Discovery Bank is gearing up for its full retail launch in 2019, with the latest results from the Discovery group giving more insight into what it has taken to get the bank off the ground.
Discovery published its half-year results for the period ended 31 December 2018, reporting a drop in normalised profit from operations of 4% to R3.8 billion.
Headline earnings decreased 16% to R2.37 billion, with headline earnings per share dropping 16% to 366.6 cents.
According to Discovery CEO Adrian Gore, the decline in profits is “temporary” and was as a result of “planned and significant investments in new initiatives”.
The most notable of these new initiatives is the group’s investment in Discovery Bank, which launched its internal testing process in 2018.
“All businesses remain strongly positioned for growth and our responsive alteration of reinsurance structures will mitigate the effects of claims volatility in Discovery Life going forward for this business to regain target performance levels,” Gore said.
To end December 2018, a total of R6 billion has been invested in the Bank, the group said.
- R3.28 billion paid to FirstRand Group;
- R1.31 billion regulatory capital invested in the Bank;
- R1.42 billion incurred in Discovery Central Services on the build capital expenditure, test capital expenditure and hardware infrastructure.
Discovery Bank launched in November 2018 for beta testing with a public rollout expected in March 2019.
According to the group, the public launch of the bank is later than it had originally planned (it had previously targeted a 2018 launch) and the costs associated with opening the bank also went over budget.
“Considerable focus has been placed on technology and operational readiness. There is a slight over-run compared with the original budget, but costs are largely in line with expectation and the client offering is significantly enhanced,” the group said.
On 15 February, the group said that it would invest a further R270 million in the banking operation – R90 million to be spent on build until the public rollout, and a further R180 million on test and run.
Attention is currently on the card migration and retail funding strategies, it said, with a successful launch reliant on interdependent core factors.
The group also said that its initial take-on of client volumes will be carefully managed to limit risks.
“The public launch will be carefully managed, with priorities being the acceptance of retail deposits and migration of Discovery credit card clients to Discovery Bank,” it said.
Discovery Bank’s launch was accelerated upon the completion of the deal with FirstRand Group which will see the bank now wholly owned by Discovery.
In addition, the Bank finalised its restructure and new acquisitions, now owning 100% economic interest in the Discovery Card Joint Venture. The Bank is now receiving 100% of the Discovery Card JV results.
Discovery Card’s performance is 6% less than the same period in the prior year – primarily driven by costs on the FirstRand Group platform increasing at a rate higher than revenue growth.
Bad debts as a percentage of advances is 1.56%, which is evidence of the high quality of the book in the Discovery Card JV.
“In spite of some delays, the project has been managed well given the magnitude and complexity of setting up a full digital retail bank,” the group said.