Discovery has entered into an MOU with [DATA FSR:FirstRand Limited] to increase Discovery’s participation in DiscoveryCard to 74.99 per cent.
This is in order to broaden the health insurer’s financial services offering.
In response to the announcement, former First National Bank (FNB) chief executive, Michael Jordaan tweeted, “Hmmm. Discovery is partnering FirstRand to offer ‘broader financial services’. Discovery Bank is born.”
[DATA DSY:Discovery] stated that it would fund the transaction through a portion of the proceeds of a fully underwritten, renounceable rights issue – which will also be used to drive further growth in its high-potential protection business in the UK, VitalityLife.
“DiscoveryCard has grown its customer base to over 250,000 primary cardholders with 315,000 cards in issue. Net advances of DiscoveryCard totalled 3.4 billion rand as at 31 December 2014,” the company said.
“The DiscoveryCard customer base is a profitable and unique asset, and sits in the mid-income, mass affluent and affluent segment of the credit card market, which constitutes 93 per cent of the industry’s profit pool.”
Discovery indicated that as consideration for its increased participation, it will make a cash payment to FirstRand for 1.35 billion rand on 1 July 2015.
“It is intended that in time, this arrangement will be expanded to a broader product suite with the same profit share,” it said.
“In addition, Discovery will contribute 100 per cent of an additional 800 million rand investment which will likely be required to develop and enhance this financial services platform.”
DiscoveryCard will continue to operate on the FirstRand Bank banking licence and systems and FirstRand Bank will continue to provide funding to DiscoveryCard. The financier will also retain 25.01 per cent.