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Housing Finance in an E-Evolving World: Using Technology to Improve Housing Finance. Herbert Otten Real Time Business Around Housing by Cooperative Banks in Germany. kreditwerk. 24th World Congress of Housing Finance November 11 - 14, 2001

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12.11.2001/01

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  1. Housing Finance in an E-Evolving World: Using Technology to Improve Housing Finance Herbert Otten Real Time Business Around Housing by Cooperative Banks in Germany kreditwerk 24th World Congress of Housing Finance November 11 - 14, 2001 Washington DC. 12.11.2001/01 • VR Kreditwerk AG

  2. kreditwerk Summary: E-Evolving World Urging on Change • Revolutionary means of information technology require of new value-added activities • Effects on clients, markets and of financial service providers • Trends and consequences for financial service providers • Technological support plays a central role • Housing finance markets in Europe and Germany • Cooperative banks in Germany and service providers “Around Housing” • Service provider “VR Kreditwerk AG”, Germany • Range of Services “Around Housing” • Distribution channels and technology • IT-strategy and IT-architecture (IT-map) • IT-strategy is a matter for the top management executive committee • Managing the financial investments in technology • Originator-client-benefit: “quick-face” to the customer • Conclusions / trends / outlook 12.11.2001/02 • VR Kreditwerk AG

  3. contact Herbert Otten CEO VR Kreditwerk AG Gertrudenstrasse 2 D-20095 Hamburg / Germany Phone: +49-(0)40-822 22-2201 Fax: +49-(0)40-822 22-1011 Mail: Herbert.Otten@kreditwerk.de Internet: www.kreditwerk.com kreditwerk 12.11.2001/03 • VR Kreditwerk AG

  4. E-Evolving World Urging on Change Revolutionary means of information technology ... with ... lead to ... result in ... create ... destroy ... require • new types of network technologies • explosively increasing network connections • new behavior of people • new forms of communication between people • new types of business connections • extreme competitive pressure • high speed • long established value chains • new value chains ==> the fundamentals of business strategy have to be over-thought ==> business structure has to be renewed fundamentally ==> new business models have to be created 12.11.2001/04

  5. E-Evolving World Urging on Change Effects on customers • Market transparency increases drastically • Options for customers explode • Navigators, assistants, brokers and financial service providers create additional profit • Customers stick to their software rather than to their bank 12.11.2001/05

  6. E-Evolving World Urging on Change Effects on markets • Markets are newly aligned • New business models come - old business models die • Existing competitive advantages fall off • Sinecure holders become victims • Existing value chains are further split up 12.11.2001/06

  7. E-Evolving World Urging on Change Effects on financial service providers • Financial service providers have to cope with increasing pressure on services and costs => classical price wars in superseding competition => new service providers with new cost structure enter the market => consulting becomes an autonomous marketable service => finance companies are not that important any more • Funding and portfolio management (mortgage bonds, mortgage-backed securities - MBS -) are part of value chain • Advantages of volume decide to an increasing degree at all steps of the value chain (Economies of Scale) => classical value chains of integrated suppliers break down => processing service providers are low-cost producers in all new value chains 12.11.2001/07

  8. E-Evolving World Urging on Change Trends: Customers ... ... act ... include ... want to ... have ... are ... decide about • suited to the occasion • at the same time the questions connected • solve all resulting problems immediately • strong wishes, high demands and are idle • the more price orientated the better they have themselves pre-informed • the point of action (place, time, speed) e.g. purchase of a house e.g. financing e.g. “around housing” 12.11.2001/08

  9. E-Evolving World Urging on Change Consequences for financial service providers • Securing the value chain by division into: • consulting <= • financing <= • funding and portfolio management <= • processing <= new business cases • profit • EBIT • ROI • process optimization • economies of scale and synergies • technological support • “around housing” (RUDI) 12.11.2001/09

  10. Within the framework of a well thought-out IT-strategy • Migration scenarios: the way is the goal • Degree of technology vs. manpower is to get into balance technology resources manpower IT + processing E-Evolving World Urging on Change Technological support plays a central role 12.11.2001/10

  11. Housing finance markets in Europe • The German market is the largest in Europe and the third largest worldwide • Private real estate is strongly subsidized (threshold households), increasingly also as part of private provision for old-age • The ownership share of about 40 % in Germany is still too low • EU and EURO create new market situations • Finance need in Germany 2001: 80 Billion € • Stock of financing in Germany 2001: 900 Billion € 12.11.2001/11

  12. Housing finance markets in Germany: Intensive competition and low profit • fixed rate credits • variable credits • bonds • MBS • derivates products 40 million customers 38% 36% 20% 6% treasury private banks public banks cooperative banks insurances 4 groups of service providers 12.11.2001/12

  13. Cooperative banks in Germany in 2001 1.600 retail banks home saving contracts and mortgage loans are key products Bausparkasse Schwäbisch Hall AG = home savings bank Deutsche Genossenschafts- Hypothekenbank AG = mortgage bank = service provider portfolio 11 million contracts IT + processing 7 million clients 12.11.2001/13

  14. Service providers in “business around housing” in Germany • VR Kreditwerk AG, Hamburg - Schwäbisch Hall (Cooperative Group) • DePfa Hypotheken-Management GmbH, Wiesbaden (DePfa-Group) • Prompter AG, Mainz (Commerzbank) • Stater Deutschland GmbH & Co. KG, Bonn (Stater B.V. in NL) 12.11.2001/14

  15. History of kreditwerk: Competitive advantage by technology in Germany our situation 1989: strong competition, low profits, too high costs, too slow our vision 1990: new business model with new rules by technological support starting 1991: settlement 1999: 50 thousand real time contracts with 600 cooperative retail lenders increasing 2000: new company kreditwerk since July 2000 in a new market in Germany Hypofix with pilot banks 12.11.2001/15

  16. Customer-orientated integration of IT and processing the value-added process is completely covered private builder-owners cooperative banks field service internet portals • customer service • products • sales processing information technology computing centers • financing • portfolio • management client 1 client 2 client n client 3 12.11.2001/16

  17. Company Background: VR Kreditwerk Hamburg - Schwäbisch Hall AG A joint venture of the Bausparkasse Schwäbisch Hall (No. 1 of the home saving banks in Germany) and the DG HYP (No. 5 of the mortgage banks in Germany) The new value chain of the FinanzVerbund (finance cooperative) • strategy • reaching scale and synergy effects • marketing of key competences: Information technology and processing • gaining market shares • profitable value chains, distribution strength front-office information technology processing • front office support • saving with a home savings bank • mortgage credits • insurances • portfolio management • mortgage management services • basic IT and service • software development • internet plattforms Rudi Schnell employees: 2.300 locations: Schwäbisch Hall, Hamburg, Kiel, Berlin turnover (in 2001 expected): 230 million EURO EBIT (in 2001 expected): 6 million EURO equity capital (in 2001): 10 million EURO clients (IT and processing): 20 potential processing partners: 57 IT-partners: 25 portfolio: 11,2 million contracts 12.11.2001/17

  18. “Around housing” Service provider Products “around housing” Product suppliers • real credits • personal mortgage credits mortgage banks cooperative banks • building saving contracts • building saving loans Schwäbisch Hall • insurance loans • capital / risk live insurance • building / household contents insurance • building / estate third party insurance (insurance company) • public development funds e.g. KfW (public credit bank) 12.11.2001/18

  19. Front office systems Information technology Processing • basic IT and • application service • software development • back office systems • for RudiSchnell Fields of business / Spectrum of activities: We do the work • front office support • complete application processing • (scoring, clients, objects) • evaluation of solvency and risk • credit contracts and • prolongations • payments • data transfer into client systems • portfolio management • stock management • credit worthiness • clients and objects • (rating support) • mortgage management services • for mortgage bonds, MBS, • bank debenture bonds • home savings banks • mortgage banks 12.11.2001/19

  20. Extended spectrum of activities Supplementary services • Data warehouse for... • ...customer relationship management (CRM) • ...marketing activities • ...risk management (expert systems, risk analysis) • Consulting (IT, processing, process cost analysis) • Additional processing of credits with impaired performance • Additional processing of dishonored credits • Support to gain outsourcing permission 12.11.2001/20

  21. Processing aktivities Management portfolio as of 30/07/2001 Number - in thousands - Components 414 7.235 2.165 26 1.321 Real credits and other mortgage credits Building saving contracts Building mortgage loans Insurance loans Life insurance (risk) • paperless • workflow controlled • electronic file • fully automatic • without record technology based service platform Total portfolio 11.161 12.11.2001/21

  22. building saving contracts building mortgage loans mortgage credits bank credits insurances fonds Distribution channels and technology: Cooperation of frontend and back office Frontend channels OTC work-place Call Center SB tools Mobile banking Internet Cooperative partner Mobile distribution Integration platform of software components Product controlling Interfaces Back office systems RUDI backend Others Fiducia (NBS) GAD (BB3) (computer center providers) R+V (insurance company) 12.11.2001/22

  23. RUDI: The integrated cooperative system Map of the application architecture Front office / back office Customer Interface Multi-channel distribution Workflow management Integration Building saving contract Basic systems product machine partner system contract manager Mortgage credit Processing active / passive business Insurance Office automation basic services Data bus Operational data processing Elektronic file Data warehouse Data marts Planning, management, controlling Customer relationship management 12.11.2001/23

  24. capital market investors services information system client system investor system credit system information system object security account contract product partner hardware networks IT-architecture example: Continuous actualization of the map of components private builder owners Operational fields capital market system distribution controlling building saving loan system negotiation products IT-products settlement of commission Sub-systems of professional sections data warehouse data storage framework framework of services workflow bus framework connection framework management of documents visualization Technical sub-systems operating system IT-infrastructure 12.11.2001/24

  25. IT-strategy is a matter for the top management executive committee • Demands on successful projects • IT-strategy has to follow strongly the business strategy • customer‘s benefit has always to be qualified and quantified • time advantage are always to be quantified • competitive advantages have to be laid down significantly • business cases have to fulfill all demands • projects may only be started if they meet all these criterions! 12.11.2001/25

  26. Managing the financial investment in technology • Demands • professional concepts based on business case (ROI) • IT-developments (market-based) • client - service provider: role understanding also within internal projects • strict project management (key words: milestones, reviews, budgets) • strict controlling of the time schedule 12.11.2001/26

  27. Originator - Client benefit: „Quick-face“ to the customer Factor of success goal costs customer consulting Effect competitive advantages (origination) cost advantages by economies of scale + synergy profit advantages and increasing market shares Result acceptances within 3 minutes (3 minutes contracting) ./. 30 - 50% customer adjusted range of products 12.11.2001/27

  28. Conclusions: Service provider kreditwerk • ... serves professional banks and insurances • ... produces high quality and security (including data protection) • ... is fast, cheap, and customized 12.11.2001/28

  29. E-Evolving World Urging on Change Trends / Outlook • Mortgage finance institutions cooperate closely with service provider • The combination of the financial lender expertise and processing know- how of the service provider increases profit, reduces costs, optimizes the use of technology • User-friendly frontend systems promote acceptance by clients and client advisors in real time business • High-integrated systems that can rapidly be suited to the market will decide upon success or failure 12.11.2001/29

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