Tyme to Discover Digital Banks

FinTech is a buzzword you’ve surely heard of, especially during the pandemic.

Firmly establishing themselves in the digital era, TymeBank and Discovery Bank are making waves as digital banks with some of the most robust growth that are bringing more value to their parenting companies.

In this note, we’re looking into how listed companies are leveraging the growth of these banks to unlock more value as these entities continue to bring innovation, such as MoreTime (a credit facility) and Discovery Miles (a rewards currency), respectively.

African Rainbow Capital Investments Limited (AIL)

TymeBank

Through ARC Fund and ARC financial services holdings (ARC FSH), ARC Investment Holdings' stake in TymeBank amounts to 57.7%, valued at R1.17 billion, including the recent cash injection that was processed during the first quarter of 2021.

Looking at the numbers of TymeBank, the bank reached 3.45 million clients, with an average of 110 000 clients per month during the quarter.

As it continues making progress in securing capital for growth, the bank and Tyme Global secured additional funding of $80 million, followed by another $30 million through tranche placements in February. In Rand context, the capital amounted to approximately R1.6 billion; R500 million was already invested during the period, with R1.1 billion expected to be funded within 12 to 15 months.

ARC fund further mentioned that it would be increasing its stake to around 59% in TymeBank once the tranche placement transaction is complete. Commenting on the investment, ARC said, "the investment represents a strong endorsement for both TymeBank as one of the world's fastest-growing digital banks and for South Africa's banking sector overall."

Further adding that "this was one of the largest foreign investments to any fintech company in South Africa."

Parenting Financials

ARC Investments' intrinsic portfolio value increased to R12.2 billion during its twelve-month period, which ended in June 2021 vs R10 billion of the previous comparative period (PCP), with cash in ARC fund increasing by 582% during the period to R239 million. This comes after the group successfully raised R750 million through a rights issue in October 2020.

As TymeBank expects to break even during the 2022 fiscal year (FY22), ARC investment also added that "As a leading investment holding entity, we have made plans with the management teams of our leading investee companies to align the business growth objectives with the prevailing economic environment."

Build up to accessing a larger market.

TymeBank, after partnering with PicknPay and Zionist Christian Church (ZCC), recently secured another partnership with TFG, which entails access to over 26 million TFG clients.

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Discovery Limited (DSY)

Discovery Bank

Operating under Discovery Limited, this business unit has shown significant growth, particularly during the pandemic. The bank reached 362 000 clients by July 2021, with accounts reaching 646 000. Discovery Banks' daily growth in new-to-bank sales reached 500 per day during the period after the bank expanded its footprint to non-Discovery clients.

As the bank continues to grow through its fintech innovations, Discovery, the parenting company, added that: "This platform is not only transforming banking services and client behavior but is also connecting the different components of Discovery's products and services for a seamless client experience across the Discovery Group."

Through the company's multi-dimensional growth prospects model that includes organic growth, geographic growth, and platform-led growth, Discovery Bank remains the group's main focus, especially in the South African market.

Parenting Financials

While Discovery Bank is still in a start-up phase, the group under which the bank operates, through its other operations, achieved a 7% increase in normalized profits from operations to R6.4 billion within twelve months, which ended on 30 June 2021. Profits for the period surged by 1730% to R3.2 billion.

The group's earnings grew by 3148% to 480 cents per share, with headline earnings increasing to 454.7 cents, representing a 910% growth.

To create more value for clients

Discovery Bank expanded partnerships beyond its operations to companies like EasyEquities to introduce a disruptive collaboration in the fintech space.

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Roundup

As these banks continue to grow, the listed company's invested or under which they operate may intensify their focus on the banks to create more value for the company as a whole and shareholders.

With competition continuing to grow in the FinTech space, we may expect to see more innovation and strategies, especially in start-ups, as they are considered more flexible to adapt to change efficiently.

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Read: A closer shift into the digital economy

Sources – EasyResearch, JSE Sens, Discovery Limited, African Rainbow Capital Investments Limited.

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