For any emerging technology solution, such as Quantum Computing, there is often a confusing mixture of hype and hyperbole associated with it. In order to cut through this information, and distinguish the opportunity from the hyperbole, an open mind and experimentation is required. In short, I believe Quantum Computing has the potential to cause a paradigm shift in computing – and the Financial Services Industry is particularly well placed to capitalise on this shift. I’m both curious and excited about the impact of Quantum Computing and I wanted to share some perspectives on where we are now and what we should be looking out for as this incredible technology develops.
Before considering the future, we must go back in time...
If you were to go back 50 years, to the 1970s, you could scarcely imagine the future of computing and the complex and vast interrelationships between computer code and society that exist today. New business models have emerged, knowledge has been widely shared and enhanced, and societies have been fundamentally altered. Who would have thought we would be frequently utilising stranger’s cars via Uber, stranger’s homes via Airbnb, and connecting daily to work colleagues via Zoom amid a global pandemic?
What hasn’t changed amongst this computing revolution, is the foundation that computers use to process information. When computers are stripped back to their core elements, they are based on the same underlying system of computing – using a series of 1’s and 0’s as instructions that code and algorithms sit on top of.
Just as we couldn't have imagined today's advances in computation from a 1970's standpoint, it is difficult to foresee the progress we'll make over the next 50 years. Quantum, built on fundamentally different principles, promises an entirely new ecosystem of industry use cases and progress.
But what is quantum computing, and why does it matter?
To start off, numerous computer scientists have declared that Moore’s Law, a law that observed how the number of transistors in a dense integrated circuit doubled every two years, has been declining and is no longer applicable. This means there are limitations on the rate of progress we have seen with traditional computers on the horizon. For problems requiring greater computational ability or new methods to solve them, there are limitations in the capability of traditional computers. This is where quantum computing comes into play, offering a new paradigm for computational progress.
All computers rely on storing and processing information – current computers process individual bits, storing information as binary 0 and 1 states. Quantum computers store information in ‘qubits’ using the quantum mechanical power of ‘superposition’ and ‘entanglement’ (1). This essentially means that you can have a 0 and 1 state at the same time. A good classical analogy frequently used is the spinning of a coin – when the coin is spinning in the air, you can’t distinguish at that point in time if it is heads or tails. It is only when the coin ceases to spin, will you know if it landed on heads or tails.
All of this is based on the mind-bending concept that atoms can exist in different states and places at the same time.
What are the most promising quantum computing opportunities for Financial Services?
Quantum Computing is suited to solving problems that would take classical computing too long to compute due to the size of the data set, or the computational power required. Currently they are best suited to optimisation and simulation use cases. This is likely to be followed by factorisation problems and machine learning use cases in the longer term.
Within the Financial Services industry, the most promising opportunities are those that display a theoretically provable quantum advantage i.e. a use case where there is a provable advantage for utilising a quantum computer over a classical computer to execute a practical commercial test case.
Option Pricing has gained some of the most interest so far as there is an algorithmically provable quantum advantage and theoretical understanding of its benefits compared to the leading classical method (Monte Carlo). To price options using Monte Carlo, a financial institute may generate a large number of samples and calculate the expectation value of the payoff as an average – in this way it simulates a number of paths. Using a quantum approach, an option is looked at only at one point in time, with a probability of the model being correct at the point of maturity. Based on initial research, this is theoretically shown to solve problems faster, with a quadratic speed up compared to the classical Monte Carlo simulation which is the industry leading equivalent (2).
Other use cases for Financial Services under investigation include targeting and predication capability to resolve problems related to fraud detection, portfolio risk optimization and transactional settlement (3).
How can companies leverage quantum computing technologies?
Due to the high cost of the infrastructure and research and development required, quantum computing is most easily accessed via the cloud infrastructure of large technology firms.
Many large technology companies have pursued a strategy of either building the infrastructure themselves or partnering with specialist Quantum technology specialists and leveraging their cloud capability to make it available to participants wanting to experiment with the technology. Through such services, experimenters can learn, develop and run programs. Key cloud-based services include:
- IBM Q Experience – IBM enables users to access their own quantum computers to learn, develop and run problems.
- AWS Bracket – Amazon enables users utilise their cloud platform and can build, test and run quantum algorithms.
- Azure Quantum – Developers can use Microsoft’s quantum development kit to build Q~programs to run on quantum hardware or formulate problems to run on quantum-inspired solvers in the cloud.
Right now, it’s not a question of ‘if’, it’s a question of ‘when’, ‘how’ and ‘what should companies do about it’. While broad scale practical commercial use cases are not expected for some time, the industry has seen significant breakthroughs along with increasing investment activity and collaboration between government and private industry participants.
Any effort to estimate when practical quantum computing use cases will exist requires some level of crystal ball gazing. The famous saying, coined by Roy Amara, and popularised by Bill Gates “we overestimate the impact of technology in the short-term and underestimate the effect in the long” is useful conceptually when thinking about quantum and its timeline for development.
Those who keep abreast of major milestones achieved in Quantum Computing over the next 3-5 years, and participate on some level now, will be positioned to capitalise on quantum opportunities and prepare for risks associated with quantum computing.
If you are experimenting with quantum computing use cases in the Financial Services industry or would like to discuss quantum computing implications, we would love to hear from you.
(1) IBM, What is quantum computing? - https://www.ibm.com/quantum-computing/learn/what-is-quantum-computing/
(2) IBM, JP Morgan & ETH Zurich, Option pricing using Quantum Computers (white paper) - https://arxiv.org/pdf/1905.02666.pdf
(3) Barclays & IBM - https://arxiv.org/pdf/1910.05788.pdf