Shared-value Home Loans by Discovery Bank Qorus-Infosys Finacle Banking Innovation Awards 2024 - Winner

Purchasing a home is often the biggest financial decision a banking client will make in their lifetime, with financing a home loan being their largest financial commitment and source of debt over repayment terms that often span between 20 and 30 years.

Innovating home loan solutions

Using its tried and tested Shared-value Banking model, Discovery Bank identified an opportunity to launch a market-first Shared-value Home Loan, offering clients an interest rate that dynamically adjusts as an incentive for proactive management of their ongoing financial behaviour and improved financial risk. Even small adjustments in home loan interest rates can lead to increased disposable income and reduced repayment terms, resulting in significant long-term client savings.

Challenges with traditional lending models

Traditional lenders determine interest rates based on a client’s risk and affordability profile upfront at the time of applying for a home loan. This once-off assessment may result in clients being mispriced over time, with interest rates not reflective of their future risk profiles, which may improve due to changes in their personal financial situations (for example, career progression and improved financial planning). In fact, Discovery Bank estimates that through this outdated approach, to assess financial risk once at the start of a home loan, as many as 60% of its clients who have existing home loans with other financial providers are paying more in interest than they should be based on their current financial health.

A behavioural approach to reducing risk

Discovery Bank’s Vitality Money behaviour-change programme serves as the foundation of the Shared-value Home Loan. Vitality Money helps clients measure, manage, and improve their financial health across five key metrics, in turn reducing the Bank’s exposure to future financial risk. Based on real-time data sources from across Discovery Group and third-party data providers, clients receive a Vitality Money status that serves as a proxy measurement for their financial health. Engaging with Vitality Money, coupled with a client choosing to protect their home by adding building and contents cover from Discovery Insure and protecting their home loan by adding cover from Discovery Life, reduces the overall risk for Discovery Bank. This lowered risk for the Bank is, in turn, passed back to the client in the form of an interest rate discount that dynamically increases to up to 1% as they engage with Vitality Money and other home protection offers.

Offered through a frictionless, fully digital application process in its award-winning banking app, Discovery Bank gives clients a preliminary offer in under five minutes, and allows for applications of new home loans, switching of existing loans from other lenders, and refinancing owned homes. Plus, through the wider Discovery Home Ecosystem, clients get access to green power solutions for their homes and convenient financing, and a network of premium home furnishing partners that offer discounts to help clients make their house a home.