Banks are expensive things to build from scratch, and insurers do not usually try. Discovery did, and on Thursday its bank reported a full-year profit for the first time: R370 million of normalised profit from operations, a change the group prints as more than 600%. Daily Investor puts the estimated spend on building it at R15 billion.
What that money bought is not really a bank. Discovery says the business is evolving beyond a standalone banking proposition into “the orchestrating layer for customers' financial and health lives”, the interface through which people reach the rest of the group. Medical scheme cover, life cover, investments and insurance all sit behind it.
Seven in ten arrived from outside
The test of that idea is who walks in. Discovery's results presentation, as reported by Daily Investor, puts 70% of the bank's new business last year as coming from people who were not Discovery customers already. The client base grew 26% to 1.57 million, spread across 3.77 million accounts.
Each of those clients is somebody the group can then sell a medical scheme, an investment or a policy to, on the same app. Discovery South Africa, the composite that holds the bank and the businesses it sells into, lifted normalised operating profit 16% to R13.87 billion.
A bank that earns more from fees than from lending
Most retail banks make their money on the gap between what they pay depositors and what they charge borrowers. Discovery Bank does not. Its fee and commission income exceeds its net interest income, so growing the business ties up less capital than lending would, and it is less exposed when the Reserve Bank moves rates.
The lending book grew anyway. Retail deposits rose 17%, to R27.2 billion, and gross advances grew faster still, to R12.9 billion. Bad debts went the right way, improving to 2.71% of the book.
The group behind it grew normalised operating profit 17%, to R17.75 billion, and raised its final dividend 36%. Headline earnings rose faster, 34%, but that number was lifted by one-off gains from ending a head-office lease early and selling part of a stake in Cambridge Mobile Telematics.
Discovery is reported to be targeting R3 billion of profit from the bank by 2029. R370 million is the first eighth of it.
