September 3, 2024
Imagine being able to more accurately predict financial crises, improve trading outcomes, or increase fraud detection while decreasing the energy usage of large language models. Proponents of quantum computing argue this, and much more, can be achieved through the new technology. I am one of them.
For banks and other financial institutions, quantum technology is not just a choice, but will soon become a necessity. It relies on quantum physics, which, described in basic terms, allows for the evaluation of many possibilities at once — unlike the binary nature of current computers.
There are a number of myths around it, including its costs.
Quantum computers are likely to break all existing encryption in five, 10 or perhaps 20 years. But, rather like the first mobile phone, they are still in the foothills of development and are nowhere near powerful enough.
The much-publicised astronomical cost of quantum computers is almost an irrelevance, given that they can be accessed via the cloud, with companies like AWS hosting different ones.
The game-changing nature of the hardware has captured the imagination of the media and government, even as advances in quantum software and quantum-inspired AI, which can also be used on classical computers, are forging ahead under the radar.
JPMorgan Chase, one of the most successful banks in the world, is betting undisclosed billions on quantum technology by investing in scale-ups, recruitment and research, based on what the bank has shared in press statements and social media posts.
“Financial institutions will be among the first to benefit because in finance there are so many complex problems that need to be resolved in real time,” noted Marco Pistoia, global head of quantum computing at JPMorgan Chase, in a recent statement.
For instance, understanding future risks to the stability of the financial system in the adoption of central bank digital currencies is of concern to central banks. The complexity of the outcomes makes this an ideal problem for quantum. The Bank of Canada has spent the last two years working with Multiverse Computing, Europe’s largest quantum software and AI firm, on scenario planning.
Gaining a major competitive advantage is another driver.
Multiverse has worked on dynamic portfolio optimisation with Spanish bank BBVA, options pricing with Crédit Agricole’s investment bank, and forex hedging techniques with chemical group BASF.
BASF is present in 93 countries, making its results subject to the vagaries of the foreign exchange markets. By using quantum machine learning, there was a materially substantial increase in returns compared to the company’s existing strategy, says Multiverse, reporting BASF’s views. The proof-of-concept experiment is now being tested in real conditions to be rolled out across the enterprise.
There is also scepticism around the rate of progress. A July report by Boston Consulting Group, The Long Term Future of Quantum Computing Still Looks Bright, notes that its earlier, 2021 report was overly optimistic on the near-term value of quantum computing, proof of the frontier nature of the technology.
However, part of this is due to the changing nature of quantum advancements. For instance, an unexpectedly strong development is in the cross-over between LLMs and quantum. Multiverse launched CompactifAI at the tail end of 2023, which uses quantum-inspired software to substantially cut back on the computation time and energy use of training LLMs, a sort of “green” AI.
Quantum computing attracted $1.2bn from venture capitalists in 2023, with governments also investing substantially. Public sector support is estimated to exceed $10bn over the next three to five years, according to BCG, as geopolitical tensions rise and countries invest in the local manufacturing of technology.
Banks and other financial institutions can take advantage of government funding, be it by investing in quantum technologies or pairing up with public sector bodies to advance the technology.
How far they decide to go down the quantum route will vary. But new standards on quantum cybersecurity were published mid-August by the National Institute of Standards and Technology in the US, while the UN has designated 2025 the International Year of Quantum Science and Technology.
The need for a broader, basic understanding of the dangers and benefits of quantum technologies should be obvious, even for those who have yet to embrace the new technology.
Karina Robinson is the founder of The City Quantum & AI Summit, which takes place October 7 at Mansion House in London, an adviser to the board of Multiverse Computing, and a former senior editor of The Banker
LINK: https://www.thebanker.com/Why-banks-need-to-embrace-quantum-technology-1725368881