It is an important year for quantum computing, according to GlobalData’s Technology, Media and Telecoms Predictions 2022. In addition to the high levels of hype generated around this disruptive technology, significant technical advances have seen companies starting to invest in exploring its potential benefits.

The global quantum computing market size is set to reach $1.77bn by 2026, up from $472m in 2021, at a compound annual growth rate of 30.2%, according to Markets and Markets. Pioneering adoption of quantum computing by financial services companies is expected to drive this growth.

Is the financial services industry prepared for quantum?

What does a quantum advantage over classical computing mean for financial services? Increasing the speed and volume of calculations and transactions by multiples represents the biggest change for a post-quantum financial services sector – and the key to identifying the potential benefits of specific use cases is exploration. Early iterations of quantum computing-as-a-service are under way with Big Tech companies Microsoft, Amazon, IBM and Google offering clients a cloud service for experimenting with quantum simulators (essentially classical computers mimicking quantum computers in the cloud to see what they can do).

This collaborative approach between businesses and tech companies addresses two problems in tandem: first, it allows businesses to familiarise themselves with the emerging technology despite quantum supremacy being some years away; second, it tackles the biggest business challenge, which is identifying the most effective use cases for financial services.

US tech giant IBM’s quantum accelerator programme was set up with exactly that in mind: to allow businesses themselves to find effective quantum computing use cases. Many of IBM’s financial services clients in the accelerator programme have initial concerns about the effect quantum computing will have on cryptography, according to Prakash Pattni, managing director for financial services – digital transformation at IBM.

“It took a few years for banks to work out where blockchain fits in with cryptography, for example, and we are now at a stage where blockchain is really taking off,” he says.

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Pattni likens quantum computing as being at that same early stage of experimentation as blockchain was. Financial services companies are perhaps even more acutely aware of the potential impact of quantum computing on data security because the nature of banking regulation means data has to be stored and kept safe for many years, adds Pattni.

While cybersecurity remains a clear concern for clients, specific use cases are still being worked out. Again, experimentation is key, according to Pattni, who says: “I think we’ are still at that very early stage in terms of experimentation where quantum is concerned.” According to Gartner, 40% of large companies are planning to create initiatives around quantum computing by 2025, but even with accelerator programmes and research and development budgets, very specific use cases are still proving hard to identify.

Financial services, particularly those which work across multiple markets, stand to benefit greatly from efficiencies enabled by quantum computing given that it enables the modelling of multiple permutations of different scenarios or values to solve the most efficient outcomes in a fraction of the time it would take classical computing.

Pattni believes this could be particularly useful in the cross-border fraud detection space, saying: “Real-time payments mean the window to look at fraud needs to be in real time too.” As AI is increasingly integrated into banking systems, the interface between AI and quantum computing is also a testing ground. Pattni says risk calculation is an area that investment banks are looking at.

“It requires incredibly high levels of compute power to run multiple risk scenarios that regulators don’t like, so that is another area where quantum computing could be applied, but it is still really early days of experimenting with applications,” he adds.

Finance’s first movers in quantum computing adoption

EY’s 2022 Quantum Readiness survey, produced in collaboration with the UK’s National Quantum Computing Centre, found that 81% of senior UK executives expect quantum computing to play a significant role in their industry by 2030. Despite this, most companies are taking a ‘watch and see’ approach. However, there are those in the finance sector taking a pioneering approach by testing the technology and ramping up investment in a calculated bet that quantum computing will, in fact, live up to its hype.

US investment bank Goldman Sachs is actively researching how quantum computing can be applied to the pricing of complex derivatives. Computing a price within a complicated contract or statistical model can be an expensive process. Derivatives are so common in finance that even a small improvement in pricing them, or in calculating related quantities, could be very valuable, according to William Zeng, head of quantum research for Goldman Sachs, who made the claim in September 2022 for Microsoft Azure’s quantum blog.

In March 2022, Spain’s CaixaBank’s life insurance and pensions company, VidaCaixa, announced that it is using Canadian quantum computing company D-Wave’s cloud service to build a quantum computing application for its investment portfolio selection and allocation activities, as well as its portfolio hedging.

According to CaixaBank, this is the first time a financial services company has applied quantum computing in investment hedging in the insurance sector. What normally took the bank several hours of computing time was reduced to just minutes, representing up to a 90% decrease. This time reduction facilitates increased modelling complexity, which is better adapted to real-time markets, optimises invested capital while maintaining constant risk levels and improves the hedging decision-making process. The Spanish banking group is evaluating whether to use the application in other areas of its operations over the coming months.

In March 2022, HSBC announced it will join the IBM Quantum Accelerator programme to progress potential quantum use cases in pricing and portfolio optimisation to advance its net-zero goals and to mitigate risks, including identifying and addressing fraudulent activity. The collaboration will also include knowledge transfer through internal training programmes, as well as actively recruiting quantum computing research scientists to build a dedicated capability within its innovation team.

Elsewhere, Standard Chartered has embarked upon research into quantum computers as part of an academic partnership with the Universities Space Research Association. The partnership is already actively developing what is known as the Quantum Computing System for Financial Services, and the bank will use it to address the security challenges posed by a super-powerful quantum computer.

Post-quantum security a pressing matter

Both IBM and Google have road maps to create quantum computers capable of defeating current encryption by 2030, according to GlobalData. Despite the cybersecurity industry developing quantum-resistant encryption before that time, future quantum computers could decrypt data harvested today. As a result, GlobalData expects companies to implement quantum security solutions in 2022, particularly as cybersecurity has become front of mind for business leaders.

Over the past 12 months, interest in quantum security has grown considerably in the financial services sector, according to Duncan Jones, head of cybersecurity at quantum computing company Quantinuum. “This is partly driven by the stream of announcements from the US government highlighting the urgent need to combat the quantum threat alongside the business opportunities,” he says.

In addition, as more quantum-enabled business use cases emerge, so too do the cybersecurity concerns. Jones and his team at Quantinuum are working on ways to remedy this. Quantinuum’s partnership with cybersecurity software company PureVPN uses Quantinuum’s cyber platform, Quantum Origin, to create and deploy encryption keys generated using a verifiable quantum process, which are more secure than keys from unverified, classical computing processes.

Every technology advance creates a commensurate cybersecurity challenge and quantum-proofing financial services companies will continue to be a concern alongside the business growth opportunities, according to Jones. “Financial services companies are realising there is a new quantum baseline for security and are factoring this into their cyber planning,” he adds.

In July 2022, it became public knowledge that US investment bank JPMorgan Chase had hired assistant professor Dr Charles Lim – a world-renowned expert in next-generation, quantum-resistant communication networks at the National University of Singapore – to lead the bank’s quantum communications and cryptography. The move not only demonstrates how quantum computing has become a business concern but also highlighted a global race for talent in the field, serving as a warning to other financial services companies that they may want to ramp up their search for quantum computing talent. Historically, financial services has attracted the brightest and the best with attractive compensation, but the sector is now competing with commensurate employee offerings by Big Tech. A battleground for quantum computing talent is set to continue.

Credit rating financial services company Moody's Analytics announced in September 2022 that it is establishing the Moody's Analytics Quantum Computing Team, which is perhaps a sign that quantum computing has become part of the financial services establishment. Early adoption of this technology may seem like a choice in 2022, but it may prove vital in future-proofing financial services companies against the changes that it will bring to the sector. As with any emerging technology there are first movers and those that follow the trend – it is still too soon to tell which approach will reap the most benefits.