hand.

Of course that depends on how you measure growth.

I would imagine that Discovery typically has higher net worth people so in terms of deposits, they would typically be larger and would appear to be growing quickly even though their client base is not necessarily growing.

If they are stupid enough to measure growth in terms of percentage client growth, then going from 1 client to 2 clients would give you 50% growth in an instance which would seem awesome.

I think Discovery over the long term will stabilise as a small niche player in the market.

Accusing them of stupidity whilst claiming going from 1 to 2 Clients equals 50% growth is a real classic : Ha ha ha .

I changed the example but didn’t change the percentage before posting. Moneyweb doesn’t allow editing.

You may nit pick

I agree that going from 1 to 2 clients is a 100% increase not 50%, but I believe the point @thespark is trying to make is valid. Discovery have a habit of picking percentages that suit them. They claimed to be the fastest growing short-term insurer in South Africa, but the caveat was that it was expressed as a percentage of their current business. Other more established players in the field had far lower percentages, but the monetary value of their growth was almost equal or exceeding Discovery’s total short-term book. Growing from a low base is easy, but sustaining the type of growth that Capitec has done for so long is much more impressive.

Just having a laugh : Your point is of course clearly Valid !!

No chance of this working in the long term. After my experience with Discovery Vitality it is clear…. A Bank needs simplicity and ease of transactions where the customer easily understands what is happening. Discovery tends to complicate matters to a point where customers will find themselves in a sea of complexities.

No chance

Its starting to come right – Was chaotic in the beginning but once you start to figure out how the rewards work it’s worth your while – I’m getting MUCH better rewards with Discovery than FNB e-bucks (I was at the top reward level with FNB and I only have a Gold card (back up card) with Discovery). I still think they should have a web based alternative to Cell phone only banking but the rewards are top class.

Totally incorrect comparisons. DB did not start with zero clients 14 months ago. It already had almost all the clients it now has back then. They were Discovery credit card holders and their credit card accounts were simply converted to bank accounts. Two thirds of the current clients have been credit card holders for many years. Their progress was much slower than they planned and that’s probably why the bank CEO quit. They’re making a R1bn a year loss at the moment with the bank.

I dont care what discovery does. As long as they make me money!

Share price is rising @ 138.4

Price target of 189 Expected!

Lets see what happens…

Seems that SBK us the worst performing banking share. Watch AIL run (R3.45 for a bank share)

You right! AIL is strong! Is worth buy

SBK on the downtrend at the moment. But still strong, may go up.

End of comments.

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