Discovery Bank is rocking

Discovery Bank continued its strong progress towards profitability, announcing it has reached monthly operational break-even. 

This was revealed in Discovery Group’s interim results for the six months to the end of December 2023, where the insurance giant’s headline earnings remained flat while new business grew by 28%. 

In particular, the company’s banking business performed very strongly, growing its clients by 42% to 825,00 and deposits by 31% to R16.67 billion.

This resulted in the bank narrowing its loss for the period by 15% to R339 million compared to the previous year. 

It achieved the important milestone of monthly operational break-event ahead of plan. This means the company generated a profit before accounting for new business acquisition costs. 

Discovery Bank launched on 14 November 2018 and is marketed as the world’s first fully digital behavioural banking platform.

It uses Vitality Money to incentivise banking clients to make healthier financial decisions and work more responsibly with their finances.

Vitality Money can be used on rewards like a dynamic interest rate increase, getting up to 100% back on HealthyFood, and a 75% discount on HealthyCare.

The Discovery Bank app also rewards users for spending their money responsibly with Vitality Active Rewards.

While the bank’s growth has slowed slightly, it still averaged over 1,000 sales per business day for the six months. 

As part of this growth, Discovery Bank made important steps last year to become a full-service bank by offering home loans and launching new backup power solutions for its clients with Rubicon.

Discovery Bank is not exposed to the headwinds associated with high interest rates in the same way as its peers due to its client mix, which is over-indexed to wealthier South Africans and is, subsequently, lower risk. 

Its CEO, Hylton Kallner, has also been explicit in the bank’s cautious approach to its growth and tight lending standards. 

This can be seen in its deposits being around three times larger than its loans and advances. Its deposits grew 31% to R16.67 billion, while advances grew by 20% to R5.75 billion. 

Furthermore, most of Discovery’s clients are classified as low risk or exceptionally low risk, with almost none of its new business coming from very high-risk clients. 

Thus, while its peers have been flagging a sharp rise in non-performing loans and closing their lending taps, Discovery has kept its non-performing loans under tight control. 

This can be seen in the graph below, which shows Discovery Bank’s non-performing loans (the solid blue line) compared to the average of South Africa’s four big banks (the dotted line).