Tech firm’s answer for bank margin squeeze

Ryan McCann
October 24, 2019

From The Australian Financial Review
Oct 24, 2019 — 10.49am
https://www.afr.com/technology/tech-firm-s-answer-for-bank-margin-squeeze-20191018-p531vc

The chief executive of property tech firm PointData says big Australian banks are increasingly likely to shift to using automated valuation models when assessing loan applications to help in trying to blunt the impact of shrinking margins as interest rates fall to record levels.

PointData has struck a deal with the privatised land registry office in South Australia now owned by a consortium led by Macquarie Infrastructure and Real Assets, which also includes superannuation giant Canadian Public Sector Pension Investment Board, to offer valuation services to banks, investors and developers.

The Macquarie entity led the Land Services SA consortium that paid $1.6 billion in 2017 for the right to operate the land registry office in South Australia for 40 years. MIRA has also taken a large stake in Western Australia’s partially privatised lands titles office in a $1.4 billion deal signed last month.

George Giannakodakis, the chief executive of PointData, which was set up four years ago and which earlier this year completed a $2 million fund-raising, said the group’s algorithms crunched vast amounts of data across up to 30 variables to provide real-time valuations which changed in line with market shifts.

“We’re using technology to deliver that at speed,” he said.

He said in the US about two-thirds of loans were assessed using automated valuation models, which avoided more time-consuming traditional methods including site visits. In Australia, only about 25 per cent of loans were assessed using automated valuation models.

Australia’s banks led by the big four of ANZ, Commonwealth Bank, NAB and Westpac are under increasing net interest margin pressure after official interest rates were cut to a record low by the Reserve Bank of Australia, and are pursuing a range of cost-cutting options including branch closures.

Mr Giannakodakis said there was a $10 million reduction in costs for every 10 per cent increase in automated valuation model usage at the big banks.

“It’s a multi-pronged benefit for the banks,” he said.

“It’s trimming their costs and they’ve got more confidence in the loan-to-valuation ratios”.

Banks and finance houses are the main target market for PointData products. The tie-up marks the first time in Australia a Land Registry office has teamed up with a private sector company to distribute products. They will become available through the Land Services SA platform, SAILIS, from mid-November.

Brenton Pike, chief executive of Land Services SA, said the partnership with PointData was one of the ways the entity was ”creating value for our communities and unlocking our wealth of data”.

PointData has set up offices in Sydney and Melbourne as part of a national expansion.

“Our strategy is to have national coverage by the second half of next year,” Mr Giannakodakis said.

The group had been steadily using machine learning to build up its Sydney database and had found that some of the old adages of real estate had been reinforced in the house price downturn.

“It’s the land that goes up and down in value in terms of market forces,” he said.

PointData is able to undertake instant property feasibility studies and had a high degree of accuracy in property valuations to the point where it can pinpoint fluctuating shifts in particular streets in suburbs.

Mr Giannakodakis said at its most basic level the technology platform was able to predict whether a property was worth buying.

The company, which changed its name from ipData two months ago, is chaired by former KPMG partner Con Tragakis.

Mr Tragakis said PointData was a disrupter delivering greater levels of accuracy to back decision-making by investors and financiers.