The financing industry has been facing constantly growing challenges for years:
- increasing customer expectations in terms of availability at any time, intuitive application processes and individual financing offers,
- efficient processes that can be adapted quickly if necessary,
- fast response times with regard to professional and technological requirements,
- but also increasing requirements in terms of regulation and (IT) security or
- the future significant use of artificial intelligence not only in the supporting processes, but also directly in the process flow.
Existing systems are often several decades old, have high maintenance costs and a lack of flexibility when changes are necessary - simply because there is often a lack of sufficient / up-to-date documentation ("never touch a running system") or there is a lack of specialists who are proficient in the "old" programming languages. Hard-coded, "hard-wired" functionality means dependency on IT, as only they can implement the adaptations - often with excessive response times or "time-to-market".
Leasing systems with a modern software architecture can be easily integrated into existing IT landscapes due to their technical capabilities and allow the mapping of the customer-specific business model through workflows that can be adapted to customer requirements and extensive parameterization - and can be set up or adapted after training by power users in the specialist departments.
Individual development or standard product? Although there are one or two in-house developments on the market, the product approach for a leasing solution is becoming more and more established. Business follows IT. Sophisticated solutions offer a high level of functionality, closing a gap to the standard through customer-specific additions is becoming the exception - and the decision-making standard for closing these gaps is the underlying business case, especially as process adaptation is often sufficient: the decisive factor should not be "how" something is to be achieved, but "what" is to be achieved. If a leasing company has a very broad technical base, a hybrid approach can also be used, in which the standard business is covered by a product solution ("buy") and a special application is created for the "USPs" ("make"), which uses central services and processes of the purchased leasing solution.
In this blog post, we show best practices for the selection of leasing software ("buy"). It is also the first in a series of articles in which we share our experiences from the introduction of a new leasing system to the successful go-live (and beyond).
Initial situation
Software implementation projects are often delayed because the people in charge of a leasing company, management and specialist/IT managers, know that they are facing a major project. It is often a question of resources, as the best people are needed for the upcoming project on the one hand and have to fulfill their responsibilities in day-to-day business on the other. It is also not an IT project: the introduction of new leasing software has an impact on the entire company and should therefore be viewed holistically and accompanied by comprehensive change management (project) with early involvement of employees and ongoing communication.
The motivation to "only" eliminate pains and restrictions of the existing leasing system or rather a reorientation of the company with growth in perhaps also new business areas and use of extended options from
- Digitization (meeting increasing customer requirements),
- automation (increasing efficiency) and
- increasingly artificial intelligence (perhaps to compensate for the shortage of skilled workers),
is crucial - for the business case that a new system should cover and the budget that can be used. Opportunity costs must also be taken into account, which result from the (additional) effort involved in maintaining and adapting an outdated existing system as well as from foregoing business opportunities that have not yet been economically viable.
Modern IT architecture based on industry standards
The new system should be "state-of-the-art". Different technology frameworks embody different architectural approaches on the market. However, one key requirement of any system is crucial: its openness. The days of "monoliths" and proprietary systems are over. "Open finance" is the order of the day: different sales channels, perhaps leading CRM systems in master data management, supporting CPQ systems (systems for object configuration with the Configure, Price, Quote functions), connection of a (group) general ledger (possibly with different accounting standards) and much more. Microservices as services that are largely decoupled and perform small tasks are "key": with modern interface technologies and protocols that simplify data queries (read, create, change, delete) between applications and thus their interoperability (e.g. based on RESTful services or OData [Open Data Protocol] via APIs, URLs and formats such as JSON and XML).
The "best-of-breed" approach (e.g. based on Java / ReactJS) and the platform approach (e.g. based on Microsoft Dynamics 365 Business Central, formerly Microsoft Dynamics NAV or Navision for short) are opposed to each other.
With its "Credit Management Solution (CMS)" and "HENRI" product lines, NAVAX serves both architectural approaches and always offers the right solution for different requirement scenarios: both the complex integration into a possibly extensive existing IT landscape (e.g. of an international banking group) and the rapid provision of a professional, holistic solution "from the portal to the booking record". Both approaches are scalable as required and, with "basicHENRI", can even be implemented by a smaller leasing company that does not want or need to orchestrate its services.
What both approaches have in common is the requirement to implement processes that (can) run in a highly automated manner, are "seemless" due to the peripheral systems connected via interfaces (APIs) and map the business to be initiated or processed end-to-end.
Requirements for the software provider
The competence of a software provider is reflected in a variety of skills with which it should contribute to a software implementation project at a leasing company.
Industry expertise
Specialist experience - ideally with customer references who have already successfully implemented business models similar to the one to be realized with the provider. This applies to
- the different business areas in which leasing can be used, e.g. consumer goods or capital goods leasing, automotive finance or bike leasing - with further ("full service") partner integrations,
- compliance with and implementation of banking supervisory requirements, such as those arising from EBA guidelines, KWG, MaRisk, BAIT, DORA, GDPR, etc,
- the contracts that fulfill the requirements from outsourcing and support the service provider management of the client, the leasing company.
NAVAX Software specializes in financial service providers, banks, leasing and factoring companies and manufacturers or their captives and offers financing solutions with NAVAX Financial Services Solutions, which are used by around 40 well-known customers.
Methodological expertise
The provider should be able to fall back on proven procedural models with which it can guide its customers through their "renewal process" in a skillful and goal-oriented manner. For the individual leasing company, it is an exceptional situation that may have been "avoided" in the last 10 or 15 years and is not something that either the management or (most) employees are used to. It is therefore common for the introduction of new leasing software, as a crucial investment that will significantly determine the (successful) development of the leasing company over the next few years (decades), to be accompanied by specialized consulting companies; these must be subject to the same requirements as the software provider itself.
Thanks to a large number of projects, NAVAX can draw on tried-and-tested procedures and checklists and, alone or in coordination with implementation partners, can accompany its customers from the very first step - and also challenge them: the introduction of new software should also be an opportunity to critically review the financing constellations that have become familiar to you in terms of their contribution to success and, if necessary, to do without one or the other.
Technological competence
Real innovations in leasing? From a technical point of view, since its "invention" in the USA in the middle of the last century, leasing has been defined by the use of an asset over a certain period of time and its return/takeover at the end of an (initial or subsequent) leasing period. Technologically, however, no stone has been left unturned; programming languages, the connection to other systems, the supply of necessary data (e.g. from credit agencies and other data sources), processing speeds and scalability have changed fundamentally. Everything is digital - from the portal with self-services for the commercial or private lessee to the signing of the contract to the conclusion, normally or prematurely, e.g. in the event of a claim with automatic reconciliation with the insurance company.
In the best case scenario, the functionalities of all parties involved in the transaction are integrated into the new leasing system without media disruptions or manual intervention/duplicate entries and can be operated intuitively via a uniform and clear interface, even for those who are not very tech-savvy and only use the application a few times during their working hours. It is therefore important to choose a provider that takes up the challenge of continuous renewal and invests in the (further) development of its applications on an ongoing basis. This not only applied to the integration of innovative FinTech solutions in the past, but is currently particularly relevant at a time when completely new opportunities are emerging through the use of artificial intelligence.
The NAVAX Group set up a dedicated AI team at an early stage to identify and evaluate use cases for the use of AI, initially more internally for programming, testing and further quality assurance, but increasingly now in the actual business processes of NAVAX Financial Services Solutions itself.
Solution expertise
The technical requirements for a leasing solution are constantly increasing: requirements of the various markets and their customers, especially with regard to digitalization, internal requirements for the automation of business processes, requirements for traceability, transparency and risk management, whether for business reasons or regulatory reasons.
New financing options, complex customer / supplier constellations, extended requirements for life cycle management and sustainability in relation to the financed assets that "learn to talk" (Internet of Things) and provide data on their state of health and extent of use (pay per use / per outcome). All the requirements arising from this should be resolved by a modern software - "event-driven" - with a cash flow-oriented calculation kernel, so that each individual debit or credit can be assigned to its originator, always parameterizable, so that the administration and customizing can already be largely realized by the specialist departments of the leasing company.
With the Credit Management Solution and HENRI, NAVAX offers its customers two technologically different financing solutions as product solutions that are continuously developed and grow professionally with every customer requirement that can be incorporated into the standard. In this way, every customer benefits from a user community with shared costs for ongoing development - and does not have to change providers after X years because the software is outdated.
Implementation expertise
The provider of leasing software can already prove itself in the support of an initiation and tendering process, e.g.
- Fast, meaningful feedback on catalogs of requirements,
- Underpinning the general solution competence with customer-specific presentations that use use cases to show that the business model the customer is aiming for is "actually" supported - even during the tendering process (Request for Information / Request for Proposal)
- Support in the definition and specification of technical requirements through reference installation (instead of the development of technical concepts by leasing company specialists and experts),
- Identification of gaps between the product standard and the customer's requirements based on its specific business model and constructive, standard-oriented gap closing in order to avoid the subsequent costs of a "drifting apart" of product and customer installation (stick-to-standard approach),
- Introduction of proven methods of project management and implementation with regard to governance and compliance - accompanied by open and trust-building communication with the leasing company and/or its advisor, in which the project methodology and organization, project phases and the respective services to be provided are bindingly agreed,
- Implementation of a scoping phase for the professional preparation of a project as a "proof of concept" and mutual clarification of expectations regarding the deliverables on both sides - in each case at the appropriate time,
- Provision of experienced project managers who later also manage the project in a classic, agile or hybrid way - after analysis & design in the implementation with customizing, integration, migration, tests for go-live and transition to the operating phase with its ongoing further development via early live support - and this via comprehensible project controlling that creates transparency about what has been achieved in comparison to budget consumption.
NAVAX closely accompanies its customers and enables them to administer the leasing software themselves - after training - and continuously adapt it to their needs, be it with regard to new features of a financing product, decision rules for granting loans or time-limited actions. Support is available on request if complex issues need to be resolved or if the customer's lack of resources delays rapid implementation.
Operational expertise
Due to increasing (legal/regulatory) requirements (e.g. NIS-2, if DORA [previously more for banks] is not used directly) or increasing attack scenarios (cybersecurity), professional operation as software as a service is coming into focus. The preference is usually for operation as software as a service with comprehensive service management as an "all-round carefree solution", consisting not only of setting up the infrastructure required to operate a leasing solution, but also the management of capacity, availability, contuinity and, increasingly, security. Fast scalability and high application availability with transparent reporting of the agreed service level agreements are key, especially when 24/7 operation with peak load coverage must be guaranteed in consumer goods leasing via portals.
Even if everyone is talking about the "cloud" and everyone is already running applications in the large hyperscalers' public clouds, many financial service providers (still) require operation "in the private cloud", i.e. a dedicated data center, possibly with geo-redundancy - if they have already said goodbye to in-house operation. This is all the more true with emerging issues of digital sovereignty and the requirement that one's own data should at least not leave the EU.
NAVAX offers its customers exactly the right infrastructure solutions (software as a service in the private cloud, a German data center) and service via German-speaking support, with short response times and, if necessary, personal contact persons who know the respective customer constellation. This increases the flexibility of the customer's IT department, which remains a competent point of contact but can focus on other issues. To support the customer's outsourcing management and service provider management, NAVAX is ISO27000 certified and has its processes regularly audited in accordance with ISEA 3402 Type 2, the international equivalent of the German auditing standard IDW PS 591.
- Innovation competence & investment security: two different topics that are mutually supportive. In times of rapid change and the need to adapt, the ongoing maintenance and further development of financing is crucial for the resilience of customers. On the one hand, a provider should maintain a broad network (and be able to offer standard interfaces) to the usual providers on the market (e.g. credit agencies, providers of customer data (e.g. KYC with PEP and sanctions lists) or property data (e.g. residual values), signature service providers, etc.). FinTechs (e.g. alternative scoring or the introduction of the digital account check) have also always provided impetus. However, it is valuable - and practical - when your own customers contribute their ideas to further development. Provided the customer does not want to protect these ideas (intellectual property) and they are standardized, all customers in a user community benefit from them - both in terms of technical expertise and shared costs, including in relation to new regulatory requirements. Modern lifecycle management ensures that the application does not become obsolete and that customers are "forced" to change providers after the first or second contract term.
- NAVAX is constantly reviewing how the product standards of CMS and HENRI can be expanded, thus always offering its customers modern applications and a high level of investment security - in a business partnership that will develop over many years. At the same time, a broad, renowned customer base ensures NAVAX's financial stability - to the benefit of its customers.
Last but not least: the chemistry has to be right
During the introductory and tendering phase, it quickly becomes clear to a leasing company (or its consultant) which provider is professionally competent and actively and enthusiastically contributes its experience (from comparable projects). But of course, every project is different, new, with challenges that have not yet been solved in this particular constellation - and may only come to light in the course of implementation. There is therefore an important additional factor: the chemistry, which has to be right on a human level, the uniform "mindset" and basic understanding, the common will to always find constructive solutions. Two project teams, one on the customer side and one on the provider side, must work together intensively over a period of at best 6 to perhaps 18 or 24 months, navigate around the unavoidable pitfalls of a project and be managed accordingly. This can only be done successfully in a "one team spirit" by speaking a common language and setting aside individual interests - in the interests of the solution and the economic success of all those involved.
In our next technical article, we will focus on the successful roll-out of new software and provide tips and ideas for implementation.
