Discovery Bank hints at fee structure

Discovery has ‘soft’ launched its bank, onboarding a limited number of customers from its card division each day.

Discovery Bank claims to be the world’s first “behavioural bank”, through which it will offer rewards and incentives to drive clients to ‘healthier’ banking options.

To this end, it has launched Vitality Money, an offshoot of its Vitality Health programme, that will help customers improve their financial standing, and educate them on how to better handle their money.

It has adopted a one-account approach (similar to Capitec’s Global One), which will combine transactional and credit accounts, while also delivering dynamic interest rates through Vitality Money.

The ‘healthier’ choices customers make, the better their Vitality Money score, which in turn rewards with greater discounts and better rates.

According to Discovery CEO, Adrian Gore, the group’s bank sets itself apart from other digital players – like the recently launched TymeBank and the coming Bank Zero – by not feeding the narrative that “you don’t need a bank”, and just need a mobile app.

“We are a fully-functional retail bank – but it’s behavioural. It’s just a very different value proposition,” he said.

According to Discovery, the bank will open its doors in a controlled process, and plans to grow in a “gradual way”. The group said that it will start with current Discovery Card members, which will be the group’s core focus over the next few months.

This is to ensure that the service quality does not get negatively impacted by an influx of customers, it said.

While the bank has given some indication of what it will be charging customers per month for its bundled accounts, it has not yet released a full fee schedule.

The group said that a full fee schedule will be published in the coming weeks.

Fees

Discovery has three account offerings, namely the Discovery 1 Account and the Discovery 1 Plus Account, as well as a Vitality Savings account.

Discovery Bank has three cards available to new clients, Gold, Platinum or Black. There is also a Purple card, which is exclusively invite-only.

With a Gold or Platinum account, clients have the option to choose either a transaction account or a credit card with transaction capabilities, as well as the flexibility to choose between a pay-as-you transact or bundled fee structure.

Every account comes with a free Vitality Savings Account and the option to open additional savings accounts at no cost.

The accounts are broadly defined by income level:

• Gold: Low to middle income (earning less than R350,000 a year);
• Platinum: Middle to high income (earning R350,000 to R850,000 a year);
• Black: High income (earning R850,000 or more a year);
• Purple: Invitation only for very wealthy customers.

For the bundled 1 Plus accounts, customers will pay a fixed monthly fee depending on their level – ranging from R149 and R185 per month for Gold, R213 and R240 for Platinum, and R275 and R440 for Black.

This is how these fees fit into the wider banking market, according to Discovery:

On a purely transactional basis, Discovery positions itself on the lower-middle end of the banking groups in South Africa – with its bundled option for the Gold account being the second-cheapest.

When optimised for other banking groups sticking to their native ATMs and cash sources (ie, using their bank in the best possible way), it shifts up to the middle of the sector.

Fee context

According to Discovery its fee breakdown is as a result of a comprehensive study on retail bank fees across the country.

The study set out to explore the true cost of banking to the consumer and the appropriateness of fees as a measure of value in banking. The analysis reviewed consumers’ banking behaviour over 600,000 transactions and R800 million in transaction value.

The overall average monthly bank fee paid by South African banking clients was found to be R206 per month.

Broken down by income group, the average bank fee ranges from R132 pm (low to medium income), to R214 pm (medium to high income) and R309 pm (high income segment).

The study also compares the average fees to income, to show that consumers pay 0.3% to 0.6% of their salary in banking fees.

Those in lower income segments paying a higher proportion of their salary in fees than the high income segment.

This is a result of pay-as-you-transact fees impacting low income earners the most and bundle fees being more efficient for high income earners.

“Most banks compete on one of two dimensions, fees and rewards or fees and interest,” said Gore.

“To understand the true cost of banking to the consumer, one needs to look beyond the fee schedule, and take into account the ad hoc transactional and penalty costs incurred,” he said.

“The idea of free banking is in fact illusory, because despite the absence of a monthly fee, consumers typically incur costs for various activities and transacting in the course of the month.

“This study presents a more comprehensive view of utilisation – and the real cost carried by consumers taking into account their banking behaviour,” he said.

Read: Adrian Gore on Discovery Bank’s controversial BEE scheme