Is the financial sector ready?

It’s an important year for quantum computing, according to GlobalData’s Technology, Media and Telecoms Predictions 2022. In addition to the high levels of hype generated by this disruptive technology, significant technical advances have seen companies begin investing to explore its potential benefits.

According to Markets and Markets, the global size of the quantum computing market will reach $ 1.77 billion by 2026, up from $ 472 million in 2021, with a compound annual growth rate of 30.2%. The pioneering adoption of quantum computing by financial services firms is expected to drive this growth.

Is the financial services industry ready for quantum?

What does a quantum advantage over classical computing mean for financial services? Increasing the speed and volume of calculations and multiples transactions represents the biggest change for a post-quantum financial services industry, and the key to identifying the potential benefits of specific use cases is exploration. The first iterations of quantum computing-as-a-service are underway with Big Tech companies Microsoft, Amazon, IBM and Google offering customers a cloud service to experiment with quantum simulators (essentially classical computers that mimic quantum computers in the cloud for see what they can do).

This collaborative approach between firms and tech firms addresses two problems in tandem: first, it allows firms to become familiar with emerging technology despite quantum supremacy being a few years away; second, it faces the biggest business challenge of identifying the most effective use cases for financial services.

US tech giant IBM’s quantum accelerator program was established with exactly this in mind: to enable companies themselves to find effective use cases for quantum computing. According to Prakash Pattni, chief executive officer for financial services – digital transformation at IBM, many of IBM’s financial services clients in the acceleration program have initial concerns about the effect quantum computing will have on cryptography.

“It took a few years for banks to understand where blockchain suited cryptography, for example, and we are now at a stage where blockchain is really taking off,” he says.

Pattni compares quantum computing to the same initial phase of blockchain experimentation. Financial services firms are perhaps even more acutely aware of the potential impact of quantum computing on data security because the nature of banking regulation means that data must be stored and kept secure for many years, Pattni adds.

While cybersecurity remains a clear concern for customers, specific use cases are still being developed. Again, experimentation is key, according to Pattni, who says, “I think we are still at a very early stage in terms of quantum experimentation.” According to Gartner, 40% of large companies plan to create quantum computing initiatives by 2025, but even with acceleration programs and R&D budgets, very specific use cases are still proving difficult to identify.

Financial services, especially those that operate in multiple markets, will greatly benefit from the efficiencies enabled by quantum computing, as it allows for the modeling of multiple permutations of different scenarios or values ​​to solve the most efficient results in a fraction of the time it takes us. would like classical computer science.

Pattni believes this could be particularly useful in the cross-border fraud detection space, stating: “Payments in real time mean that the window to investigate fraud must also be in real time.” As AI is increasingly integrated into banking systems, the interface between AI and quantum computing is also a test case. Pattni says risk calculation is an area that investment banks are looking into.

“It requires incredibly high levels of computing power to run multiple risk scenarios that regulators don’t like, so this is another area where quantum computing could be applied, but it’s still early days of application experimentation,” adds.

The first promoters of finance in the adoption of quantum computing

EY’s 2022 Quantum Readiness survey, produced in partnership with the UK’s National Quantum Computing Center, found that 81% of UK senior executives expect quantum computing to play a significant role in their industry by 2030. Despite this, most companies are taking the ‘see’ approach. However, there are those in the financial sector who take a pioneering approach by testing the technology and increasing investment in a calculated bet that quantum computing will, in fact, live up to its hype.

US investment bank Goldman Sachs is actively studying how to apply quantum computing to the pricing of complex derivatives. Calculating a price within a complicated contract or statistical model can be an expensive process. Derivatives are so common in finance that even a small improvement in pricing them, or calculating their quantities, could be very valuable, according to William Zeng, head of quantum research for Goldman Sachs, who claimed the quantum of Microsoft Azure blog.

In March 2022, Spanish insurance and pension company CaixaBank, VidaCaixa, announced that it is using the cloud service of Canadian quantum computing company D-Wave to create a quantum computing application for its portfolio selection and allocation activities. investments, as well as for its portfolio hedging.

According to CaixaBank, this is the first time that a financial services company has applied quantum computing in hedging investments in the insurance sector. What normally took the bank several hours to process has been reduced to minutes, up to 90%. This reduction in time facilitates greater modeling complexity, which better adapts to markets in real time, optimizes capital invested while maintaining constant levels of risk, and improves hedging decision making. The Spanish banking group is considering whether to use the application in other areas of its operations in the coming months.

In March 2022, HSBC announced that it will join the IBM Quantum Accelerator program to advance potential quantum use cases in pricing and portfolio optimization to advance its net zero goals and mitigate risks, including l ” identification and resolution of fraudulent activities. The collaboration will also include knowledge transfer through internal training programs, as well as the active recruitment of quantum computing researchers to create a dedicated capability within its innovation team.

Elsewhere, Standard Chartered has undertaken research on quantum computers as part of an academic partnership with the University Space Research Association. The partnership is already actively developing what is known as the Quantum Computing System for Financial Services, and the bank will use it to address the security challenges posed by a super-powerful quantum computer.

Post-quantum security is an urgent matter

Both IBM and Google have road maps to create quantum computers that can defeat current cryptography by 2030, according to GlobalData. Although the cybersecurity industry has developed quantum-resistant cryptography before then, future quantum computers could decrypt the data collected today. As a result, GlobalData expects companies to implement quantum security solutions in 2022, particularly as cybersecurity has become a priority for business leaders.

Over the past 12 months, interest in quantum security has grown considerably in the financial services industry, according to Duncan Jones, head of cybersecurity at quantum computing firm Quantinuum. “This is partly due to the flood of US government announcements highlighting the urgent need to combat the quantum threat along with business opportunities,” he says.

Additionally, as more quantum-enabled business use cases emerge, cybersecurity concerns also increase. Jones and his Quantinuum team are working on how to remedy this. Quantinuum’s partnership with cybersecurity software company PureVPN uses Quantinuum’s computer platform, Quantum Origin, to create and distribute cryptographic keys generated using a verifiable quantum process, which are more secure than keys from unverified classical computer processes .

Each technological advance creates a challenge commensurate with cybersecurity, and quantum-proof financial services companies will continue to be a concern along with business growth opportunities, according to Jones. “Financial services companies are realizing that there is a new quantum basis for security and are taking that into account in their IT planning,” she adds.

In July 2022, it became public knowledge that US investment bank JPMorgan Chase had hired the assistant of Professor Charles Lim, a world-renowned expert on next-generation quantum communications networks at the National University of Singapore, to drive the bank’s quantum communications and cryptography. The move not only demonstrates how quantum computing has become a commercial concern, it also highlighted a global race for talent in the field, serving as a warning to other financial services firms that may want to increase their hunt for talent in the field. quantum computing. Historically, financial services have attracted the brightest and the best with attractive payouts, but the industry is now competing with Big Tech’s commensurate employee offerings. A battleground for quantum computing talent is set to continue.

Credit rating financial services firm Moody’s Analytics announced in September 2022 that it is setting up the Moody’s Analytics Quantum Computing Team, which is perhaps a sign that quantum computing has become part of the financial services establishment. Early adoption of this technology may seem like a choice in 2022, but it could prove vital for future-proof financial services firms against the changes it will bring to the industry. As with any emerging technology, there are the first to move and those who follow the trend – it is still too early to say which approach will benefit most.

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