An application of behavioural finance in banking: The Discovery Bank case

Abstract

Orientation: Behavioural finance research suggests that human biases can cause irrationalities which have a significant impact on decision making. Discovery Bank is an organisation that attempts to apply behavioural finance to improve the financial health of its clients. Research purpose: This study attempts to determine the extent to which the Discovery Bank business model is grounded in behavioural finance theory. Motivation for the study: Discovery Bank is the first bank to leverage behavioural insights to improve personal financial decisions. Research approach/design and method: This study followed an explanatory case study methodology with primary data sources being interviews with key employees, academic research and electronic artefacts. The Discovery Bank business model was evaluated against the behavioural finance theoretical framework to establish the extent to which it conforms to behavioural finance theories. Main findings: The Discovery Bank business model is grounded in behavioural finance theory to a significant extent, with emphasis on modifying the behaviours that inhibit financial well-being. The bank generally uses incentives rather than nudges as behaviour modification tools. Practical/managerial implications: Whilst behavioural finance continues to attract substantial attention in finance research, its practical implications for the banking industry and personal finance are largely unexplored. Furthermore, the study contributes to the literature by examining the behavioural finance theoretical framework in the context of the banking and the broader financial services industry. Contribution/value-add: This research may be of value to practitioners in the financial industry as it explores a unique business model. Researchers on behavioural finance may find value in the practical application of the theoretical framework.