When I was watching the excellent Adam McKay film The Big Short originally released back in 2015, the first thought to pop into my head was: “Finally a movie that will explain to my parents why we make these systems for banks!” In the film, the actress Margot Robbie, soaking in a bubble bath, explains how the derivatives that launched the financial crisis in the U.S. in 2007 were based on covered bonds. The scene was an ironic take on the fact that few people would normally have the patience to listen to long winded explanations riddled with financial terminology. The product structure was so complex that it concealed as well as concentrated the underlying risks of the housing market.
In Finland, the situation has been better, but the fundamental mechanism is still the same. Our mortgages are mainly financed by foreign investors, not deposits. These investors receive mortgages as collateral for the money they lend. The interest rate on the money provided by the investors depends on the quality of the collateral. The better the collateral, the lower the interest rate. The quality of Finnish housing collateral has been good, but recently a noticeable risk has arisen especially in regions experiencing net outflows. This calls for transparency also in Finland in order to ensure that the collateral meets the investors’ and credit rating institutions’ criteria. At best, the nearly one hundred reports targeted at different agencies are generated automatically, at worst by dozens of people manually typing them into Excel spreadsheets.
The required transparency and quality of reporting is one of the reasons why the process needs a separate system. Another one concerns daily optimisation: Collateral is mobile by nature, as homes are sold and purchased and loans are paid back every day. Insolvency and credit losses are part of the lenders’ daily life. The handling of hundreds of thousands of collateral assets requires that the bank have a safety margin to ensure the availability of collateral. The smaller this safety margin can be made, the more the bank is able to obtain external funding.
Our Evitec Covered Bonds is an Enterprise Resource Planning or ERP system for a bank issuing covered bonds. According to our estimate, our system processes over 40 per cent of Finnish mortgages as it optimises collateral for covered bonds. Our users include OP, the recently listed OmaSp, S-Bank and Hypo (The Mortgage Society of Finland), the only credit institution in Finland specialising in housing. The reliability of the system and service thus has a great social importance, as is the case with Profit Software’s products more broadly. We have comprehensive expertise in mortgage bank IT systems that meet legal requirements. We are happy to help you launch or automatise your business or modernise your existing system.
Perttu Heinonen, SVP Consulting Financial Services, Evitec
When discussing a system renewal, hot topics are amongst other digitalization, automation, conversions, and migration. And nothing wrong with these, all important factors ensuring the new system operates as whished and delivers the expected benefit. But will a system renewal bring to the users something in addition to a new interface?
”We’ve always done it like this”
I’m sure we have all sometime come across the saying “we’ve always done it like this”. Same attitude can appear also during a system renewal. When the automatization level increases, the amount of routine manual work decreases. And the logic of the new system might differ from the old one. These factors automatically lead to changes also in work processes. Therefore, a system renewal should be seen as a more holistic renewal, not just a shift in technology. For the users this means getting used to both a new interface as well as new work processes and routines.
Technical and mental transformation
The project team members get to know the new operating platform stepwise. Demos of part deliveries and particularly testing phase are great moments to discuss the functionalities of the new system and listen to the system vendors viewpoints of different solutions. These are also natural moments for reviewing current processes and routines and when needed, form new ones.
Also, the trust in the new system and the rationality for the new work routines build up during the project. Project team members have plenty of time to get used to the changes and go through a mental transformation from the old to the new era.
When the launch approaches and rest of the organisation is brought along, the newcomers will not have the same timeframe for getting acquainted with all new. For them, the pilot phase is often their first touch point with the new system and work processes but as the pilot is a much shorter phase than the project, the rest of the organization needs to absorb all new much faster. Now the project team members have a new important role as the ambassadors of the new ear. They can support and rationalize the new processes and help to smoothen the transition. As the rest of the organization will most likely have same kind of questions as the project team members, so who is better to answer them than those who already have been through this phase.
Adjustable standard system
If some part of the deliverable system does not seem to quite fit into the insurers operations, customer specific adjustments are a good solution. Evitec Life is a standard system developed for life insurers for administering pension, savings and risk insurance policies and claims. Evitec Life has a parametrized product structure allowing a flexible product configuration. Additionally various system functionalities can be modified according to customer needs. Therefore, each delivery is to some extent customer specific, although the base is the same. We are our customers partners and system renewals are planned, tested, and implemented in close co-operation. By this, we can deliver a solution that supports the customers individual products, needs and procedures.
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