According to Deltec Bank, the Bahamas “Banks are successfully trialing quantum computers to solve problems that were previously very resource-intensive or impossible to complete.”
There has been a lot of hype around quantum computing over the last few years whereby it is poised to disrupt entire industries from telecommunications to security, manufacturing, and finance. The modern-day smartphone has the same amount of power as a military computer that filled an entire room just 50 years ago. The progress in technology has been nothing short of phenomenal.
However, even with that progression, there are still jobs that classical computers are not powerful enough to do. The answer looks set to come from quantum computing. In this post, we will look at what quantum computing is and how it could revolutionize a long-standing industry such as banking.
What is Quantum Computing?
Quantum computers are expected to be a new kind of technology that can solve complex problems well beyond the capabilities of traditional systems. If you take an everyday problem like climate change, the intricacies of solving it are incredibly complex. A standard computer does not have the power or ability to even get close to genuinely understanding everything that is going on. The main reason is the endless amounts of data that computers need to process to generate an accurate decision.
A quantum computer is often referred to as a supercomputer. It has highly advanced processing power that can take masses of variables into account, helping predict weather patterns and natural disasters in the case of climate change.
Brief Technical Summary
A typical computer stores information in what is known as bits. In quantum computing, these are known as qubits. Qubits have certain properties that mean a connected group of them can provide way more processing power than binary bits from classical computing. In short, where binary bits store 1’s and 0’s to handle a task, qubits can represent numerous possible combinations of these simultaneously.
An example of this could be if running a travel agency. Let’s say three people need to move from one place to another, Jenny, Anna and Steve. For that purpose, there are two taxis and the problem you want to solve is who gets into which taxi. However, we know that Jenny and Anna are friends, Jenny and Steve are enemies and Anna and Steve are enemies.
The aim would be to maximize the number of friend pairs and minimize the enemy pairs sharing the same taxi. A classical computer would store each possible solution with bits one at a time before being able to calculate a potential solution. However, a quantum computer will use qubits to represent all the solutions at the same time. It will find the best solution in a few milliseconds as it piles everything into just 1 operation.
The difference here is a traditional computer performs more and more calculations every time the data scales up, whereas a quantum computer will only ever have to process one operation.
In the real-world, one industry that could heavily benefit from this technology and processing power is banking.
Quantum Computing in Banking
In an article from Banco Bilbao Vizcaya Argentaria (BBVA) from October 2019, it was suggested that this kind of quantum computing power might fundamentally change the face of banking in time.
Encryption of personal data is critical to banking, with RSA-2048 being used at the highest levels. For a classical computer to find the key to decrypt the algorithm would take 1,034 steps. To put that into context, a processor capable of a trillion operations per second would still take 317 billion years to resolve the problem. Realistically, that makes decryption impossible.
However, a quantum computer could solve the decryption in just 107 steps. If the computer were running at a million operations per second, this calculation would only take 10 seconds to complete. The potential of quantum computing in this context is quite amazing. That said, we are still a long way off having enough processing power to reach those heights, but experts are working on it.
Researchers at Barclays Bank in collaboration with IBM have created a proof-of-concept quantum optimized application. The solution revolves around the transaction settlement process. A settlement works on a transaction-by-transaction basis where they are pushed into a queue and settled in batches. During a processing window, as many trades as possible from the queue are settled.
Trades are complex by nature according to Lee Braine, director of research and engineering at Barclays. Traders can tap into funds before the transaction has been cleared. They are settled if funding is available or if there is some sort of credit collateral facility.
In a quantum computing context, a small number of trades could, in theory, be done in your head. However, as you get up to 10 or 20 transactions, you might need to use a pen and paper. Any more than that and we start going into classical computing. However, as we get to hundreds of trades, the machines begin to experience limitations.
A bit like the travel agency example we gave earlier, a quantum computer could run masses of complex aspects of trading. Using a seven-bit qubit system, the team could identify certain features that were of sufficient complexity. The same calculations would need about 200 traditional computers.
Using an IBM machine, researchers at JP Morgan have demonstrated that they could simulate the future value of a financial product. They are testing the use of quantum computers to speed up intensive pricing calculations which would take traditional machine hours to compute. As portfolios become larger, the algorithms have greater complexity and could get to a point where they are impossible to calculate.
The research by the team has shown that a commercial-grade quantum computer can run the same calculations in a matter of seconds.
According to Deltec Bank, the Bahamas “Banks are successfully testing quantum computers to solve problems that were previously very resource-intensive or impossible to complete.” Although the technology is still some years away from changing the way banks calculate financial models due to complex hardware requirements, it is important to start testing now.
IBM themselves have stated they are a while away from a perfect solution with big breakthroughs still required but the time will certainly come.
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.
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