Can behavioural banking drive financial literacy and inclusion?

As the global markets respond to the coronavirus (COVID-19) pandemic, we find ourselves in challenging financial times. Just 12 years after the 2008 markets signaled an impending financial crisis, we find ourselves in the midst of the deepest global recession in decades, according to the World Bank.

We knew pandemics happen every 100 years or so, but much of the world was still caught off guard with COVID-19. The resulting economic downturn is less unique and less surprising. Even in good times of strong financial market performance experts in banking know that the next recession, or downturn, is right around the corner. Perhaps that’s why during one of the strongest global economies we’ve ever experienced, Discovery Bank was focused on the financial health of its customers, many being Gen Z or millennial customers of their digital bank.

Gen X had to grapple with the 1987 stock market crash as they were entering the workforce and came of age during the 2001 internet bubble bursting. Millennials experienced the 2008 financial crisis. Now, this potential global recession may impact those two generations plus Gen Z just which is just entering the workforce.

Across these decades, banks have offered information and assistance to customers to help improve financial literacy. What effect has it had?

How are banks prepared to promote financial literacy for millennials and especially Gen Z?

In times like this, the need for younger – and older – generations to maintain and improve their financial health has never been more important.

In good times, the need to improve financial literacy is widely accepted by banking industry leaders and consumers alike. This important topic is regularly discussed by experts at the World Economic Forum and built into initiatives sponsored by the United Nations. Regarded as an economic good, financial literacy is critical to achieving financial inclusion.

What about now, in decidedly less-than-good times? How are banks prepared to promote financial literacy for millennials and especially Gen Z, as they face a world in financial turmoil?

Discovery Bank, a new digital bank based in South Africa, has already developed a unique banking model that helps consumers improve their financial responsibility by reshaping behaviours. The company’s focus on “behavioural banking” helps consumers set financial goals, and it rewards behaviours that help them meet those objectives.

Introducing behavioural economics

Discovery Bank came up with a compelling proposition. If consumers could learn to behave more responsibly financially, banks could reduce default rates, share the resulting benefits, and create greater financial well-being – for both individuals and societies.

Discovery adopted a new business model: behavioural economics. Consumers use a program called Vitality Money, which evaluates their financial status and helps them set goals. The program, built into the Discovery Bank app, tracks the customer’s progress against weekly goals and reports results, so people can see their performance.

Vitality Money issues weekly rewards to customers that meet their goals, and customers earn points that help them achieve certain status levels – and rewards. Discovery partners offer a range of purchase discounts on items ranging from food to airline tickets. In addition, positive behaviour results in financial rewards, such as higher deposit and investment return rates or lower interest rates on loans.

Reward status levels are dynamic, rising and falling with customer behaviour. A drop in status level drops typically motivates people to get back on track, adjusting their financial behaviour to meet their goals.

“It’s important to note that this is not (just) a rewards program,” says François Groepe, deputy CEO of Discovery Bank. “Our (programme) is linked to changing behaviour so that you can contribute to a more prosperous society. I think that’s a very important differentiator.”

Discovery Bank is part of Discovery Ltd, a South African financial services firm that also offers insurance, asset management, and employee benefits through its various brands. The organisation also uses behavioural rewards in its other lines of business.

Driving behaviour with rewards

Launched in mid-2019, Discovery bills itself as “the world’s first behavioural bank.” More important, though, is the bank’s focus on innovative new products. “Discovery is really an innovation company,” says Jérôme Frey, CIO. “It’s about dazzling clients. And our chairman, Adrian Gore, is absolutely passionate that new products be delivered on a regular basis. There’s no way that Discovery will stand still.”

To lead the market in innovation, the company plans to release new products regularly. Within its first six months of operation, Discovery Bank introduced two new products – both of which have been well-received.

The first, Discovery Miles, allows customers to receive online miles for certain spending activities using their bank accounts. The miles accrue in real-time with each transaction, so consumers can instantly convert them into currency and deposit the funds into their bank accounts.

Another offering is called the iStore benefit, which enables customers to finance a new Apple iPhone with rewards generated by good behaviour. A month of goal-positive behaviour could generate enough rewards to cover that month’s phone bill. Customers who fail to meet their goals would have to pay the bill out of pocket.

Enabling better customer service with technology

The right systems helped the bank get up and running just 18 months after its initial launch announcement. Powerful, reliable technology also helped the company create a customer onboarding application that can open a new account within just five minutes.

“The technology is extremely important for us,” says Frey. “It has to be fast, agile, and robust. We needed a solid workhorse with a huge amount of flexibility at the configuration level.”

In 2020, Discovery will begin looking for ways to incorporate rapidly developing technologies such as artificial intelligence and machine learning into its solutions. Most important, however, is listening to customers and ensuring that the bank delivers the most pleasant, rewarding experience possible.

With this commitment and its focus on behavioural banking, Discovery expects to be one of the leading banks in South Africa within five years – continuing to delight customers and offer products and services that exceed market expectations. Could this unique banking model spread beyond South Africa? Considering Discovery’s success, the chances are very good indeed.

Financial responsibility is always important to individual customers, countries and our global economy. Using technology to create ways to improve financial literacy should be a major cornerstone for banks, in good times and bad. I hope to see more financial services providers develop new and interesting ways to leverage technology to help all consumers – but especially those just starting out in challenging economic times like these.