Discovery Bank is more transcendental in the finance sector than what we might think. Most people have experienced the manner in which banks are keen to push a short term loan over long term borrowing for investment purposes.
In many instances it is easier to get a loan for a rapidly depreciating “asset” over a long-term asset that appreciates in value. Property has a number of barriers to entry– ranging from transfer fees to other costs related to the transaction. Buying a car for instance is quick and nearly painless, as dealerships are incentivized to secure sales even at the cost of a client’s long term financial health. What we know about human behavior is that it is not only difficult to take pain in pieces, but it’s harder to take wins in pieces too. That is to say we’d rather avoid the loss and take a series of wins on any day.
What if there’s a bank that cares about rewarding you for doing the things most households struggle with? Take for example savings. On a behavioral level saving patterns are subject to societal norms and the whether the common language has an account of time, value and the future. Societies with languages that don’t have a future tense tend to save less because the future is opaque in their lingual narrative, and thus cognitive structure.
In the macroeconomic context the narrative is quite compelling. Saving gives banks access to more cash to invest in many more investments than before. Credit gives banks artificial cash flows that seem to inflate the macro value of money and perpetuate an artificial life. Cognitively for –an individual– an economy oriented toward credit is one in which households refuse to delay gratification. A savings oriented financial system purports that most people in a country with or without disposable income thinks ahead. There is an important silver line here: sometimes products that add value are too expensive to purchase at scale due to their urgency and returns on investment. This is where credit is profoundly valuable. It enables individuals to make long term purchasing decisions in order to make long term investments too. Not all purchases are based on refusing to delay gratification–some enable the process of building gratification itself.
In some of her lectures and interviews DAMBISA MOYO argues that the future of resilient decision making is long-term. This requires a unique trade-off between political acceptability and practical implications. Simply put, it might make sense to have longer terms for presidential positions such that they reflect the complexities of actually keeping national promises. However, this might not be publicly acceptable and the risk is to high when an ineffective or corrupt head of state has power for too long.
On the other hand NASSIM TALEB argues that for people, companies, officials and countries to make effective decisions, they need to be exposed to the cost of failure. They must have what he calls SKIN IN THE GAME, in order to effectively respond and interact with the true cost of the decisions they make. On a national scale, very little is known about the true cost of credit, how it propels consumerism and a bloated economy cluttered with short-termism. Simultaneously, the true cost of financial decisions are subdued by their immediate possessions and delayed payment. Whereas the behavioral cost of saving might add much deeper value to the product being purchased.
A behavioral bank at scale might unlock a new type of customer– which has always been around. This is the type of customer that appreciates and aspires for long-term value and positive externalities. The true value of our economies have ignored the need to incentivize good behavior as much as it punishes bad behavior.
If an apple a day keeps the doctor away, and it only costs R 100 per month to eat one apple per day– is the apple under priced? Is it under priced if it costs R 1200 per year to visit a doctor for basic care? Is it under priced if it costs R 4800 for basic care? What are the true medical cost savings of a healthy lifestyle? Are these included in your monthly premium? These questions underpin Discovery’s Medical Aid scheme. In which various small rewards are presented to compensate for the healthy lifestyle of individuals through a product called Discovery Vitality. One of the core limitations of the Discovery group in general is that the services are not interconnected– reporting to each other. However, the core integration between the Discovery Card and various retailers and services enables the firm to influence consumer behavior through incentivizing healthy choices, priority treatment, and other benefits. The behavioral bank is quite special, because it may unlock latent markets– unique and barely seen. Simultaneously it’s a stimulating introduction to the future of finance in the South African economy. The only big risk is how they will manage data, privacy against the backdrop of a new business division which could make such behavioral indicators available for sale to partners and other entities.
*Thank you for reading my rant, let me know what you think.