Discovery Bank charts a new path for consumer value in banking

By Janice Roberts

Adrian Gore

Following the successful completion of an intensive beta programme with staff, Discovery Bank has entered a new phase of a carefully managed and gradual process of on-boarding existing Discovery Card clients.

This phased migration process will transition Discovery Bank card clients to the full-service banking platform, marking the start of Discovery Bank operations to the public. Over the next four months, this process will culminate with opening full access to the bank’s products to a broader customer base.

“We are excited by the volume of customers that have expressed interest in being part of this new exciting journey into the future of South African banking,” explained Discovery Bank CEO Barry Hore.

Discovery Bank is the world’s first behavioural bank, designed with the consumer in mind. The main goal of the bank is to improve customers’ financial health, helping them change how they work with their money by guiding, motivating and rewarding them for becoming financially healthier.

To coincide with the milestone of its public operations, the bank today released findings from a comprehensive study on retail bank fees across the country. The study set out to explore the true cost of banking to the consumer and the appropriateness of fees as a measure of value in banking. The analysis reviewed consumers’ banking behaviour over 600,000 transactions and R800 million in transaction value.

“Most banks compete on one of two dimensions, fees and rewards or fees and interest,” explains Adrian Gore, Discovery Group Chief Executive. “To understand the true cost of banking to the consumer, one needs to look beyond the fee schedule, and take into account the ad hoc transactional and penalty costs incurred. The idea of free banking is in fact illusory, because despite the absence of a monthly fee, consumers typically incur costs for various activities and transacting in the course of the month. This study presents a more comprehensive view of utilisation – and the real cost carried by consumers taking into account their banking behaviour.”

The Retail Banking Fee study assessed each element of banking value independently and as an overall value to create a meaningful comparison across banks. It compared bundled accounts with credit card and transaction capabilities to ensure a like-for-like comparison. It then assigned a value of “one” to a given account where fees are fully offset by rewards and interest. Where banking value is above one, clients receive more than their fees back in interest and rewards. In order to appropriately evaluate banking value, the study segmented clients by income and applied characteristic transactional behaviour for each income segment to understand the actual cost to clients of using a given bank account, compared with the advertised banking fee schedule for that account.

Only 10 out of 21 accounts surveyed across SA’s big banks achieved a ratio of one or more.

Based on the analysis, in South Africa, most banks offer no interest on transactional accounts and the average interest earned on positive balances in the sample size was less than 1%. It is also clear that rewards are usually a function of spend and ancillary product take up with a client’s primary bank.

The study reveals an overall average monthly bank fee paid by South African banking clients of R206 per month. Broken down by income group, the average bank fee ranges from R132 pm (low to medium income), to R214 pm (medium to high income) and R309 pm (high income segment). The study compares the average fees to income, to show that consumers pay 0.3% to 0.6% of their salary in banking fees. Those in lower income segments paying a higher proportion of their salary in fees than the high income segment. This is a result of pay-as-you-transact fees impacting low income earners the most and bundle fees being more efficient for high income earners.

The most significant finding is that consumers should collectively consider their fees, the interest they earn, and the rewards and/or incentives earned when choosing their bank accounts.

“We believe banking value is a function of rewards plus interest divided by fees. This holistic view takes into account how people transact and engage with their money every day. As a behavioural bank, we are uniquely positioned to compete on all three pillars: fees, interest and rewards,” says Gore.

As shown by the review of banking value per income segment, Discovery Bank clients can expect to earn more in interest, incentives and rewards than they would typically pay in fees if they are financially healthy.

Discovery Bank has three cards available to new clients, Gold, Platinum or Black. With a Gold or Platinum account, clients have the option to choose either a transaction account or a credit card with transaction capabilities, as well as the flexibility to choose between a pay-as-you transact or bundled fee structure. Every account comes with a free Vitality Savings Account and the option to open additional savings accounts at no cost.

Hore explains: “Discovery’s shared value model is embedded in the Bank through Vitality Money, constantly guiding and rewarding people towards financial health. Regardless of their product choice or income level, every client has the ability to achieve Diamond Vitality Money status and earn significant rewards.”

“Through behavioural change, using shared-value, we believe Discovery Bank can chart a new path for banking by helping individuals improve how well they manage their money and as a result offer superior value to consumers who choose to bank healthier,” said Hore.



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