The South African bank eating the Big Four’s lunch

Discovery Bank’s home loan product has shown strong growth since it was launched in May 2024, with it taking market share from other banks and getting clients to switch to its offering. 

Much of this growth came in the past few months, with the value of home loans disbursed skyrocketing from R149 million in September 2024 to R1.1 billion in January 2025. 

The home loan is key to Discovery Bank’s future growth. Its launch last year made it the first full-service digital bank in South Africa. 

Crucially, it has enabled the bank to grow its lending book without compromising the quality of its client base, CEO Hylton Kallner told Daily Investor. 

Discovery Bank launched its home loan product without much fanfare and without explicit targets, focusing purely on the quality of clients it could attract. 

To this day, Kallner said the bank has no specific target for its home loan offering, with it focusing relentlessly on client experience. 

South Africa’s home loan market is currently dominated by the country’s ‘Big Four’ banks – Standard Bank, FirstRand, Nedbank, and Absa – which finance around 90% of all mortgages.

One thing that has been a clear feature of Discovery Bank’s home loan product, administered in partnership with SA Home Loans, is its intention to get people with existing mortgages to switch to its offering. 

This is notoriously difficult, with South Africans proving to be very sticky clients, particularly when it comes to personal finance. 

Kallner explained that this creates a high threshold that the bank has to meet to make it worthwhile for individuals to switch. 

“The unique nature of home loans means client and asset risk typically reduce over time. With high costs negatively impacting repricing or switching to a different bank, an estimated 60% of our clients are overpaying on their existing home loans today,” he explained.

Through the implementation of Discovery’s shared-value model, the bank’s home loan product offers clients personalised interest rates that could reduce the rates on their mortgage by up to 1%. 

This has proven immensely attractive to South Africans, particularly amid increasing pressure on household finances. 

“We see that playing out exceptionally well. Our home loan book is embryonic; it is just over R1 billion and is around 2% market share, but it is growing well,” Kallner said. 

“80% of our home loan business thus far has been switches from other banks. So, we are really looking at bringing across clients that are mispriced in the market, and we are able to offer them a better deal.” 

While attracting South Africans with existing mortgages has been a clear aim, Kallner expects the bank’s share of the new home loan market to rise as well. 

“The high share of switches is probably reflective of the market as a whole and the fact that last year was one of the worst on record for new home loan registrations,” he said.

Kallner explained that the timing of launching the product was not traditionally great as it came amid 15-year high interest rates and political uncertainty. 

However, with elevated interest rates came much greater interest from people looking to switch their home loan provider, which almost perfectly suits the bank’s offering. 

As interest rates come down, Kallner expects the interest in new home loans offered through Discovery Bank to pick up. 

This will reduce the share of its book coming from switches and eventually reach a normal state, where new mortgages make up a larger portion of its home loan book. 

“We should see a natural kind of increase in new home loans and a proportionate decrease in switches. But, as I said, the market is large enough, and we think we can achieve strong growth in the short term,” Kallner said. 

The rapid growth of Discovery Bank’s home loan book drove the sharp increase in the bank’s overall advances, which remain conservative compared to its large deposit base. 

In the six months to the end of December 2024, the bank’s advances grew 37% to R7.8 billion, while its deposits grew 27% to R21.2 billion. 

While some may criticise the bank as being overfunded, Kallner said it would not sacrifice its high-quality client mix for faster growth. 

“We are not chasing advances. We are growing the book prudently and conservatively focusing on quality and I think that our product set tends to attract high-quality clients that manage their money well,” Kallner said. 

The bank is also not as reliant on lending for growth as its more traditional counterparts, with the majority of its revenue being non-interest revenue from fees and commissions. 

This reduces its overall sensitivity to interest rates and results in higher-quality, predictable earnings.