Rise of the Quantum Machines

A new technological revolution on the horizon is poised to disrupt the financial services industry: Quantum Computing.

While broad commercial applications of quantum technologies are likely several years away, experts predict that practical applications of quantum computing in the banking industry may only be three to five years away. Various industry leaders at Goldman Sachs Group and JPMorgan Chase & Co. have already begun experimenting with quantum computing and are preparing for the inevitable “quantum supremacy.”

What is Quantum Computing?
IBM defines quantum computing as a “rapidly emerging technology that harnesses the laws of quantum mechanics to solve problems too complex for classical computers.” Classical computers operate on a binary system, processing “bits” of information as either zeros or ones. In contrast, quantum systems process quantum bits or “qubits” of information as either zeros, ones, a combination of zeros and ones, or any value in between. As a result, the processing power of quantum systems will be well beyond what a binary system could ever process.

However, because quantum computing relies on the laws of quantum mechanics, the answers produced by quantum calculations will be probabilistic instead of determinative. Binary systems operate by processing a limited data set via specific processing instructions to deliver a singular answer. In contrast, quantum systems operate by processing multiple units of data, resulting in a narrowed range of possible answers instead of a singular answer. Practically speaking, this means that teams must run calculations through quantum systems multiple times to narrow the universe of possible answer to a functional range.

While results from quantum systems may sound less reliable, it ultimately depends on their use. In many cases, binary systems will be better and never need to be replaced by quantum systems. However, quantum computing will be revolutionary when it comes to eliminating certain possibility ranges associated with incredibly complex problems.

What is Quantum Supremacy?
“Quantum supremacy” sounds ominous, but it simply refers to the point in time where quantum systems can perform calculations beyond the scope of classical computers in a reasonable amount of time. Although developments in quantum computing are promising, quantum supremacy is not likely to occur until the end of this decade. One of the challenges is assembling a single quantum system with the requisite qubits that outperforms a classical, binary computer. Some companies have almost achieved this, but developers have yet to develop a reasonably sized quantum system for commercial applications. So while quantum supremacy is currently only theoretical, it is not so far off in the future.

Benefits and Risks of Quantum Computing
Quantum computing gives early adopters a competitive advantage. Insights gleaned from quantum computing can help banks make better decisions, reduce risk, increase profits and provide better customer service. An IBM report identified a few use cases that are likely to improve financial services:

  • Targeting and Prediction: According to an IBM report, 25% of small to medium sized banks lose customers because their offerings don’t target the right customer. Quantum computing can help financial institutions break down their complex data structures to develop better predictive models that offer products and tailored services more effectively to customers.
  • Trading Optimization: Equity, derivative, and foreign exchange markets are complex environments, and trading activities are growing exponentially. The complex and fast-paced nature of these markets require exceptionally fast models to help investment managers optimize customer portfolios. Quantum computing can help give investment managers the tools necessary to deliver better services to customers, such as improving portfolio diversification or rebalancing portfolio investments to meet a customer’s investment goals.

Although the benefits of quantum computing are numerous, they do not come without risks. In particular, quantum computing poses a serious threat to cybersecurity controls. Encryption techniques used to secure accounts and networks are immediately at risk upon quantum supremacy. Currently, banks use complex encryption algorithms to secure user accounts, transactions and communications. Breaking through current encryption algorithms is virtually impossible and highly impractical. However, threat actors leveraging quantum technologies have the potential power to break through these classical encryption methods. Although this threat is currently only theoretical, leaders in quantum computing are already working on quantum cryptography to get ahead of this potential cybersecurity threat.

How to Prepare for Quantum Supremacy?
While broad adoption of quantum systems and products is unlikely until later this decade, banks can anticipate quantum products and solutions emerging in the next few years. In anticipation of this quantum revolution, financial institutions should:

  • Start Talking About Quantum Computing: Financial institutions should begin preparing to implement and leverage these technologies immediately given that product breakthroughs are likely within the next five years. Financial institutions should also consider potential partnerships with leaders in quantum computing such as IBM, Microsoft, and others. The sooner financial institution boards and executives can put a quantum strategy in place, the better.
  • Start Talking About Quantum Encryption: Financial institutions with significant data repositories should begin thinking about the cybersecurity risks associated with quantum computing. Chief information security officers should begin thinking about how their institution will safely transition their data repositories from classical encryption to quantum encryption in the near future.