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JEANETTE CLARK: Banking is not the same as it was 10 years ago. In fact, it is vastly different from what we knew just two years ago. Research shows that, globally, internet banking has grown by a compound annual average rate of 30.6% since 2019, while financial technology – fintech – firms have grown by 12.2% annually in that time. If these growth rates continue, by 2027 the global market value for internet banking is expected to reach $31.8 billion and mobile banking $1.8 billion. These are just some of the statistics quoted in a recent report released by Discovery Bank in partnership with the Boston Consulting Group.
To discuss these insights, as well as the bank’s view on the future of banking in South Africa, we are joined today by Akash Dowra, head of client insights at Discovery Bank.
Akash, the report I referenced is titled ‘The Future of Retail Banking in South Africa’, and one of the key takeouts was that two-thirds of South Africans expect the country’s banks to make a full transition to digital banking within only five years. Can you tell me a little bit more about the research and the insights gained?
AKASH DOWRA: Thank you very much, and I’m glad to be here. We partnered with the Boston Consulting Group to really understand how consumers’ views have changed in banking. What we did was we surveyed clients across South Africa, across all income groups, across all socioeconomic segments, to give us a good view of South Africans overall. The outcomes of the research were quite astounding.
I think, number one, we found that South Africans are much more digitally savvy than even banks give them credit for overall. That’s across both socioeconomic segments and also across age groups.
And we can really see that, through the Covid pandemic, people have become a lot more comfortable with digital banking to the extent that you see most people actually conduct most of their banking digitally currently, and they are quite comfortable to operate in an environment where there are no branches.
JEANETTE CLARK: Just as a follow up, won’t the access to wifi and [the] internet, as well as the cost of data, make the transition to full digital banking difficult in South Africa?
AKASH DOWRA: We don’t actually think so. If you just look at the footprint that digital banking and smartphones give you, as an example …
There are about 3 200 branches across South Africa, 30 000 ATMs, but there are actually 22 million smartphones.
Most of the banks in South Africa – including Discovery Bank by the way – are zero-rated from a data perspective. So clients can actually complete all of their banking without having to actually use their data.
It also takes away the requirement to travel to a branch, and it’s more convenient. If you [previously] needed, for example, a bank statement, you would need to first of all get yourself to a branch, stand in a line, get to the counter, get them to print the bank statements and then take them away with you. By the way, you’d pay a fee for that. But if you had to do it on our banking app, you could do it 24/7 from your home, and you would have it immediately for free.
JEANETTE CLARK: Discovery Bank, however, does not only claim to be a digital bank. You also stand firm that you want to offer your clients shared-value offerings. Now, could you perhaps unpack this concept of ‘shared value’ a bit. It’s not just about cash in a client’s pocket, it’s also about changing behaviour, if I understand it correctly. Could you explain the five controllable behaviours that Discovery Bank helps its clients learn, and why these are important?
AKASH DOWRA: Shared value is the core of the products that we have at Discovery overall, but particularly in the bank with our Vitality Money programme. Our research shows that, in addition to socioeconomic conditions, there are five core behaviours that result in 80% of the reasons why people default on their debt, either now or in the future. So we built a programme that’s built into our banking product that helps all clients improve these five behaviours. And, by improving those five behaviours, we result in a client that’s more engaged in the bank and obviously a low risk.
Now the five behaviours are quite simple. The first one is spending less than you earn. The second one is managing your short-term debt well, so that’s your credit card and personal loan debt. The third one is having insurance, so you protect yourself against unexpected events. The fourth one is paying off your property as soon as you can and managing your mortgage appropriately. And the fifth one is investing for retirement in the future.
We believe if we incentivise clients to manage their money well they can actually end up being wealthier and pose a lower credit risk overall.
This doesn’t just impact the bank, but we believe it can impact society overall with a lower burden rate on family members and the state.
JEANETTE CLARK: Akash, it does sound like you’re actually hoping to transform people’s relationship with money overall. How is this different from other financial institutions?
AKASH DOWRA: The first thing is that when we started the shared-value programme, the aim for us was to incentivise the correct behaviours.
So it’s not a loyalty programme. I think a loyalty programme incentivises engagement. Our programme looks at how we incentivise you to improve your finances, and it really follows a couple of steps.
The first one is getting the client to understand their finances. We do that by actually pulling all of their financial information, regardless of where it is.
So, as an example, we will give you a point for Vitality Money as long as you have insurance products, whether that insurance product is with us, with Discovery or whether it is with another financial institution. The same with your investments and your medical aid and your retirement savings. We try to give you credit for your good financial behaviour, and that actually drives the rewards that you get. Now the reason we have incentives is that we try to get our clients to behave in a certain way and change the behaviours, save more, manage their money more responsibly – and that’s where the incentives come into play.
JEANETTE CLARK: So Akash, you have established a partnership with EasyEquities. What value does this bring to your clients?
AKASH DOWRA: As a digital bank, our primary focus is give our clients the widest range of products available in the palm of their hand.
I think the natural step for us as we expand our product range from savings accounts, investments, credit-card products, etc, is to look at share trading.
And from that respect, EasyEquities was a natural partner for us – from being a fully digital platform to offering some of the cheapest share-trading facilities in the market. We believed that they were the right partner to have and then, with the Discovery fintech company, I think it was a great fit.
So at the moment you can actually integrate your entire EasyEquities portfolio into Discovery Bank, see all of your shares within the Discovery Bank app, and you can trade your shares through the EasyEquities platform by Discovery Bank.
JEANETTE CLARK: So on the one side of the market you have the income group that will actually use EasyEquities, but on the other side we can still talk about the completely unbanked.
Now in Africa, according to the World Bank, we still have 65% of people unbanked. In South Africa, the percentage is substantially lower. It’s estimated at around 20%.
What is Discovery Bank doing to reach the unbanked and why is it important?
AKASH DOWRA: I think the first thing in terms of getting clients to the bank is to offer a product that’s easily accessible. I think you can do that with a smartphone. And the second thing is to offer a product at the right price point, and there’s the ability to put branches everywhere.
A distribution network comes at a very high cost. So I think, as a digital bank, what we can offer clients is a product that is easily accessible because you can download it on your phone, you can use it for free on the data networks, and then you have a price structure that is very competitive in the markets compared to what you would typically get if you had to have a physical account with a physical branch network.
The point that I do want to make here is that often people compare fees on a normal fee-per-month basis, but what you actually need to look at is all of the ancillary fees that clients pay, fees that clients need to pay every time they need to download the bank statement, every time they need to ask for additional transaction data. All of that information is available [in] the palm of your hand on your Discovery Bank app for free. So I think that actually allows you to get more people banked and more people out of the unbanked sector.
Then the last part that’s actually critical here is the movement away from cash.
Cash is extremely expensive as a method of tender, and as soon as we can move into an environment where we have direct peer-to-peer payments, etc, and that becomes more standardised, I think then you can really start reducing the cost of transacting from a bank account.
And there I think there’s a clear way forward. We’ve seen other countries do it, countries with a similar type of GDP and economic profile to South Africa, such as Kenya, such as India. So there’s definitely a way forward. I think we just need to embark on that road now.
JEANETTE CLARK: And have you seen more acceptance for a branchless bank, even with the unbanked group? In the past people might argue that unless there’s a brick and mortar presence, people won’t necessarily entrust their money to an entity. Have you seen that change over the last while?
AKASH DOWRA: I think that’s definitely changed. If you look at Discovery Bank as an example, we are a completely virtual bank. Since starting up in 2019 we’ve actually grown our deposits to over R11 billion.
We’re the fastest-growing bank in terms of deposits in South Africa currently. And when you look at it from that perspective, you can see that clients have no problem trusting an institution if they believe that institution is strong and that institution has the right kind of systems, etc, in place.
I think also Covid has helped a lot. Actually during Covid it was really difficult to go to branches and people started banking more digitally and started to see the additional features that you could get digitally – which is actually a better service level, cheaper and more accessible.
So I think that hurdle of ‘digital being less trustworthy’ has actually been overcome by a large portion of South Africans.
JEANETTE CLARK: So in our current economic environment affordability will definitely play a role in the banking sector going forward. It will be interesting to see how development in the sector with the help of fintech innovation changes things in the next few years.
That was Akash Dowra, head of client insights at Discovery Bank.
Brought to you by Discovery Bank.
Moneyweb does not endorse any product or service being advertised in sponsored articles on our platform.
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