Discovery Bank’s plan to disrupt South Africa’s R1.4 trillion housing market

Discovery Bank

Discovery Bank has launched its new home loan product, promising to disrupt South Africa’s R1.4 trillion mortgage market with dynamic interest rates that will change depending on how clients manage their money. 

The bank first announced its plans to enter the home loans market late last year, with CEO Hylton Kallner saying the sector was ripe for disruption, with around 60% of mortgages being mispriced. 

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. 

In an interview with Daily Investor, Kallner said the bank has very conservative targets, in line with its plan to maintain a high-quality, low-risk client base. 

“Given the growth of the bank and our deposit base, we have got fairly good runway with this product,” Kallner said. 

The bank has identified around 20% of Discovery’s clients that have existing home loans with other financial services providers whose mortgages are mispriced and present a huge opportunity. 

These clients are the low-hanging fruit the bank hopes to win over quickly before taking on the established players and competing for new homeowners. 

Discovery Bank’s main advantage comes from leveraging its shared-value banking model to help clients reduce the interest rates on their home loans. 

“The unique nature of home loans means client and asset risk typically reduce over time,” Kallner said.  

“With high costs negatively impacting repricing or switching to a different bank, an estimated 60% of clients are overpaying on their existing home loans today.” 

Discovery Bank’s shared-value approach is based upon a win-win system whereby clients manage their money well, creating less risk for the bank. 

This enables the bank to offer their clients benefits, such as reduced interest rates, based on their personal data and money management. 

The behaviours that are rewarded include saving, being adequately insured, investing for retirement, and paying off home loans faster. 

Hylton Kallner
Discovery Bank CEO Hylton Kallner

Discovery Bank’s home loan product is administered by a team from SA Home Loans, which is ironically 50% owned by the largest incumbent Standard Bank. 

Kallner maintained that the offering is still built as a Discovery-first product, with the company leveraging SA Home Loans’ physical footprint and capacity to service the bank’s clients. 

This partnership has ensured a swift rollout and enabled Discovery Bank to launch the product without any capacity constraints. 

The bank has also built a so-called ‘ecosystem’ around the home loan offering on its app, enabling clients to also finance solar panels, inverters and other back-up power sources. 

This ecosystem also extends to Vitality rewards, with new home loan clients getting up to 30% back in Điscovery Miles on Discovery Bank purchases at select partner stores. 

The launch of a mortgage product marks yet another milestone for the digital-only bank, giving it a full-range products across both sides of a client’s balance sheet, Kallner said. 

One absence from its range of products is vehicle finance, which Kallner said does not offer much value for the bank. 

He said the vehicle finance market is not open to disruption, and Discovery’s venture into that space would not add much value to its clients. 


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