Trading Up To A Quantum-Powered Financial Services Industry

Quantum computing is no longer a theoretical marvel – it’s a commercial reality. And industries are exploring how to bring quantum computing into their workflow for the financial services sector, particularly the companies dealing with market risk and uncertainty.

From the first transatlantic telegraph cables in the 19th century to the development of the internet and big data analytics, the financial services industry has been adopting emerging technologies to solve problems and drive business success. Quantum computing has the potential to have an even more significant impact on this sector.

The technology is fundamentally different from classical computing. Relying on the laws of quantum mechanics, quantum computing can solve certain problems that are known to be intractable by classical computers of any size. And although broad-based commercial applications are still a few years away, quantum computing is predicted to produce breakthrough products and services for specific scientific or business problems within three to five years.

Time is money

The old saying "time is money" is especially pertinent for the financial services sector, which often measures success in fractions of a second. The potential power of quantum computing is especially beneficial for three specific areas: targeting and forecasting, trade optimisation and risk profiling.

From spotting new business opportunities to detecting fraud, the data modelling capabilities of quantum computers can help improve finding patterns, performing classifications and making better predictions. The technology could also help cut through the complexity of today’s trading environments. Using combinatorial optimisation, it could enable investment managers to improve portfolio diversification, rebalancing portfolio investments to more-precisely respond to market conditions and investor goals.

Researchers are already looking into the problems how quantum computers can help on small risk analysis or options pricing problems. This is now being extended to larger, more realistic applications to further investigate the potential and the required quantum resources.

There are infinite possibilities to investigate how quantum technology could help navigate the intricacies of today’s trading environments, and to accelerate this discovery, there needs to be a C-Suite knowledgeable enough to build a strategic quantum roadmap. Executive leadership should also appoint quantum champions to drive change and explain the technology to customers and investors.

There also needs to be a combination of qualified, creative, and result-oriented specialists able to program and use quantum computers, and employees with extensive industry knowledge aiming to gain quantum computing skills.

It is important to make connections with the established quantum computing ecosystems, including recognised technology companies, start-ups, academic partners, and national research laboratories. This will enable companies to gain access to high quality quantum computing software and hardware, and insights into the technology’s latest developments.

Finally, to understand quantum’s potential, it is crucial for an institution’s core quantum experts to begin developing and testing quantum algorithms as soon as possible to judge their advantages, and evaluate how they may impact business operations and outcomes.

Quick wins for early adopters

More and more organisations are now jumping on the quantum bandwagon. Several high-profile institutions have recently invested resources to scale quantum computing for finance. These include JP Morgan Chase, Barclays and Goldman Sachs. They are all investigating potential applications ranging from derivative pricing to portfolio optimization and transaction settlement. For instance, the quantum research team at Goldman Sachs is delivering detailed initial assessments of the quantum computing resources needed to achieve a quantum advantage in derivative pricing.

Quantum computing should begin to start transforming the financial services landscape over the next few years. However, it’s necessary to develop a strategy now that looks not only at the business opportunities and the skills and infrastructure needed to access them, but also at potential risks. Organisations will need a quantum-safe approach to cybersecurity to protect against the technology’s encryption breaking capabilities. This is already possible today, by using, for instance, lattice-based cryptography, but integrating new crypto-schemes into an organization is a time-consuming effort.

To pull together all these elements safely and effectively it’s important to choose a technology partner with a proven ability to support the adoption quantum workflows.

Financial institutions that adopt quantum early can seize major competitive advantages, including the potential to leapfrog competitors and become market leaders.

(Stefan Wörner is the Quantum Applications Research & Software lead at IBM Quantum)