Health insurer Discovery tries to apply insurance lessons to banking

(Bloomberg) --From free burgers and ride-hailing services to hip-hop concerts and discounted gasoline: South African banks are going all out to win customers as competition hots up.

The biggest lenders are facing an onslaught of entrants for the first time in 12 years. They’re responding before the newcomers find their feet by pushing loyalty programs, revamping digital offerings for technology-savvy millennials, targeting existing customers with extra products and services and cutting fees.

The challengers -- some of whose founders or senior staff cut their teeth in the banks they’re now up against -- couldn’t be coming at a worse time. Most lenders are reducing costs, retrenching staff and closing branches to cope with an economy that hasn’t expanded above 2 percent a year since 2013 and a move toward the increased use of digital services. Tax increases, higher utility costs and stubbornly high unemployment are squeezing consumers, who are not only looking to cut their expenses but also want more convenience.

“Banks are becoming more client-centered -- many new players are entering the space offering a basic-banking account at competitive prices, so they have to create stronger relationships with existing clients,” said Nolwandle Mthombeni, an analyst at Mergence Investment Managers in Cape Town. “Technology has become the biggest expense item for some of the incumbents as they try compete with new entrants that don’t have any legacy systems.”

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Man in fitness gym with smartwatch (Newscom TagID: westendrf271164.jpg) [Photo via Newscom]

Discovery Ltd., South Africa’s largest health-insurance administrator, wants to gradually add customers to the bank it recently opened, starting with the 350,000 credit cardholders it shared with FNB through a joint venture that ended last year.

The company plans to tap into the 4.4 million lives it reaches through insurance, wealth management and its Vitality loyalty program. The bank will follow the same concept as Vitality, which rewards clients who eat healthy and exercise with discounts on flights, gym and meals or Apple Watches at a fraction of the price if they meet fitness targets.

“They’re going to make an impact,” said Jan Meintjes, a portfolio manager at Denker Capital in Cape Town. “Whether they’re going to make money is a separate question.”

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