Discovery Bank’s R1bn loss in line with expectations, says CEO

Sibahle Malinga
By Sibahle Malinga, ITWeb senior news journalist.
Johannesburg, 14 Oct 2021
Discovery Bank CEO Hylton Kallner.
Discovery Bank CEO Hylton Kallner.

Discovery Bank CEO Hylton Kallner says he was not surprised when the bank posted an operating loss of R1.094 billion last month.

He adds the bank continues to invest heavily in innovative products and services to reach long-term growth projections.

Last month, the digital-only player, owned by Discovery Health, SA’s largest health insurer, posted 7% lower results for the year-ended June, compared to the previous reporting period.

The bank says it continues to position itself as a competitive alternative financial institution, as it introduces digital and fintech innovations to boost growth within the next five years.

In an interview with ITWeb, Kallner pointed out the bank’s financial results are “very much in line” with the bank’s expectations, with forecasts showing it will only be in profit-making mode after the first five years.

“In our market, it takes about five years to achieve a breaking point. We are actually far ahead of what you would see in digital banks globally. Start-up banks obviously require investments in the first few years, so we expect a J-curve growth and our digital new investments are part of that.

“The bank we are building is reflective of the investment that we are making – so, from that perspective, everything is very much in line with our expectations,” he notes.

The digital bank was first announced in November 2018 and launched in March 2019, when it touted its new offering as the “world’s first behavioural bank” and a fully digital bank that can be joined by anyone with a smartphone.

According to Kallner, the year-on-year change in the bank’s results showed signs of steady improvement in the existing Discovery and non-Discovery client base, reaching over 362 000 clients (versus 274 000 clients in July 2020) and 727 000 accounts (versus 505 000 accounts in July 2020), with the value of deposits growing to R8.6 billion.

As it charts a way forward, Discovery Bank continues to adopt a similar growth strategy fostered by the other Discovery Health businesses – which is premised on organically growing the business in smaller phases and building the value incrementally, he continues.

As part of its strategy, Discovery Bank this month went live with new products and services to provide clients with access to a full range of financial capabilities in one place – its digital banking platform.

As part of its platform-based banking services, it is evolving into a marketplace banking model, offering customers an “ecosystem” of aggregated products and services beyond financial services.

Among the new services, the bank has partnered with over 2 000 hotel and accommodation partners across the globe, as well as a string of airlines to introduce the Discovery Bank Travel service on its app.

The platform will facilitate seamless bookings and discounts on a wider range of local and international flights, accommodation and holiday packages based on Vitality Health, Drive and Money integration.

The bank also partnered with trading firm EasyEquities to give all clients a simple and easy-to-understand view of local and international share trading and investment information inside the Discovery Bank app.

Other newly-introduced products include the Multicurrency FX Account, described as a smart, seamless foreign currency transactions solution that allows clients to add a virtual forex card, or get a smart Multicurrency FX Account debit card to make withdrawals and purchases while travelling abroad.

“The reason behind our new products is to offer clients integrated services on one platform. So when we look at our digital banking capabilities, it gives us a lot of scope to offer our customers a lot more digital services, such as investments and trading, digital payments, mega-app platforms, data and advice tools, and behavioural and rewards systems,” adds Kallner.

South Africa’s retail banking industry is set for a continued shake-up, propelled by the rise of digital banks.

In August, the latest digital bank, Bank Zero, made its debut, triggering an intense price war among local financial institutions, when it introduced zero fees for EFT payments and debit order services, and no charge for payments made to other Bank Zero customers.

Discovery Bank’s other digital-only competitor, TymeBank, has continued to expand its product offerings since it launched in 2018, including insurance products, loan products and salary advances, as part of its partnerships with third-party providers.

Kallner is adamant Discovery Bank’s fundamentally different value proposition at its core is what sets it apart from competitors.

“This is the first time we’re seeing so much competition and innovation in the local digital-only banking space and that’s good for clients as it opens up many options for them.

“Our platform is not only transforming banking services and client behaviour to manage money well, but is also connecting different components of Discovery’s products and services for a seamless client experience across the Discovery Group.”