Publications
Partners
FirstRand’s First National Bank (FNB) and Investec and are seen as the banks most vulnerable to the impending public launch of Discovery Bank in March next year.
An analyst, who wished to remain anonymous, said he believed that the two banks most vulnerable to Discovery Bank’s entry were Investec and FNB, which used to be in partnership with Discovery over a credit card. He said FNB had gained a lot of market share from brand innovation, from products such as its eBucks loyalty programme, and the clientele that the bank had attracted in recent years was likely to be the same target market that Discovery was going for.
Investec, which focuses on wealthy private clients, was vulnerable as there was a significant overlap between its clients and those of Discovery, the analyst said. Discovery would likely target young professionals, which was a key market for Investec.
The launch of Discovery Bank is also likely to strike at the heart of the country’s retail business sector with Absa, Nedbank and Standard Bank also likely to feel some pressure too.
Harry Botha, a banks analyst at Avior Capital Markets, said Absa and Nedbank’s clients were probably the most staid and traditional of the banking customers and were least likely to move, while Discovery is targeting the young and tech-savvy.
He added that Discovery is targeting the “mass affluent”.
As Discovery is going the digital banking route, with no branches, once the bank has achieved a certain level of scale it can easily move to the mass market.
Capitec, which has been rapidly growing its transactional banking business and has a cheap banking offering with high interest offered on cash deposits, is likely to be the least affected for now because it appeals to the broad mass market, which Discovery Bank doesn’t appear to want to go after.
The Discovery Group on Wednesday launched its first foray into the banking sector, with its eye on the 2.3 million customers it already has within its fold as potential clients.
Discovery chief executive Adrian Gore said during a media conference in Sandton, Johannesburg, that the group had about 2 million adult customers and it was looking to bring 300 000 people that hold Discovery credit cards to its bank, which holds R622 million in assets, according to a statement by the Banking Association of SA in June this year.
Adrian Cloete, a banking analyst at PSG Wealth, said he expected Discovery Bank to be a “high-end bank” that will go for wealthy clients who have at least a medical aid account.
Cloete said the launch of the bank was likely to force the existing incumbents to re-look their offerings, especially their loyalty programmes, to see whether they were still relevant.
“The major banks are going to lose clients,” he added.
It will be critical that Discovery comes up with a compelling offering next year when it publically launches, Cloete said.
It is vital that the new bank attracts and employs good bankers. The bank will also need to allow new clients to easily join as people don’t like changing banks.
Cloete said Discovery Bank would enjoy a number of advantages, including having the latest upgrades to banking technology; a significant financial position; being part of a group that has a history of innovation; being an part of an established brand; and a management team with a reputation for successfully disrupting the market.
An immediate possible disadvantage for the bank is that it is launching during a recession.
Liam Hechter, a fund manager at Johannesburg-based Anchor Capital, said it was critical for Discovery Bank to convert its clients, especially the credit card holders, into banking customers and to evolve into a full-scale bank over time.
The bank’s entry into the sector is likely to reduce the return on equity of major local banks, which are likely to move to defend their market shares, Hechter said.
Gore said Discovery Bank would be the “world’s first behaviour bank”. It will draw on its Discovery Health’s Vitality loyalty plan and medical aid.
Included in the benefits to be offered by the bank will be access to local airport lounges.
Hechter said the Vitality programme was a “golden thread” in the group’s business and was likely to aid the bank.
Many existing Vitality members are likely to be attracted to Discovery Bank to seek more rewards, an analyst said.
Cloete said all four major banks were well diversified, so the launch of Discovery Bank’s retail banking accounts wouldn’t immediately have a major effect on profits.
Nedbank generates much of its profit from its business unit, while Absa and Standard Bank have significant interests in the rest of Africa.
FirstRand owns FNB, which Discovery Bank will be going head-to-head with, as well as Rand Merchant Bank and WesBank.
Gore said Discovery Bank will not be disclosing its fees at this stage, but said they would be “market related”.
The plan was for 10% of Discovery Bank to be held by black depositors at the financial institution, he added.
The bank is one of a host of new entrants in the local banking sector, including Tyme Digital, Bank Zero and the SA Postbank. African Bank will also launch its transaction banking offer next year.
However, Tyme Digital and Bank Zero are targeting the low-end of the banking market, while Discovery Bank is targeting the middle- to high-end clients.
