Two new technologies could have an outsize impact on the banking industry. One of them, quantum computing, enables companies to solve problems too complex for traditional computers. While quantum hardware and computing processes are still developing, financial institutions can prepare for them by learning more about the technology and its applications now.
Amazon, IBM, Google and Microsoft have already launched commercial quantum computing cloud services, according to McKinsey. The consulting firm says other companies “should start to formulate their quantum-computing strategies,” especially in industries, such as pharmaceuticals and finance, that may see early benefits from the technology.
Quantum Computing Explained
Without getting overly technical, conventional computers process information in 1s or 0s, while quantum computing allows the bytes to exist in two states (qubits) simultaneously and perform computations in parallel. As a result, quantum computing supports enhanced optimization, machine learning and simulation to solve more complex business problems, according to Shreyas Ramesh, Global Lead for Quantum Computing and Quantum Systems Integration at Accenture.
“Intractable financial problems are akin to finding a needle in a haystack. While traditional computing must go through each piece of hay, quantum computing can go through all the haystack simultaneously.”
— Shreyas Ramesh, Accenture
To put this power in perspective, Google claims that its Sycamore quantum processor took three minutes to perform a task that would take an “ordinary supercomputer” a thousand years to complete.
Banking Applications Range from Investments to CRM
Expenditure on quantum computing by banks and other financial institutions is expected to reach $631 million by 2028, according to Inside Quantum Technology (IQT).
So far, most use cases in banking are still in the proof-of-concept stage, says IQT. However, the technology offers several benefits for the financial services industry. First, it can more efficiently simulate behaviors of systems, such as market behavior analysis and estimation of financial statistics, IQT states.
It can also support higher quality and faster calculations for financial optimization decisions, such as portfolio management, and pricing. In addition, much more powerful machine learning capabilities would improve risk detection, credit assessment and analytics-driven CRM.
McKinsey analysts also note that quantum could ultimately help banks make better decisions to improve customer service and enable real-time capabilities for corporate finance and encryption-related activities.
Specifically, BBVA is researching six financial use cases for quantum computing, including dynamic optimization of portfolios, credit scoring processes and currency arbitrage, according to Accenture. J.P. Morgan Chase & Co. has partnered with IBM to perform portfolio management and fraud detection experiments using quantum. In addition, the Royal Bank of Scotland, Goldman Sachs, and others have directly funded quantum computing startups.
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A Word About Edge Computing
Other technologies can amplify the benefits of quantum computing. For example, edge computing performs computations at or near the data source, reducing latency or delay. This enables much faster calculation and communication as things are done internally and don’t need to be sent to the cloud. Accenture is exploring the applicability of this enhanced computing power in a high-frequency environment where latency and bandwidth are scarce resources. Edge computing will especially offer new opportunities as 5G networks come online.
Data Analytics on Steroids:
The potential use cases for both quantum and edge computing are vast, but key areas include game-changing targeting and prediction capabilities.
Behind the jargon and tech-speak, quantum and edge computing can open a whole new world of opportunity in banking. IBM analysts noted that applying quantum technology to financial problems could be especially beneficial for those dealing with uncertain data or knowledge.
The big technology company notes benefits in three categories of use cases: targeting and prediction, trading optimization and risk profiling. Quantum computing could be a game-changer in targeting and prediction because the data modeling capabilities prove superior in finding patterns, performing classifications and making predictions.
Quantum and edge computing could also help reduce complexity in traditional environments — such as settlement processes — and speed up risk scenario simulations with higher precision while testing more outcomes. IBM predicts such applications will appear “within the next few years.”
Taking the Next Steps to a Quantum Future
While financial institutions are only starting to access the required hardware and expertise to use these emerging technologies, analysts note the potential for quick wins in areas where artificial intelligence techniques have already improved traditional classification and forecasting.
McKinsey lists three actions for financial institutions to take as they start their journey. This includes building research partnerships, creating a small team focused on quantum computing, and scouting for potential investments and joint ventures.
Get Up to Speed:
Much as with 5G network technology, early movers are likely to have an advantage.
Organizations need to start preparing as the technology develops, according to Accenture’s Shreyas Ramesh. There are already offerings that give companies a means to test quantum solutions for specific enterprise needs that could eventually be used for meaningful, cost-effective business results. “Exploring these options today will position companies for success when quantum computing capabilities mature,” says Ramesh.
Accenture suggests four initial steps to begin the journey to quantum:
- Learn what quantum can do and decide where it applies to your institution.
- Build a quantum innovation roadmap.
- Evaluate quantum hardware and software and start experimenting.
- Source or develop quantum talent.
“Banks risk losing first-mover advantage and the potential to explore new markets by not moving quickly enough,” Ramesh warns.