Discovery puts digital bank at centre of strategy as profit drops

Faced with declining profit, insurer Discovery has put its digital banking platform, Discovery Bank, at the centre of its strategy.

This emerged from the company’s results and cash dividend declaration for the year ended 30 June, announced this morning.

For its 2019 financial year, Discovery says it planned to significantly increase investment in strategic initiatives, most notably the build and launch of Discovery Bank, creating an expected reduction in group earnings.

Discovery’s normalised profit from operations decreased by 3% to R7.7 billion, headline earnings decreased by 11% to R5.1 billion and normalised headline earnings decreased by 7% to R5 billion, the financial services group says.

It adds that spend on new initiatives increased by 114% to R1.3 billion over the period – 21% of group earnings (including 3% of associated financing costs) – in line with budget and fully provided for in the capital plan.

New business annualised premium income increased by 13% to R18.3 billion, while embedded value grew by 9% on an annualised basis to R71.2 billion.

Normalised headline earnings per share (undiluted) decreased by 8% to 771.9c and headline earnings per share (undiluted) decreased by 12% to 789c, the company says.

Following a slow start to onboarding existing clients to its banking platform, new digital bank – Discovery Bank – is now gaining momentum.

Discovery first announced its digital bank in November last year. It then launched in March this year, when it touted the new offering as the “world’s first behavioural bank” and a fully digital bank that can be joined by anyone with a smartphone.

Discovery Bank is one of the digital banks that are believed will shake-up the South African retail banking sector because they are not stuck with legacy technologies and have cheaper fees. The other players are TymeBank and Bank Zero.

However, the bank’s clients earlier this year lamented the snail’s pace at which Discovery was switching them to the banking platform.

“There has been a deliberate, phased rollout to ensure the bank scales seamlessly,” says Discovery in a statement.

“The costs incurred in the build, test and run phases of the bank have largely been in line with expectation and the migration of existing Discovery Card clients from FirstRand Bank to Discovery Bank is now gaining momentum.”

The bank currently has over 22 000 clients, with over 50 000 accounts, the JSE-listed company says.

“Although the public rollout of the bank was slightly delayed, it allowed for the refinement of key elements of the bank, leading to a sophisticated architecture with a seamless user experience, and a compelling value proposition.”

Discovery adds that progress has been made in building the digital systems capabilities and infrastructure – 1.5 million hours have been spent building 120 interconnected systems and infrastructure, with a focus on ensuring customer journeys are excellent and intuitive.

“The bank has gained traction since the public rollout, making considerable progress in a period of two months with over 22 000 clients onboarded, and deposits and total credit limits approved exceeding R190 million and R900 million, respectively.

“The quality of clients has been demonstrably excellent, with high engagement levels and Vitality money statuses.”

The group sees the bank as central to its strategy in SA.

“Several enhancements were developed over the period, which include a compelling rewards structure, which coalesces dynamic interest rates, dynamic discounts and a new e-money, Discovery Miles.”

Meanwhile, fellow digital bank TymeBank has notched up around 670 000 customers since November last year, thanks to technologies such as artificial intelligence, machine learning and big data.

The bank, which soft launched in November 2018 and officially launched in February, does not have any branches and relies solely on digital means (mobile app and Web site), and kiosks.

TymeBank has formed a long-term strategic partnership with retail giant Pick n Pay and Boxer stores, allowing its customers to bank at these retailers throughout the country.

Earlier this year, Bank Zero, co-founded by former First National Bank (FNB) CEO Michael Jordaan, announced it had implemented its EFT payments capabilities and started end-to-end beta testing ahead of the bank’s launch.

Bank Zero is now processing payments and debit orders, as well as facilitating purchases of prepaid items such as data, airtime and electricity.

The emergence of new digital banks in SA has ignited a price war among financial institutions, with the incumbents slashing their banking fees one after the other.

Since TymeBank went live, Capitec shaved 50c off its Global One account’s monthly fees. Nedbank followed suit, cutting the monthly account fee on its pay-as-you-use account in April.

Nedbank rolled out Unlock.Me, a zero-fee digital product aimed at customers younger than 25. In November last year, Nedbank launched a no-fee mobile wallet account, MobiMoney.

In May, Standard Bank unveiled its MyMo account, which carries a monthly fee of R4.95, undercutting Capitec’s Global One by 5c.

In a similar move, FNB recently announced its customers can look forward to reduced monthly fees for Easy Pay As-You-Use (R5.75 to R4.95), Easy Account Smart Option (R65 to R59) and Gold Fusion (R155 to R109).