Adrian Gore: that The target market is much wider than many expected. Picture: Sunday Times/Alon Skuy
Adrian Gore: that The target market is much wider than many expected. Picture: Sunday Times/Alon Skuy

After a two-year wait it is hard to find much that is unexpected in the new Discovery Bank. It will be branchless, run through a smartphone app and offer high-speed instant transfers as a matter of course. The discounted flights and movie tickets are there, as well as discounts on gum and healthy foods. Discovery calls itself the first "behavioural" bank and no doubt it will become the subject of many thought-leadership studies around the world.

It’s no surprise that the bank has a Vitality Money programme, an evolution of the original Discovery Card, with a built-in transactional account, credit facility and savings account.

Discovery CEO Adrian Gore says the target market is wider than many expected, because the bank will serve Discovery’s lower-income KeyCare clients and also high net worth clients.

Behind all the sizzle and social science, the bank aims to look at some obvious changes that most of us need to make. The five obstacles to financial health are: spending more than we earn; not saving regularly; not insuring for adverse events; not paying off our properties; and not investing for the long term.

The main risks (also not that original) are: unaffordable levels of debt; exposure to unexpected expenses or loss of income; and insufficient income in retirement. The bank is only one of the building blocks towards financial health, and bank clients are encouraged to use sister companies Discovery Life, Discovery Invest, Discovery Insure and Discovery Health (the group’s core cash generator). Gore says there will be rewards for using multiple Discovery products. Clients are also encouraged to use financial advisers to co-ordinate their affairs — probably the only "live body" they will come across as Discovery Bank clients.

The bank only opens to the public in March, and will not immediately offer mortgages or vehicle finance.

Discovery Bank will lean heavily on the data provided by Vitality, as well as the brand goodwill it has developed among Discovery’s 300,000 credit card clients and 2-million medical aid and life insurance clients.

Neelash Hansjee, financial services analyst at Old Mutual, says it would have been puzzling if the bank hadn’t tapped into the Vitality ecosystem. There will be a tiered Vitality Money system based on financial health. Rewards such as free coffees and smoothies will be offered — though it would be considered wiser behaviour to take this reward in cash, at least if it was deposited in your Vitality savings account.

Discovery is taking on its old partner FNB by setting up a series of airport lounges in competition to the FNB Slow Lounges. Gore says the bank will be an additional option to conventional banks and the new fintechs such as TymeBank and Bank Zero. It will differentiate itself on service more than on cost. Its target market would be happy with complexity as well as the gaming and competition elements built into its app.

But Discovery will succeed only if it gets what its clients need right, not what its IT people enjoy. The key way in which it aims to stand out as a behavioural bank is through differential interest rates, rewarding the financially sober whatever their income bracket.

Says financial analyst Kokkie Kooyman of Denker Capital: "Differential interest rates based on credit history is not really new. But if it is marketed well people will think it is."

Discovery Bank CEO Barry Hore argues that most banks give lower interest rates to higher earners when in fact there is little difference in overall financial behaviour by income. "Almost 36% of individuals with a personal income between R500,000 and R1m a year have missed at least one repayment on unsecured loans over the last 12 months, yet less than 38% of those earning less than R250,000 have missed a month or more."

With good behaviour, clients could see their interest rates drop every month. And Gore says even those on the lowest Vitality status will not be penalised with rates higher than the standard market-linked rate.

Harry Botha, banks analyst at Avior Capital, does not think that Discovery Bank will disrupt banking dramatically in its current form. "The traditional banks will probably respond with better and more targeted rewards and offer cheaper credit to clients if they maintain their primary bank accounts."

But he expects most Discovery clients will eventually abandon credit cards issued by the likes of Standard Bank and FNB, though the transition from longer-term credit products such as home loans will be slower. The branchless model may not be suitable for lower-income groups.

Capitec still has 6-million branch visits a year from clients who feel more comfortable discussing their products face to face. And as many clients rebel against big data, Discovery has to be the poster child of it in SA.

It took Capitec 15 years to disrupt the banking market; let’s see how far Discovery gets after five.