(Bloomberg) -- Discovery Ltd.’s banking unit is rolling out a mortgage product in South Africa that will enable clients to pay as much as 1% less on their home loans and lower interest repayments dynamically through its Vitality Money rewards program. 

Discovery Bank estimates that 60% of its clients are overpaying on their existing mortgages, and that they could save as much as 2.8 billion rand ($153 million) in interest payments on their current loans, Chief Executive Officer Hylton Kallner said. 

To unlock the lower rates clients will need to use the company’s insurance products and be members of Discovery’s Vitality Money program — which offers discounts on purchases and insurance to people who keep fit, eat healthily, save funds and drive carefully. The initiative has 1.2 million members in South Africa. 

“Home loans was effectively kind of the final product that our clients need from us in order to have the full spectrum of banking products,” Kallner said in an interview on Monday.

The offering will put the lender up against bigger rivals such as Standard Bank Group Ltd. — which provides 33% of home loans in South Africa — as well as FirstRand Ltd., Absa Group Ltd., and Nedbank Group Ltd., which make up the country’s four biggest banks by assets and control almost 90% of the mortgage market.

A lower interest rate would provide relief to South African borrowers who have grappled with 475 basis points of interest-rate increases since late 2021. The ratio of household debt to disposable income averaged 62% in the three months to September 2023, South Africa Reserve Bank data show. 

“This could be a bit of a Goldilocks moment in the sense that clients are open to the value that we think we can bring to the market, but over time, risk will actually improve and you could get a real tailwind as a result of that,” Kallner said.

Discovery Bank was established by Johannesburg-based insurer Discovery Ltd. in November 2018, and prioritized the use of internet-based technology to compete with more established lenders. The majority of clients come from the middle and upper-income segment of society, who are looking for convenient digital offerings, he said. The bank has 900,000 customers and 17 billion rand in deposits. 

(Updates with comments from Discovery Bank CEO from the fourth paragraph)

©2024 Bloomberg L.P.