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Data Sheet—What AI Will Do to the Financial System

A JPMorgan Chase & Co. Bank Branch Ahead Of Earnings FiguresA JPMorgan Chase & Co. Bank Branch Ahead Of Earnings Figures
Pedestrians pass in front of a JPMorgan Chase & Co. bank branch in New York, U.S., on Wednesday, April 11, 2018. JPMorgan Chase & Co. is scheduled to release earnings figures on April 13. Photographer: Christopher Lee/Bloomberg via Getty ImagesChristopher Lee — Bloomberg via Getty Images

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(Fortune senior writer Jeff John Roberts is filling in for Adam today)

“Information about money has become almost as important as money itself,” said former Citibank CEO and fintech pioneer, Walter Wriston. The observation is notable because it’s true, and because Wriston made it decades ago—well before the arrival of today’s AI technology that can parse reams of information on a once-unimaginable scale.

While most of the fuss around AI right now centers on transportation and robotics, it’s the financial sector that is arguably doing the most to harness tools like machine learning and data analytics. Familiar examples include lenders that use AI to crunch credit scores, and so-called robo-advisers like Betterment that help consumers build wealth.

But this is just the beginning. According to a new report on AI and finance by Future Perfect Machine, the technology is now used by most hedge funds to shape trading strategies, and by banks to detect fraud and market manipulation. The report also notes that today’s financial giants are vulnerable to competition from tech companies that own large pools of data and already excel at using AI. This is not hard to imagine. It seems more likely every year that an Amazon or a Google will take a serious run at banking.

There’s also the question of who’s going to supervise AI as it spreads deeper into finance. All of us have heard how firms need a gaggle of math and data science PhDs to ride the machine learning wave, but that may not suffice. According to a J.P. Morgan executive cited in the report, the AI eggheads also need market intuition and political savvy to flourish in finance, which sounds like a tall order.

Then, as always with AI, there’s the moral question of whether applying the technology to finance will be good or bad for society. According to the report’s author, Paul Dravis, the answer is likely to be both. Dravis thinks financial firms dealings with AI will be similar to what they experience with leverage: Used in that right way, it can amplify benefits many times over. But used incorrectly, it will multiply mistakes like never before.

Thanks for reading. Please find your usual round-up of tech tidbits below.

Jeff John Roberts
@jeffjohnroberts
jeff.roberts@fortune.com

NEWSWORTHY

Will they or won’t they? Two of the biggest tech startups are teasing about going public…in 2019. Airbnb CEO Brian Chesky, speaking at the Code Conference on Wednesday, said his company “will be ready to IPO next year, but I don’t know if we will.” And Uber CEO Dara Khosrowshahi told CNBC his company is “on track” to go public in 2019, as well. “Lots of things can happen in the world but we have a reasonable buffer as well, so I think we’re in a pretty good spot,” he said.

It happens every year. Famed Internet analyst Mary Meeker issued her annual slide deck of Internet metrics. The 294-page presentation noted that smartphone sales have leveled off while smart speaker sales are exploding, albeit from a small base. Meeker also showed how Chinese tech companies are growing fast and entering fields like AI.

Coming into focus. Speaking of Chinese AI companies, SenseTime, a Chinese startup focused on using AI for image recognition, raised $620 million of venture capital in a deal valuing the company at $4.5 billion. The company says its software has been used in over 100 million mobile devices from China.

High hurdles. The California state Senate voted to maintain strict net neutrality rules similar to those that the Federal Communications Commission imposed in 2015 and repealed last year. The bill must next pass the state Assembly, where an earlier proposal died in January.

Double platinum. A couple of personnel moves at Apple Music have the record industry talking. After putting Oliver Schusser in charge of the service last month, Apple named Elena Segal as global director of music publishing. Getting into the publishing side of music could allow Apple to gain rights more quickly, or even set up its own record label, speculates Rolling Stone.

Turn up the volume. In what seems like a strange turn of events, headphone maker Monster filed with the Securities and Exchange Commission to issue up to $300 million of its own digital currency coins, dubbed Monster Money Tokens, that would be convertible into company stock. Sales at the company slipped 34% to $57 million last year, generating a net loss of $27 million.

The trend is your friend. Speaking of digital currencies, bitcoin set an all-time high close to $20,000 just before the Chicago Mercantile Exchange started trading bitcoin futures contracts. It has since fallen precipitously, trading under $8,000 now. But that’s completely typical behavior for a commodity price when derivatives contracts begin trading, according to a new study released by the Federal Reserve Bank of San Francisco. As with home mortgages and other instruments, early on investors have no reliable way to bet against the commodity, so prices rise dramatically. The arrival of futures trading allow pessimists finally to place their bets, driving down the price.

Android Jeff. At the annual shareholder meeting of Amazon, held on Wednesday in Seattle, several small groups gathered outside to protest. One group carried a huge mock robot with the face of Jeff Bezos, as they protested in favor of a proposal to increase oversight of the company via an independent board chairman. Shareholders rejected the plan. Bezos, who founded the e-commerce giant in 1994, holds both the positions of CEO and board chairman.

FOOD FOR THOUGHT

Europe’s strict privacy law, the General Data Protection Regulation, went into effect last week and the impact is just starting to be measured. As online sites scrambled to get consent for data collection from their readers, Google is working much faster than most of its smaller digital advertising competitors, Nick Kostov and Sam Schechner report for the Wall Street Journal. That adds up to big benefits:

“It’s a huge advantage for Google’s ad exchange if they maintain their very high consent rate and the others don’t improve,” said Bill Simmons, co-founder and chief technology officer for Dataxu, based in Boston.

Arndt Groth, president of mobile ad-exchange Smaato, said that with a smaller supply of targeted ads, their price is going up significantly. “It’s a pure supply-and-demand thing,” he said.

IN CASE YOU MISSED IT

Google Chrome 67 Will Allow Password-Free Sign-Ins for Most Websites By Sarah Gray

Box Earnings Q1 2019: $141 Million in Revenue, Up 20% Year Over Year By Andrew Nusca

Facebook Is Now Streaming Live Baseball Games and Concerts in Virtual Reality By Jonathan Vanian

Amazon Is Expanding Whole Foods Perks to More Areas. Here’s Where By Don Reisinger

IBM Pledges $30 Million for Techies to Fight Natural Disasters By Robert Hackett

Fox’s Murdoch Says Apple Will Find Original Content Move ‘Very Challenging’ By Don Reisinger

BEFORE YOU GO

Last night marked the airing of the final episode of FX’s incomparable historical drama series The Americans. No spoilers, but what a brilliant finish. Or as New York magazine TV critic Matt Zoller Seitz noted, the finale was “a terrific example of an ending that summarizes what the series was about while putting a new frame around it.” Worth binging from the beginning if you’ve skipped the series so far.

This edition of Data Sheet was curated by Aaron Pressman. Find past issues, and sign up for other Fortune newsletters.