Security CEO and Founder of Safe Quantum Inc., working with data-driven companies to define, develop and deploy quantum-safe technologies.
Financial services institutions are always looking for a leg up on their competition, and adoption of new technologies can be one way to differentiate themselves and their offerings to customers and shareholders.
Artificial Intelligence (AI) is perhaps the current “big thing” with most of the banking industry examining it for commercial applications like portfolio management, backend functions and front-end retail banking purposes.
Some of the world’s leading banks, however, are already looking beyond AI to quantum computing. JPMorgan and Goldman Sachs both have quantum teams, conducting research and evaluating practical uses of quantum computers and quantum-based technologies. And they’re led by bonafide “rock star” scientists: Marco Pistoia at JPMorgan and William Zeng at Goldman.
Clearly, there’s a “there” there in quantum for financial services. But what are the adoptions most likely to elicit first-mover advantage?
Data Analysis: There’s Gold In Banking Data
It’s cumbersome and time-consuming to analyze the vast volumes of data within banking today, forcing many firms to pick and choose datasets for examination. But what if you could quickly analyze any kind of data — any timeframe? any company or segment? — to identify patterns?
Anything with exponential complexity like option pricing or risk analysis is ripe for use with quantum technology. You take an action, look at all the other possible actions and then learn from that.
This kind of data crunching at scale could reveal predictive trading patterns and enable “what if?” scenario modelling, which could both benefit investment funds (e.g., mutual funds) and cement a firm’s “expert” status.
Portfolio Management: The Ultimate High-Value Service
Armed with the value in the data, further study and analysis could then be applied toward individual portfolios, across trading desks and for specific high net-worth individuals.
At the Q2B Practical Quantum Computing conference in December 2020, Pistoia of JPMorgan said evidence pointed to the potential for speeding up asset-pricing models as well as cultivating performance improvements.
Quantum, then, has the potential to give an investment bank a leg up on competition and skills to further retain clients and attract and create new opportunities.
Security: Quantum As Part Of Defense-in-Depth Protection
The data in financial services applications is highly sensitive, highly personal and it has a long shelf life. Breaches threaten trust between the firms and their clients.
Japanese tech giant Toshiba (alongside Nomura HD, Nomura Securities, NICT and NEC) recently announced a first-of-its-kind initiative to test quantum cryptography in a real-world financial services setting, citing what it calls “an urgent need for new safety measures in preparation for such future threats.”
While widespread fraud in banking is relatively rare, it is on the rise along with most other cybercrime. But one of the challenges with it is that a small data set of fraudulent activity can make it very difficult to analyze. When you’re analyzing data and looking for patterns, there aren’t that many tangible data results that one can analyze when it comes to a specific case of fraud. That’s where the speed of quantum computing can help — you can conduct multiple analysis in a short timeframe.
Another aspect of the security angle is the value of a bank’s intellectual property (IP). The IP is not how many trades its traders do every 15 milliseconds, because that’s public information. The real differentiation is in the algorithms they use to optimize their client and trading portfolios. People work on those algorithms remotely. Being able to write code and work on those algorithms becomes critically important to securing it.
While the promise of quantum computing and its abilities to parse enormous volumes of data has long-term implications in medicine for applications like protein folding or drug synthesis, the challenges of financial services are comparatively much less complex.
Most of the major banks — Barclays, Wells Fargo and Bank of America, in addition to JPMorgan and Goldman Sachs — have added talent in-house and are partnering with quantum innovators like Toshiba and IBM.
Clearly, we don’t see that kind of investment of time and talent unless there’s a substantial gain expected.
There is likely one near-term technology adoption I think we’re most likely to see first: Quantum Key Distribution(QKD).
QKD is a method of communication that allows two parties to create a shared random “key” that is known only to them. This key can be used to encrypt and decrypt messages. Mathematical algorithms are quantum resistant, but for how long? QKD, on the other hand, is proven to be unconditionally unbreakable.
By starting with this rudimentary security solution, financial institutions can begin to devise the kind of multi-modal security solution that will take them safely into the quantum age.
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