Wall Street will be one of the first and largest industries to be automated by artificial intelligence, predicts Kai-Fu Lee, China’s most famous venture capitalist and former Microsoft and Google executive. Lenders, fund managers, and analysts (any job that involves calculating numbers to estimate a return) are at risk.
“Banks have the baggage curse they have, like Kodak ditching the movie,” Lee says. “Their DNA is all wrong.”
Lee’s venture capital firm, Sinovation Ventures, began investing in this space by funding Smart Finance Group, a company that algorithmically determines payday loan eligibility. Lee expects the company’s algorithms to disburse 30 million loans this year, giving the company a scale that would never have been possible by hiring humans to do the same job. This basic technology would be easily applicable to other types of loans and financial decisions.
As for the large banks that currently dominate, the venture capitalist predicts that they will be foiled by smaller startups capable of deploying new technology much faster.
Lee is so confident in AI’s financial prowess that he’s testing three algorithmic trading systems for his own wealth, which trade currencies, arbitrage, and a portfolio of his choice.
“I don’t trade with humans anymore,” Lee told Quartz.
His bet is won: Lee reports that these systems have yielded an 8x return over his human personal banker, in an interview today with Quartz editor-in-chief Kevin Delaney.
But where small startups might have the opportunity to deploy their AI systems quickly, large financial institutions have the ability to work on a much larger scale and offer much more compelling compensation to IT talent. JPMorgan devoted 9% of its turnover this year to technological development, Bloomberg reports, channeling massive resources to hire and develop financial artificial intelligence systems.
“We are prepared to invest to stay ahead of the game, even though, in the final analysis, some of that money will go to a product or service that was not needed,” said Marianne Lake, CFO of JPMorgan, at a conference last summer.