How Discovery’s ‘behavioural banking’ actually works

Discovery has built its Vitality business based on the common behavioural mistakes that South Africans make regarding their health – and is using this same core system to build its banking business.

Speaking at the BusinessTech Fintech conference on Wednesday (11 September), head of technical marketing and client insight at Discovery Bank, Akash Dowra said that there are three key traits that Vitality members constantly follow which lead to irrational decision-making.

These include:

  • Overconfidence – 60% of Discovery’s high-risk clients believe that they are above average health, while 80% of clients believe that they are
    ‘above average’ drivers;
  • Frequent event miscalculation – More people are afraid of sharks than cupcakes, but significantly more people die of diabetes;
  • Hyperbolic discounting – People don’t understand the impact of a ‘salad now vs a cupcake later ‘.

Dowra said that this same system has been applied to its behavioural banking system which focuses on five key elements:

  • Whether you spend more than you earn;
  • Whether you have insurance;
  • Whether you save for emergencies;
  • Whether you are saving for retirement;
  • Whether you are managing your secured debt properly.

“We are typically our own biggest impediments to financial health and people generally overestimate how well off they are,” said Dowra.

“Choices that lead to better financial health need to be made often, and for life – just as with physical health.”

Dowra said that Discovery encourages these behaviours by awarding a higher status to clients who meet the above five criteria – in an income-agnostic environment.

These statuses, akin to the Discovery Vitality levels, are based on specific financial profiles and habits, and are not determined by social class, earning power or income level. Higher levels earn higher rewards.

“In addition to things like smoothies, which are a great reward ‘right now’, we also offer benefits like 75% off international business class flights,” he said. This encourages clients to bank better.

He added that the Discovery app has built-in a series of ‘nudges’ which constantly encourage people to make better financial decisions.

“This can be something like a prompt asking you to transfer a further R1,000 to your savings account if you haven’t contributed in a while,” he said.

Early days

Dowra said that onboarding of new clients has been slow but steady, with the bank currently boasting 22,000 customers and is adding around 3,000 new customers each week.

Notably, the bank already has already offered around R1 billion in unsecured lending, primarily because of the bank’s focus on higher net worth clients.

While hesitant to comment on what the ‘ultimate goal’ is for the bank’s client base, Dowra said that Discovery said that the bank would be ‘happy with a couple of hundred thousand clients’.

He added that the bank hopes to break even over the next two to three years.

Read: TymeBank is now one of the fastest-growing digital banks in the world: CEO

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How Discovery’s ‘behavioural banking’ actually works