Quantum computing has advanced to the point where banks can no longer afford to ignore it.
The potential computing power that quantum technology offers has sparked great interest from big tech companies such as Alibaba, IBM and Google, and huge investment has followed this trend. Financial institutions are now devoting resources to staying abreast of developments, not wanting to be left behind when quantum becomes commercialised.
Essentially, quantum computers move beyond the binary world of today’s classical computers by harnessing the qualities of superposition and entanglement, which leads to an exponential jump in performance. Superposition is the ability of a quantum mechanical system to be in multiple states simultaneously: not just 0 or 1, but 0 and 1 at the same time. Entanglement is the ability of two or more quantum bits to share information about their state instantaneously.
Much of the recent enthusiasm can be attributed to the fact that general purpose quantum computers – which can be programmed to solve many different problems – are now live. Potential applications in financial services include Monte Carlo simulations, such as in option pricing or portfolio optimisation, or other optimisation problems, such as determining where to locate ATMs to maximise customer utility while minimising maintenance costs, among other parameters.
In addition to the positive applications, there are concerns that the advent of such powerful machines could pose a threat to the public key infrastructure, which underpins current cyber security. The standard algorithms used in cryptography today are protected because they are impractical to solve with classical computers, but with quantum computers that may no longer be the case. However, the consensus is that the scale of quantum computer required, including a high level of coherence, is beyond quantum machines’ current reach and is not expected to be possible within the next decade.
Commercial applications of quantum computing, which can be run on smaller, ‘noisy’ machines, are predicted to emerge in the next three to five years. Banks would be well advised to start developing quantum strategies and get some skin in the game by exploring quantum and expanding in-house expertise.
