The impact of shared value on banking

With unrivalled rewards and an intuitive digital banking experience, Discovery Bank has taken on more than 300 000 clients and has seen growth to over 500 000 accounts with over R6.5 billion in deposits, therefore, becoming the fastest growing bank in South Africa, and among the leaders globally.

“From the outset, we designed Discovery Bank differently – as a shared-value bank,” says Firoze Bhorat, Chief Marketing Officer of Discovery.

“Shared-value banking means that our success as a Bank is tied to our clients’ financial wellbeing. When clients manage their key financial behaviours well, like saving and not spending more than they earn, they become more financially successful and secure. This in turn means that we can operate our business more efficiently through the lowered financial risk that also allows us to share more value with clients through a range of enhanced rewards and interest rate benefits that further support their financial success. 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 they also benefit from higher interest rates on savings.

“We estimate that if 5% of the balances in demand savings accounts in South Africa were to move to Discovery Bank, it would earn clients an additional R1 billion in interest a year,” Bhorat said.

Interestingly, 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 South Africa, and at a higher rate than any other country with a low banking risk.

Clients with a higher Vitality Money status are displaying 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 over 4.5 times more than clients who are not engaged in Vitality Money, regardless of their income level. Furthermore, clients on Gold and Diamond Vitality Money status keep their funds on average 50% longer and save at three times the rate of clients on Blue Vitality Money status,” Bhorat said.

Reassessing the status quo in 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 on average 29 years to change their bank, we see the impact of the three major trends increasing the frequency of clients reconsidering their banking relationships. Of note is that younger clients, and those who are digitally engaged, are more likely to switch banks,” Bhorat said.

The research by Discovery Bank highlighted the impact of the following three major trends which are having a positive effect to increase the frequency at which clients reconsider their banking relationships:

• Nature of risk: Where banks have traditionally used socio-economic factors to determine an individual’s risk of default, the Discovery Bank analysis indicates that while socio-economic factors are relevant, an individual’s behaviour has a much higher impact on their financial risk.
• Technology: The banking industry has evolved towards digital banking and payment solutions. In an always-on world, the need for bank branches is decreasing rapidly. The onset of COVID-19 has also added pressure on banks that have been slow to innovate and digitise their servicing solutions.
• Social responsibility: Studies show that South Africans have poor financial habits. Almost 78% of South Africans’ household income is spent on debt¹, 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 with². 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,” Bhorat said.

Read Discovery Bank’s special report here.

NOTES:

1. South African Reserve Bank, Statistics South Africa, South African Market Insights, South Africa’s Credit Market Analysis, 2019; Trading Economics
2. 2018 World Economic Forum survey of 30 000 millennials