Earlier this month, the Solidarity Bank Report, which compares banking costs, was issued. It found that, on fees alone, Old Mutual narrowly beat Capitec and Absa when it came to fees for lower-income levels. For bundled accounts marketed to the middle-income earner, Standard Bank’s Elite bundle came in cheaper, with Nedbank’s Savvy Plus coming a close second.
The report also acknowledged the impact of reward programmes as a likely sway factor, especially for middle- and higher-income earners. Although FNB is not one of the lowest-cost bank accounts, the report found that, for middle-income earners who want a reward programme, FNB offers the cheapest account with access to eBucks.
However, bank fees and rewards are not the only things that people care about when it comes to banking. In response to a tweet on banking fees, @kgauzi made the important point that “bank fees are only one aspect. The entire basis on which banks make money must change. Usurious interest rates on credit cards and other products. Unduly long repayment periods. An aversion to encouraging savings. Pushing lending products and a lending culture.”
I wonder what @kgauzi will make of Discovery Bank’s announcement this week that it will be a “behaviour bank” and use Vitality Money to encourage positive money behaviour.
Most traditional reward programmes incentivise share of wallet. For example, FNB’s eBucks programme is heavily weighted to product ownership – you earn points for taking out FNB life cover, FNB investments and having credit facilities.
Discovery Bank’s Vitality Money approach will be to incentivise positive behaviour – your reward level will be based on whether you are managing your finances correctly irrespective of what banking products you have. The reward level will, in turn, earn you lower interest rates if you borrow, and higher interest rates if you save.
Discovery Bank CEO Adrian Gore explains that, when it comes to lending money, a bank builds in a margin between the price it pays for those funds (interest paid to depositors) and the price it charges lenders (interest paid by borrowers). This margin includes a default rate to cover those loans where individuals default on repayment. If they can encourage better money management, they can reduce the margin for default and hand that on to the customer as a saving.
Basically, it is a way to risk rate a customer not just based on their credit history, but on their current spending and saving behaviour.
Discovery has identified five controllable behaviours that affect our finances:
. Spending less than we earn;
. Saving regularly;
. Having insurance in place for serious events;
. Paying off property; and
. Investing for the long term.
Gore says that, if we follow these behaviours, we can alleviate the three key risks of unaffordable debt, exposure to unexpected expenses and insufficient income in retirement. These risks result in 80% of events where individuals are not able to meet their financial obligations.
Apart from rewards and better interest rates, Discovery Bank’s big play is going to be banking efficiency through its banking app and call centre.
The bank has developed a new banking platform without the legacy issues faced by existing banks.
Gore says bank accounts will be opened in three minutes and fully integrated with credit card and other facilities.
They will also use their information on existing Discovery clients to improve the onboarding process. For example, if you are a Discovery Health member, they already have all your family details.
This means that once you open your Discovery
Bank account, you can automatically open accounts for your spouse and children, and link cards all through the app.
You will also be able to book kulula.com flights
and engage with other reward partners through
Your bank account will be fully integrated into your Discovery Health account, so when you go to the pharmacy to collect your medication, any co-payment will be automatically deducted from your bank account with no need to stand in a payment queue.
Bank payments between Discovery clients will be done through your phone using your contact list. For example, if you need to make a person-to-person payment, and that individual is not a Discovery Bank client member but is a member of Discovery Health, you could send them money directly through your phone.
They would be sent an SMS confirming the bank details on record at Discovery and payment would be done.
The reward programme will allocate points based on various factors such as having an emergency fund, having insurance and healthcare, and how much of your income is spent on debt repayments.
The reward level starts at gold, moving on to black, diamond and purple. At each reward level, the amount of interest you pay on a loan decreases. Gore says a top reward customer could even have an unsecured loan at below prime.
On the savings side, Gore says higher interest rates will be paid even on so-called lazy deposits – those deposits that sit in your transactional account. Their research found that those people who manage their money correctly tend to leave deposits for longer.
Banks can offer higher interest rates for longer deposits, as we can see on fixed deposits, for example. In Discovery Bank’s case, however, rather than committing to a length of time to receive the higher interest rate, your money behaviour will determine
Discovery Bank has not directly linked its Vitality Money rewards to Discovery products, so you will receive the same reward points if you have medical cover or insurance with another company or retirement savings with a competitor.
While product ownership does not influence your Vitality Money rewards, it does have a major kicker if you are an existing Vitality member. Vitality Money will offer partner rewards and discounts, however, these discounts increase significantly if you are also a Vitality member. For example, currently a Vitality member can have partner discounts of between 10% to 25% – if you are also a Vitality Money member at purple status, that discount could increase to 75%.