Digital newcomer Discovery Bank nears 500K customers

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Discovery Bank shrugged off the negative impact of the COVID-19 pandemic in the year ended June, garnering almost 500 000 clients.

The digital-only bank says its performance for the financial year under review was “pleasing” as it was better than expected.

The bank, owned by SA’s largest health insurer Discovery, was first announced in November 2018 and launched in March 2019, 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 shaking 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.

Its competitor, TymeBank, this week reported a tough period in its last financial year, as it experienced a drop in footfall to its kiosks under national lockdown.

Yesterday, announcing its full-year results for the year ended June 2020, Discovery Bank said it has 489 000 clients as of 13 September, versus 370 000 accounts at the end of June.

The year under review represented the first year of the bank's operation.

In the period, it successfully migrated over 220 000 Discovery Card accounts from First National Bank to Discovery Bank.

The bank also revealed to the market that total credit limits granted were R5.5 billion, of which R2 billion was utilised (R9.6 billion at 13 September with R3.7 billion utilised).

Discovery Bank said its retail deposits exceeded the loan book, resulting in the bank having significant surplus of R3.8 billion.

In the early days, Discovery Bank experienced teething problems, which saw it moving at a snail’s pace in onboarding existing clients to the banking platform, leaving some customers frustrated.

The bank is the group’s biggest investment, and CEO Adrian Gore yesterday said he was pleased with its performance and will keep making inroads in the competitive banking sector.

Discovery said given the onset of COVID-19, the bank implemented three strategies, namely “ensuring the successful migration of over 220 000 Discovery Card accounts from First National Bank to Discovery Bank; pursuing a deposit-led growth strategy, while ensuring the quality of the loan book and maintaining the quantum spent on the bank's build within budget; and ensuring rapid learnings from the shared-value model to constantly improve the bank's user experience and value proposition”.

It added: “All three strategies were successfully deployed with a system uptime of 99.9%. By the reporting date, the migration was successfully completed and retail deposits exceeded the loan book, resulting in the bank having significant surplus liquidity of R3.8 billion and capital strength.”

Further, Discovery said the quality of “deposits was strong, with 65% of deposits from clients with a Diamond Vitality Money status. The loan book was excellent, with arrears 60% lower than market arrears. The bank's value proposition has been significantly enhanced via a more accessible Vitality Money experience, more powerful Discovery Miles, and a more intuitive user experience. These enhancements will be announced at the end of September 2020.”

The growing number of digital banks in SA has mounted pressure on the incumbents, a position that has been noted by the Competition Commission (CompCom), which is looking to regulate the country’s digital economy.

The commission this month published a paper titled “Competition in the Digital Economy”, which details how it will regulate the country’s digital economy.

The CompCom notes the emergence of fintech has caused digital disruption in banking and financial services, with mostly positive outcomes for competition.

“Fintech is a driver for efficiency and competition in many respects. With more efficient operational design and the employ of modern technologies, fintechs have the advantage of being agile in their ability to respond to consumer preferences and trends,” reads the paper.

“Unencumbered by old technologies or physical branch networks, they can challenge traditional banks with regards to their product offering and the delivery of the service. Fintechs have less of a regulatory burden than traditional banks and can customise their offerings since they often operate in niche spaces in the market.”

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