/ 5 October 2021

Behavioural Banking and The Future of Finance

Hylton 4

Huawei’s most recent instalment of their Future of Finance webinar series featured the latest in financial insights at the forefront of innovation once again with their new conversation on Behavioural Banking with CEO of Discovery Bank, Hylton Kallner. 

After a warm welcome, the charming host and Innovation Specialist, Colin Iles, asked for some insight into Discovery Bank’s vision. 

Hylton stated that it is strongly aligned with their purpose and guides every decision in their business, the vision being “Making People Healthier”. Within Discovery Health, this meant bringing down the cost of health and life insurance and also running a more efficient business. This allows them to follow a model that aligns with their customers, their business, and the broader society at large.

In line with this approach, Hylton referenced the “shared value” concept coined by Professor Michael Porter of Harvard Business School, which is defined as “…policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates.” Discovery’s overarching approach in every vertical is premised on this mindset. In Discovery Bank in particular, they focus on activities that drive better financial behaviour and encourage their clients to act in a way that is better for their own financial health. This results in lower default rates on loans and better transaction consistency. 

Speaking on the decision process for Discovery Bank, which is going into its third year since it’s initial launch in 2019, Hylton stated that when technology reached a point where they could combine it with their behavioural data and experience in addition to their credit card client base, they were driven to build a purpose-driven, disruptive bank.

Their process, Hylton explained, was completely product-led and involved developing a product that was sufficiently differentiated with a behavioural and experiential “wedge”. Thereafter, Discovery Bank was developed from the bottom up, investigating the requirements to run the platform as well as the talent and people required. Hylton emphasised that the traditional model that financial institutions follow often put themselves in conflict with their customers, and Discovery Bank knew that they had to be different. 

Traditionally, banks have managed bad debts with clients who aren’t defaulting, and the products offered are often socio-economically segmented. Hylton stated that in their experience, there are actually a wide range of customers over different income levels and that on the whole, actions like defaulting are less income related and more behavioural.   

Discovery Bank has removed subsidies between “good” and “bad” clients and has opted to manage behaviours across the financial system. This includes observing whether they have emergency savings and what insurance they have in place. Hylton stated that Discovery Bank is more interested in better behaviour than loyalty and will give the best interest rates to those that save well. This then opens the door to monetising this improved behaviour. 

Speaking on the “nudges” that Discovery Bank provides to encourage better financial behaviour and the results of these nudges, Hylton stated that they are seeing more saving, exponential growth on deposits, and high settlement rates on outstanding credit balances. He added that offering higher saving interest rates means more savings and lower default rates. By providing emergency saving goals, these clients are taking their first steps toward being low credit risks. Discovery Bank is also setting financial goals for customers and granting them vitality points should they achieve them. 

Iles then asked if Discovery Bank would ever consider setting up branches. Hylton answered with a resounding no, stating that having no branches is a massive cost saving and that they couldn’t have set up Discovery Bank the same way if branches had been a requirement. Currently their head office is the only branch but in reality, the branches are in the palm of the clients’ hands as all their services are available on mobile. This meant there was never a restraint of physical requirement for the user journey and every problem has therefore been solved through technology and branchless solutions. 

As the webinar came to an end, it was evidently well-received by the attendees who were all clamouring with questions and comments on these exciting topics. 

If you missed this talk, you can always join the next one on the 19 October. In the next instalment Huawei will be bringing in Andre Hugo, the CEO and Co-Founder of Spot Money SA, a disruptive fintech business introducing South Africans to Open Banking. He will be discussing the end of bank branches and what the new face of banking will look like with this change. 

For those interested in finance and especially those with a pertinent role within the finance sector, these events are sure to give you an edge.