12.11.2001/01

VR Kreditwerk AG12.11.2001/01

24th World Congress of Housing Finance24th World Congress of Housing Finance

November 11 - 14, 2001November 11 - 14, 2001Washington DC.Washington DC.

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

VR Kreditwerk AG kreditwerk

VR Kreditwerk AG12.11.2001/02 VR Kreditwerk AG kreditwerk

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

Summary: E-Evolving World Urging on Change

VR Kreditwerk AG12.11.2001/03 VR Kreditwerk AG kreditwerk

contactcontact

Herbert OttenCEO

VR Kreditwerk AG

Gertrudenstrasse 2

D-20095 Hamburg / Germany

Phone: +49-(0)40-822 22-2201

Fax: +49-(0)40-822 22-1011

Mail: [email protected]

Internet: www.kreditwerk.com

VR Kreditwerk AG

... 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

Revolutionary means of information technology

12.11.2001/04

E-Evolving World Urging on Change

VR Kreditwerk AG

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

Effects on customers

12.11.2001/05


VR Kreditwerk AG

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

Effects on markets

12.11.2001/06


VR Kreditwerk AG

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

Effects on financial service providers

12.11.2001/07


VR Kreditwerk AG

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)

... act

... include

... want to

... have

... are

... decide about

e.g. purchase of a house

e.g. financing

e.g. “around housing”

Trends: Customers ...

12.11.2001/08



Securing the value chain by division into:

consulting <=

financing <=

funding and portfolio management <=

processing <=

Consequences for financial service providers

new business cases

profit EBIT ROI

process optimization

economies of scale and synergies

technological support

“around housing” (RUDI)




Technological support plays a central role

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

VR Kreditwerk AG

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 €

Housing finance markets in Europe

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VR Kreditwerk AG

Housing finance markets in Germany: Intensive competition and low profit

12.11.2001/12

• fixed rate credits

• variable credits

• bonds

• MBS

• derivates

36% 20% 6%38%

privatebanks

publicbanks

cooperativebanks

insurances

40 million customers

4 groups of service providers

products

treasury

VR Kreditwerk AG

Cooperative banks in Germany in 2001

12.11.2001/13

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

IT + processing

11 million contracts

portfolio

7 million clients


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)

VR Kreditwerk AG

History of kreditwerk: Competitive advantage by technology in Germany

12.11.2001/15

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


• customer service

• products

• sales

processing

• financing

• portfolio management

information

technology

the value-added the value-added

process is process is

completely coveredcompletely covered

cooperativebanks

fieldservice

internetportals

client 1 client n

private builder-ownersprivate builder-owners

client 2 client 3

computingcenters

Customer-orientated integration of IT and processing

VR Kreditwerk AG

Company Background: VR Kreditwerk Hamburg - Schwäbisch Hall AG

12.11.2001/17

processing

front office support• saving with a home savings bank• mortgage credits• insurances• portfolio management• mortgage management services

information technologyfront-office

Rudi Schnell

• basic IT and service

• software development

• internet plattforms

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)

clients (IT and processing):clients (IT and processing): 2020

potential processing partners:potential processing partners: 5757

IT-partners: IT-partners: 2525

portfolio: portfolio: 11,2 million 11,2 million contracts contracts

employees: 2.300employees: 2.300

locations: Schwäbisch Hall, Hamburg, Kiel, Berlin locations: Schwäbisch Hall, Hamburg, Kiel, Berlin

turnover (in 2001 expected):turnover (in 2001 expected): 230 million EURO 230 million EURO

EBIT (in 2001 expected):EBIT (in 2001 expected): 6 million EURO6 million EURO

equity capital (in 2001):equity capital (in 2001): 10 million EURO10 million EURO

• reaching scale and synergy effects

• marketing of key competences: Information technology and processing

• gaining market shares

• profitable value chains, distribution strength

• strategy

VR Kreditwerk AG

“Around housing”

12.11.2001/18

public development funds public development funds

Service provider

real credits

personal mortgage credits

real credits

personal mortgage credits

mortgage banks

cooperative banks

building saving contracts

building saving loans

building saving contracts

building saving loans

insurance loans

capital / risk live insurance

building / household contents insurance

building / estate third party insurance

insurance loans

capital / risk live insurance

building / household contents insurance

building / estate third party insurance

Schwäbisch Hall

Products “around housing”Products “around housing” Product suppliers

e.g. KfW (public credit bank)

(insurance company)

VR Kreditwerk AG

Fields of business / Spectrum of activities: We do the work

Processing

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

• basic IT and

application service

• software development

• back office systems for

Information technology

12.11.2001/19

Front office systems

Rudi Schnell

– home savings banks

– mortgage banks

VR Kreditwerk AG

Extended spectrum of activities

12.11.2001/20

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

Supplementary servicesSupplementary services


as of 30/07/2001

Management portfolio

• paperless

• workflow controlled

• electronic file

fully automatic

without record

Components

Real credits and other mortgage credits

Building saving contracts

Building mortgage loans

Insurance loans

Life insurance (risk)

Total portfolio

Number- in thousands -

414

7.235

2.165

26

1.321

11.161

Processing aktivities

technology based

service platform

technology based

service platform

VR Kreditwerk AG

Distribution channels and technology: Cooperation of frontend and back office

InternetMobile

bankingSB

toolsCall

CenterCooperative

partnerMobile

distribution OTC

work-place

Frontend

channels

Backoffice

systems

RUDIbackend

Fiducia (NBS)GAD (BB3)(computer center

providers)

R+V(insurancecompany)

Others

Interfaces

Product controlling

Integration platform of software components

bankcredits

buildingmortgage

loans

mortgagecredits

insurances fondsbuildingsaving

contracts

12.11.2001/22

VR Kreditwerk AG

Map of the application architectureMap of the application architecture

Dat

a bu

s

Operational data processing

Integration

Offi

ce a

utom

atio

nba

sic

serv

ices

Basicsystems

product machinepartner system

contract manager

Buildingsaving

contract

Mortgagecredit

Processingactive /passive

business

Front office / back office Customer Interface Multi-channel distribution

Elektronic file

Data warehouse

Data martsPlanning, management, controlling

Customer relationshipmanagement

Insurance

Workflow management

RUDI: The integrated cooperative system

12.11.2001/23

VR Kreditwerk AG

IT-architecture example:

12.11.2001/24

Continuous actualization of the map of components

data warehouse

IT-infrastructure

Technical sub-systems

data storageframework

connection framework

workflow bus framework

visualization management ofdocuments

framework of services

operating system networks hardware

Operational fields

security

product

object

contract

account

partner

settlementof commission

Sub-systems of professional sections

private builder owners services investors capital market

IT-products

capital market system

information system

building saving loan system credit system negotiation products

information systemclient system

distribution controlling investor system

VR Kreditwerk AG

IT-strategy is a matter for the top management executive committee

12.11.2001/25

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!

VR Kreditwerk AG

Managing the financial investment in technology

12.11.2001/26

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


Originator - Client benefit: „Quick-face“ to the customer

Result

acceptances within3 minutes (3 minutes contracting)

./. 30 - 50%

customer adjusted range

of products

Factor of

success

goal

costs

customer

consulting

Effect

competitive advantages

(origination)

cost advantages by economies

of scale + synergy

profit advantages and increasing

market shares


Conclusions: Service provider kreditwerk

... serves professional banks and insurances

... produces high quality and security (including data protection)

... is fast, cheap, and customized

VR Kreditwerk AG

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

Trends / Outlook

12.11.2001/29


12.11.2001/01

Documents