Discovery Bank Update
2 Global trends and shared-value Behavioural Bank Members Behavioral Improved Lower rates on borrowing, higher rates saving. Better economics banking financial management and greater wealth efficiency 5 3 80 Unable to deal with Catalyst for behaviour unplanned expenses 80% change of defaults now and in future Unsustainable and expensive debt More secure Not being protected in retirement South Africa has one of the worst savings rates in the world More South 24.6 … 16 … Africans are credit active than Society Discovery employed Credit Active Employed Reduced reliance on state, Spending through the greater national investment bank, lower defaults, The majority of South African’s haven’t and reduced bad habits reduced lapses, greater planned adequately 14% for retirement confident margins and profits
Early onboarding phase helped test 4 hypotheses The targeted client is characterised by the Could we develop a fully functional leading edge retail Discovery following attributes: LSM 8-10, with high savings bank that meets the unique needs of the Discovery Ecosystem and borrowings and levels of engagement. client? The scale of the bank - bringing together Technology traditional bank and digital system capabilities, Could this architecture be built robustly and manifest Fintech, with Vitality Rewards and Discovery Health in consumer journeys that are intuitive and on the systems – took over 1.5m hours to build >120 face of the mobile? Infrastructure systems. Could Vitality Money create the correct segmentation Behavioural The bank is premised critically on behavioural and will clients engage; and will incentives and tools, nudges and rewards that work. rewards structures create the requisite change in bank behaviour? Over 300,000 cards have to be migrated onto Could pathways be built that meet the needs of card Migration the new chassis. clients, ensuring no slippage?
Unique attributes of Discovery client base Demographic Behaviour Integration Engagement Credit Loss Ratio Vitality Status distribution LSM breakdown of Discovery base Average of 2.75 Discovery (1.5m clients) products for Discovery Card clients -50% >80% Market Default risk Discovery Card default risk clients LSM 8-10 Share of LSM 8-10 in a Discovery Average Monthly spend on card administered scheme 3x 1 2 3 4 5 6 Blue Bronze Silver Gold & Diamond >300,000 >50% ~55% Average Card spend Discovery Card Discovery Card clients clients above Blue of LSM 8-10 are Discovery clients average spend Discovery client base demands a fully functional leading-edge retail bank
Could this complex system architecture be intuitive and simple to the user? >1,500,000 Core Banking system Manhours Integration with Discovery ecosystem Omni-channel >120 Single view of the client Connected systems 3 rd Party interfaces “Not more than 3 clicks for any task”
Smart Onboarding 5 Principles Full onboarding <5 minutes Digitally fulfilled FICA, AML and KYC Immediate transaction capability Instant balance transfer 94 interfaces >120 connected systems 76 potential decisions 18 third parties Next day card delivery 66 potential interactions 5 channels
Science behind Vitality Money Vitality Money distribution Data sources Behaviours Financial Ratios Points Debt 1 − 𝑁𝑗𝑜𝑗𝑛𝑣𝑛 𝑒𝑓𝑐𝑢 𝑠𝑓𝑞𝑏𝑧𝑛𝑓𝑜𝑢𝑡 1/P(D) Management 𝐽𝑜𝑑𝑝𝑛𝑓 >70% Points / Ratio above Blue 𝑈𝑧𝑞𝑓𝑡 𝑝𝑔 𝑑𝑝𝑤𝑓𝑠 Insurance 1/P(D) 𝑆𝑓𝑟𝑣𝑗𝑠𝑓𝑒 𝑢𝑧𝑞𝑓𝑡 𝑝𝑔 𝑑𝑝𝑤𝑓𝑠 Points / Ratio 𝑇𝑏𝑤𝑗𝑜𝑡 Savings 1/P(D) 3 ∗ 𝐽𝑜𝑑𝑝𝑛𝑓 Points / Ratio 𝑈𝑏𝑠𝑓𝑢 𝑠𝑓𝑢𝑗𝑠𝑓𝑛𝑓𝑜𝑢 𝑏𝑓 Retirement 1/P(D) 𝑄𝑠𝑓𝑒𝑗𝑑𝑢𝑓𝑒 𝑠𝑓𝑢𝑗𝑠𝑓𝑛𝑓𝑜𝑢 𝑏𝑓 Points / Ratio 𝐵𝑡𝑡𝑓𝑢 𝑤𝑏𝑚𝑣𝑓 − 𝑇𝑓𝑑𝑣𝑠𝑓𝑒 𝑒𝑓𝑐𝑢 1/P(D) Property 𝐵𝑓 𝑐𝑏𝑡𝑓𝑒 𝑢𝑏𝑠𝑓𝑢 Points / Ratio Blue Bronze Silver Gold & Diamond
Could Vitality Money create the correct segmentation and will clients engage? Correlation of physical activity and financial health Dynamic Interest Rates Savings rate 7.5% 6% Borrowing rate Prime Market -1% Dynamic Discounts 75% 35% 50% 35% 75% 10% 50% 10% 50% 10% ~0% ~0% 35% 100% 15% 0%
Black Suite Black suite Gold Suite Vitality Money Vitality Money Vitality Money Vitality Money Khaya is a 40 year old lawyer who has recently upgraded Kate is a 35 year old executive who has over Sam is a 28 year old accountant who has recently his Discovery Card to a Discovery Bank credit card 4 products with Discovery joined Discovery bank Dynamic Interest Rates Dynamic Interest Rates Dynamic Interest Rates Savings rate Savings rate Savings rate 6% 7.5% 7.5% Borrowing rate Borrowing rate Borrowing rate 12% 15% 9.25% Dynamic Discounts Dynamic Discounts Dynamic Discounts 60% 50% 75% 42% 50% 35% 60% 75% 40% 42% 50% 50% 50% 42% 100% 92% 100% 13% 15% 15% R25 600 annual cash backs R19 200 annual cash backs R30 800 annual cash backs
Discovery Miles → e-money for the Discovery Ecosystem Discovery Miles as e-money Discovery Miles can be used within the Discovery Eco-system instead of cash Can readily convert Discovery Miles for cash Integration and Vitality Status for each program delivers cash back rewards paid in Discovery Miles Discovery Miles can be used at partner 𝑬𝒋𝒕𝒅𝒑𝒘𝒇𝒔𝒛 stores = 𝑔 𝐼𝑓𝑏𝑚𝑢ℎ; 𝐸𝑠𝑗𝑤𝑗𝑜; 𝑁𝑝𝑜𝑓𝑧 2,1bn Discovery Miles being • 𝑵𝒋𝒎𝒇 transferred to Discovery Bank Discovery Bank clients earn • Discovery Miles at up to R15/mile
Conclusions from early client onboarding We have developed a full service Bank that has the The targeted client is characterised by the Discovery capacity to offer credit up-front to meet the needs of the following attributes: LSM 8-10, with high savings Ecosystem Discovery clients. and borrowings and levels of engagement. The scale of the bank - bringing together Technology The architecture is complex and much more traditional bank and digital system capabilities, Fintech, sophisticated than a “normal bank” however it with Vitality Rewards and Discovery Health manifests in a simple and intuitive user experience. Infrastructure systems – took over 1.5m manhours to build >120 systems. Early indications are positive. Vitality Money is working Behavioural The bank is premised critically on behavioural effectively as a segmentation tool, and we believe the tools, nudges and rewards that work. bank tools, nudges and rewards are compelling. Ramp up onboarding to 1,000 per day by August 2019 Migration
Discovery Bank Update
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