By Kiran Kumar, Co-Founder and Executive Director of Profinch Solutions.
Growth and relevance are quintessential business matters that keep organizations on the qui vive for opportunities to conduct business more efficiently and profitably while keeping step with changing times. The last few decades saw digitisation and technology emerging as this opportunity – starting off as a differentiator that set the leaders apart from the laggards to eventually becoming the only option available to stay relevant. The tech quarters are now abuzz with Quantum Computing – the nouveau arrive that promises to bring in the new wave of disruption.
Quantum Computing and Financial sector – What’s the fit?
Quantum Computing is a field which applies theories developed under quantum mechanics to solve problems. It entails the use of qubits to represent data as opposed to traditional binary units (0 and 1). Qubits are more flexible and allow for a combination of 0 and 1 simultaneously thus storing way more data than traditional bits wherein data must be either a 0 or a 1.
Quantum Computing’s enormous advantages over traditional computing stem from its conceptual design – the solution space of a quantum computer is orders of magnitude larger than traditional computers, even immensely powerful ones. The power of a quantum computer can be approximately doubled each time only one qubit is added. Relative to classical information processing, quantum computation holds the promise of highly efficient algorithms, providing exponential speedups in a multitude of processes.
Armed with these, Quantum Computing lends itself seamlessly to the financial sector since faster, more accurate, and more secure processing is at the core of how the industry needs to function.
Sample this – Google’s most advanced quantum computer named Sycamore could possibly solve a specific computational task that a traditional supercomputer takes 10,000 years to solve within 3 minutes. With that kind of speed and efficiency in tow, Quantum Computing is expected to produce breakthrough products and services likely to successfully solve very specific business problems. This could well usher in a new heyday, with financial sector holding the odds for being one of the most mightily favoured.
Delineating the Impact – what are the gains?
1. Enhance the efficiency of crucial operational processes in banking like
– Client management, KYC processes, Client onboarding
– Loan origination
– Treasury management, trading and asset management
2. Revolutionise data security
Financial data encoded with quantum cryptography will be far more secure than other kinds of digital security. Such data cannot be hacked because the data in quantum states is perennially shapeshifting, i.e. constantly changing states and hence cannot be read. In fact, Quantum Computing has the potential to break even the most powerful security encryption of classical computers today. One of the examples to illustrate the use of quantum cryptography is known as a “quantum distributed key system” which promises secure digital communication that cannot be broken, even by a quantum computer itself. Banks such as ABN-AMRO are already starting to integrate this technology.
3. Fraud detection
Quantum technology adeptly extends itself to fraud detection. As per a report in Feb 2019, financial institutions lose between USD 10 billion and 40 billion in revenue a year due to frauds and sub-optimal data management practices. Automation of fraud detection relies on recognizing patterns in data. Thanks to the qubit setup, the data modelling capabilities of quantum computers will prove superior in finding these patterns, performing classifications, and making predictions that are not possible today because of the challenges of complex data structures, thus averting fraud before it happens.
4. Customer targeting and service in banking
Classical computing is limited in its ability to create analytical models that can accurately and promptly cull insights from heaps of data available and target specific products at specific customers in near real-time. This greatly constrains the agility of response to rapidly evolving needs and behaviours of customers today. As per a study in 2019, 25% of small and medium sized financial institutions lose customers due to offerings that don’t prioritize customer experience. Quantum Computing can be quite the gamechanger for customer targeting and predictive modelling. It can also significantly enhance efficiency of critical frontal processes like customer onboarding which can sometimes take as long as 12 weeks to ensure due diligence. Use of quantum technology can turn around efficiencies thus enabling a far more superior and consistent customer experience.
5. Quantum data and transactions
Quantum technology’s ability to handle billions of transactions per second will be highly sought after by financial institutions consistently saddled with huge volumes of transactions. Quantum Computing reduces the likelihood of crashes and data loss. This will significantly accelerate the field of high-frequency trading.
Quantum computers will be able to mine colossal volumes of data almost instantaneously. This could enable the use of AI to make automated decisions using sets of pre-programmed rules. AI is heavily reliant on large chunks of data to be able to learn. Given that Quantum Computing can handle that with incredible efficiency and speed, machines will quickly gather feedback that shortens their learning curve. Operations such as loan and mortgages can be automated, making them faster and efficient with seamless approvals and near zero delays.
6. Risk profiling
Financial services institutions are under increasing pressure to balance risk, hedge positions more effectively, and perform a wider range of stress tests to comply with regulatory requirements. With an ever-evolving regulatory climate, the complexity and cost of compliance is only expected to spiral in the coming years. Currently, Monte Carlo simulations are widely used to analyse the impact of risk and uncertainty in financial models but are highly limited by the scaling of the estimation error. In the face of more sophisticated risk-profiling demands and rising regulatory hurdles, the data-processing capabilities of quantum computers can improve the identification and management of risk and compliance.
7. Onward from here/ The shape of things to come
While the advantages run aplenty, Quantum Computing is still in the inceptive stages. A 2000 qubit quantum computer is expected only after 2025; beyond 2022, some aspects of Quantum Computing may start getting integrated with other cutting-edge technology of the day (such as AI and blockchain) to unravel amazing use cases in consumer experience, cybersecurity etc. The long and short of it is that, we stand at least five years away from Quantum Computing significantly impacting the financial services landscape. However, speculation abounds that Quantum Computing will mature at a velocity unseen by classical computing, and market developments and activities around it in the last couple of years endorse it. Reports say that financial bigwigs like Goldman Sachs, JP Morgan, CBA, Barclays, RBS, Allianz have already started investing in Quantum Computing technology.
The time is ripe for the penny to drop – for enterprises to start exploring investments in Quantum Computing. Those who adopt quantum early can seize major competitive advantages, including the potential to vault ahead of competition and become market leaders.