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South African insurer Discovery to set up retail bank

This move throws Discovery into a market dominated by the likes of FirstRand, Nedbank & Capitec.

The retail banking move is inspired by Discovery’s desire to diversify. Picture: Discovery Holdings.

JOHANNESBURG - South African insurer Discovery Ltd is pushing into retail banking with an initial $150 million investment, a move that will pit it against five established banks in a fiercely competitive market.

"We have never ever been first to market, we have always been more of a disrupter," Adrian Gore, founder and chief executive of Discovery, said on Thursday.

"The behavioural model that we have has a great value in the banking space."

Founded in 1992, Discovery's model is linked to a behaviour tracking programme that rewards its health and life insurance clients for healthy lifestyles, paying for gym memberships or offering cash back on money spent at healthy restaurants.

The retail banking move, inspired by Discovery's desire to diversify, will throw it into a market dominated by Standard Bank, FirstRand, Barclays Africa, Nedbank and Capitec.

As a first step, Discovery is paying R1,3 billion to treble its stake in a credit card business to about 75 percent and will spend R800 million on working capital.

Gore said it could take up two years to have a full-service retail bank up and running as the company had yet to apply for banking licence.

"It's a competitive market and I'm not sure their rewards programme will have the same impact in banking as it has in insurance because all the banks have some sort of loyalty programme," one analyst said. "The omens don't look good."

Discovery, which also has an investment business, said normalised diluted headline earnings per share totalled 663 cents in the year to the end of June up from 580 cents a year earlier.

Headline earnings per share, a measure which strips out certain one-off items, is the profit figure most widely used in South Africa.