Is Discovery Bank the fastest growing bank in SA?

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.”