The drive to digital in South Africa – Discovery Bank 01 June 2021

Hylton Kallner, CEO of Discovery Bank, talks about how the bank’s best-in-class digital initiatives are foundational to their success. 
What value has digital generated for Discovery Bank?
In terms of value for our client base, Discovery Bank is a mobile first, digital bank. It is the entire experience that allows clients to open the account in minutes and then transact immediately. The bank focuses on seamless functionality – which hasn’t been seen in South Africa before.
For Discovery as an organization, the bank is enhancing the entire value chain for our clients to see where we can further digitize and add value. The move to digital is also creating the ability to refer new clients through the Bank to all our businesses.
Digital - particularly in a Covid-19 setting - has really changed how we think about the whole organization. This includes underwriting in life insurance, pre-authorizations, or care access in Discovery Health, or lodging a claim in Discovery Insure and changing portfolios in Discovery Invest- and then looking to see how these journeys can be digitized. We are looking to transfer full control to the client in this digitization process to promote self-servicing.
A key aim of our digitization effort is to uplift the security in each of these areas (including client validations and data protection). Therefore, from a client perspective digitization will significantly enhance their experience and ability to utilize the products and protect their data and reduce cyber risk.
All of our digital projects are performed on a business case ROI basis. They are generally returning 3-4x investment in a short time span. Importantly, this ignores the ‘differentiation’ and any second order impacts – this is purely from the efficiency gains of digital processes. 
How have you driven your digital agenda? 
Discovery Bank has applied a model that utilizes both a central digital agenda (at Group level), and then also drives the digital agenda with specific Business Unit Teams:
• The Central Digital team/division is essentially accountable for shared assets and standards (particularly data and technology standards) and developing common assets that can be reutilized throughout the Group 
- Examples of this include facial recognition security, KYC data storage, and the front-end of the app for common user entry-points and journeys
- It also includes the overall look and feel of the Discovery assets 
- Then all these assets are made available through APIs and other mechanisms to the business
• The rest of the digital agenda, applications and processes sit within the individual business units 
Example of where Discovery is building assets not only for Discovery Group but also assets that can be leveraged by third party clients or institutions (e.g., banking as a service, insurance as a service)?
The Vitality Group, which has globalised the Discovery model and technology, is reflective of this type of offering. Discovery has taken their entire platform, processes, methodologies, and data and made it available via the Vitality1 platform.
This is utilized now in over 30 countries globally, spanning several different industries including health insurance, life insurance and motor insurance (but does not include banking just yet). This platform is fully scalable and is a core part of the business for Discovery.
What have been the big focus areas in terms of the digital proposition for the bank?
The focus has been on the transactional capabilities, Shared-value interface, and account origination – this is now almost best-in-class globally according to how Discovery have benchmarked it. It includes a full KYC, facial recognition, and account opening in minutes. We have invested a significant amount of time and effort in this origination process.
The product UX and reflecting this back to the customer has also been a key focus area – this is important as the offering is very comprehensive, and products are beyond just a “traditional” neobank offering. The proposition to clients is a full spectrum product offering and a rich reward stack with Vitality Money, the behavioural incentive program. This requires an intuitive UX which has demanded a significant financial and time investment. 
Vitality Money data integrations and particularly to third parties required a lot of time and effort however the benefits for clients are immediate. Vitality integration assists in creating a full balance sheet for the client in real time as they open their account. For security we have created a single digital discovery ID – shared and utilized throughout the group. 
How much have you invested in digital?
A lot of the value generated has been done in 3 years since the launch of the Bank and this has been fully digital. Obviously, there are certain ‘people’ aspects that may not count as digital but certainly from a technology perspective it is essentially 100% invested in digital (100% digital and 90% mobile).
On a scale of 1-5, how do you rate the value generated by digital?
It’s self-evident – above 5 – Discovery Bank wouldn’t exist if it weren’t for its digital technology platform. 
Are there any areas where you believe you are a bit behind the curve or have made the wrong bets on the future movements in trends for digital? 
Discovery has built foundational assets rather than luxuries or assets that have risky or questionable business cases. But we should also return to this question in 10 years because if you have no failures, you haven’t tried enough.
Has digital lived up to expectations? Do you believe it has really transformed the FS industry? (How has digital changed the landscape in SA? Are clients getting value from digital?)
It is very much in its infancy – returns in South Africa have largely been for the corporates in efficiency gains as opposed to clients in the form of better value. Clients have benefitted in terms of convenience and process, but organizations have primarily benefitted from the economics.
There is still a lot of bricks and mortar in the system – a lot of paper and signatures. These need to disappear from the system. And there needs to be more benefits from the customer’s perspective, and that’s what we are working to deliver.               
How much more can digital contribute to the financial services industry going forward?
For Discovery it is mainly about the product set and customer experience. This will expand into adjacencies in coming years, moving into areas like commercial and business banking. 
If you think about chapter headings for areas to be focused on going forward, they would be: 
• The behavioral model – using the Vitality Money program to incentivize behaviors and the ability to coach clients through AI and hyper personalize their experience
• Looking at the client base as a family unit rather than individuals - blurring the boundaries between individual and family
• Financial advisory and Financial Advisors assisting clients more holistically – banks have encroached into the FA and wealth management space but at the top-end of the market we are seeing the opposite where FAs are looking more holistically at the individuals and banking would be a part of that
• Forex propositions - clients are global citizens and their bank needs to reflect that (a cheap and simple Forex proposition is needed in the South African market) 
What are the key threats to digital going forward and how prepared are you to manage them?
In a digital environment, cyber security and cyber risk are probably the biggest risks. The pandemic showed that we can withstand real shocks to the system but cyber remains the biggest long-term risk. With cyber it is the trust of your clients which is at risk, and the trust of the organization and the entire digital banking system.
What are the enablers (more broadly and outside of Discovery’s control) that need to be implemented to push the digital agenda in South Africa?
One major regulatory change that is needed is Open Banking. There’s still a lot of friction in the system for clients that want to switch or shift their banking needs. The regulatory environment is quite enabling in South Africa. The biggest inhibitors are the incumbency in SA legacy systems and processes that would require financial/economic investment and massive organizational change.
Access to expertise is an inhibitor that needs to be alleviated. We definitely have a shortage of resources in SA. Having said that, we have learned in the last year that you can access global resources quite easily and so this will hopefully change quite quickly.
From a competitive perspective who do you view as the most competitive now and in coming years?
In the short-term, existing banks with strong client bases and brands remain very competitive. In the long-term however the competitor landscape will extend to non-traditional players such fintechs and other technology players as they enter FS. Regulatory changes are likely to make the environment more competitive, which is an exciting prospect. 

Want to know more about digital transformation in South Africa? Download your free copy of Efma-Oliver Wyman paper Digitizing financial services in South Africa

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