Discovery Bank’s shared-value design links success to client financial wellbeing
Vitality Money clients get rewards for managing their money well as measured through five controllable behaviours
Discovery Bank offers one of the best risk-adjusted savings interest rates in the world among countries that are considered to have the lowest banking risk.
With top rewards and an intuitive digital banking experience, Discovery Bank has taken on more than 300,000 clients and experienced growth with 500,000 accounts tallying R6.5bn in deposits, making it the fastest-growing bank in SA, and among the leaders globally.
“From the outset, we designed Discovery Bank differently — as a shared-value bank,” says Firoze Bhorat, chief marketing officer at Discovery.
“Shared-value banking means that our success as a bank is tied to our clients’ financial wellbeing. When they save and don’t spend more than they earn, they become more financially successful and secure. By helping clients achieve financial success, we help create a better, stronger society together.”
Discovery Bank leverages the Vitality Money programme to encourage good financial behaviours in banking. Clients get rewards for managing their money well as measured through five controllable behaviours: to spend less than household earnings, save regularly, pay off property, invest for the long term, and to have essential insurance in place.
Discovery Bank measures financial health based on these five behaviours and awards a single Vitality Money status — Blue, Bronze, Silver, Gold or Diamond.
This programme gives Discovery Bank a powerful tool to segment clients based on their behaviour so as to reward them with lower interest rates on borrowings when they manage their money well. Likewise, clients who manage their money well typically save for longer, therefore also benefit from higher interest rates on savings.
“We estimate that if 5% of the balances in demand savings accounts in SA were to move to Discovery Bank, it would earn clients an additional R1bn in interest a year,” says Bhorat.
A client on Diamond Vitality Money status with a 24-hour notice account earns more than double the interest compared with the average interest offered on-demand savings accounts in SA, and at a higher rate than any other country with a low banking risk.
Clients with a higher Vitality Money status are showing strong signs of financial resilience
“Our analysis shows that clients on Gold and Diamond Vitality Money status are 99% less likely to be in arrears on debt, have deposits more than 17 times that of the average client and spend more than 4.5 times more than clients who are not engaged in Vitality Money, regardless of their income level. Those on Gold and Diamond Vitality Money status keep their funds about 50% longer and save at three times the rate of clients on Blue Vitality Money status,” says Bhorat.
Reassessing financial services and banking
Discovery Bank recently released a special report titled “The application of shared value banking: A focus on interest rates and the potential benefits for South Africans.”
“Despite our research showing that it takes South Africans about 29 years to change their bank, we see the impact of the three big trends increasing the frequency of clients reconsidering their banking relationships. Younger clients, and those who are digitally engaged, are more likely to switch banks.”
1. Nature of risk: Where banks have traditionally used socioeconomic factors to determine an individual’s risk of default, the Discovery Bank analysis indicates that while these factors are relevant, an individual’s behaviour has a higher impact on their financial risk.
2. Technology: The banking industry has moved towards digital banking and payment solutions. In an always-on world, the need for bank branches is decreasing rapidly. Covid-19 has also added pressure on banks that have been slow to innovate and digitise their servicing solutions.
3. Social responsibility: Studies show that South Africans have poor financial habits. About 78% of South Africans’ household income is spent on debt (SA Reserve Bank, Stats SA, SA Market Insights, SA’s Credit Market Analysis, 2019; Trading Economics), and the country has one of the lowest rates of saving in the world. These high rates of debt and low rates of saving have contributed to a breakdown of trust between banks and society illustrated by the fact that only one-third of millennials trust the banks they are with (2018 World Economic Forum survey of 30,000 millennials). As millions of people face hardship due to Covid-19, a social purpose is now a must-have rather than a nice-to-have for all businesses.
“These trends are transforming banking and highlighting the case for a shared-value bank such as Discovery Bank,” says Bhorat.
This article was paid for by Discovery Bank.
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