Sat, 20 Apr 2019

Capitec shook up South Africa's staid and conservative banking culture with the revolutionary premise that banks existed primarily to serve their customers, not their shareholders.

Can Discovery Bank now undertake a similarly revolutionary path - to wean South Africans from the culture of instant gratification and low savings? At Discovery Health, CEO Adrian Gore changed medical aid by incentivising good health choices rather than building a business on insuring against illness, the traditional model.

It has paid off handsomely and now Discovery Bank is going to try to make South Africans think about their money differently by rewarding good financial behaviour. It's going to be a tough ride.

South Africans are highly indebted with the worst savings levels compared across a basket of similarly sized economies.

In addition, most of us are short-term about money - we want what we want right now.

"In 2015, the Human Sciences Research Council found that many South Africans are present-biased, lacking financial self-control and prioritising instant gratification," says Discovery in its presentation on the Bank. Present bias means the need for instant gratification. The majority of respondents in the HSRC study signed up to statements like, "I find it more satisfying to spend money than to save it for the long term"; "I tend to live for today and let tomorrow take care of itself" and "Money is there to be spent".

This happy-go-lucky South African style also means that many of us think we are better off than we are. Discovery's research found that 64% of members with poor financial health thought theirs was good; 63% felt in control of their financial health although their personal finance did not prove this while the levels of unsecured (short-term) debt they carried was very high.

Discovery Bank is going to incentivise five key and controllable behaviours - to get customers to spend less than they earn; to save regularly; to insure for emergencies; to pay off property and to invest for the long-term. The bank's research has shown that South Africans who sit with unaffordable debt levels, who cannot fund an unexpected event and who have insufficient retirement income are responsible for "80% of events where people are not able to meet financial obligations".

Discovery Bank has built products (transaction and/or credit card accounts) based on both income and Vitality financial health indicators which place you on a hierarchy of achievement. This level of status determines the percentage rewards back on travel, entertaining and certain categories of retail shopping as well as your interest rates.

Savings and instant gratification

Humans respond well to rewards, as Discovery has shown in its health and insurance products, and it is banking on the same psychology to drive behaviour change. Can it make a national impact on low savings and the culture of instant gratification?

If Discovery's history is anything to go by, then yes. There are numerous studies to show that Discovery's Gold and Diamond members (the top health level) have lower claims histories and better health outcomes than other medical aid members. They make up a growing complement of members and other medical aids have iterated similar schemes - behaviour change has become the norm, rather than the exception. This is Discovery's shared value model which it describes as a simple idea that "business models can and should address social issues at a profit, meaning they create shared value by linking the company's success with individual client benefit and large-scale social progress".

Discovery Bank is going to start small and slowly so ramping up to large-scale social progress is a way down the road. The Bank's got a ready market. All the consumers who own the Discovery Card can migrate to Discovery Bank over time; staff members who have been testing the system in beta have reported that the transition is seamless. And then there is the larger market of Discovery medical aid members who will have cross-functionality. In this, Discovery is building an Apple-like model which locks you in to a variety of products with convenience and incentives. You will, for example, as a Discovery Health and Bank customer have your medical aid co-payments automatically made so no queuing time.

It's an interesting and innovative model but is it sufficiently tapped into South African realities like the Gini Coefficient, the high levels of wealth inequality which means that often working people don't save, not because they do not want to, but because they are supporting high numbers of dependents? In a country with as high an unemployment rate as South Africa's, these levels are extremely high and can mitigate against sensible decision-making as much as the culture of instant gratification does.

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