Quantum computing and the financial industry

The rise of quantum computing looms large over the financial industry. Learn what this means for the future of financial institutions.

By Max Burkhalter
February 13, 2022
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Quantum computers utilizing a new type of hardware are slowly making their way into the financial sector. With these new assets bringing potential data processing outcomes that could revolutionize banking, let's take a look at what this arrival mens in 2022 and beyond.

Quantum leap

By operating on quantum physics principles, quantum computers function in both state and superposition (both zero and one) at the same time. This allows for a much faster processing time compared to traditional binary (either zero or one) operating systems.

By creating multidimensional spaces in order to solve complex problems that a supercomputer cannot, quantum computing represents the future of data processing.

IBM outlines the specifics of quantum computing, detailing specifications from the roughly fridge-sized hardware itself to the quantum bits (qubits) which store information in quantum form. The financial sector could use quantum computing to assist in security operations, which typically rely on complex encryption algorithms. These mathematical equations could be significantly enhanced with the new hardware to require more than traditional computer tech to solve.

Quantum banking

A McKinsey & Company report highlights additional banking implications that could improve with quantum computing's data processing. Mortgage banking, portfolio management and corporate finance organizations could use unstructured data sets from a variety of relevant areas to enable faster, more precise calculations.

As institutions are just beginning to gain access to the hardware, customer-facing quantum computing solutions are not yet being used. Increased availability and access to the tech suggest a shift to these types of technologies may be inevitable in the consumer space.

Intractable problems find solutions

Intractable problems are defined as those which cannot be solved by a traditional computer algorithm within a reasonable amount of time. Many intractable problems are based around the financial markets, with forecasting algorithms unable to predict certain variables. The advent of quantum computing for the financial industry could have implications for the simulation of markets and the ability to predict how a commodity will impact the cost of other assets.

So called Monte Carlo simulations – detailed in a Palisade article – are mathematical equations designed to account for risk in quantitative analysis. The introduction of quantum computing could allow for the forecasting of future markets with greater accuracy. Considerations around market volatility, regulations and customer preferences that are currently limited by existing software would be taken into account effortlessly by the forecasting capabilities of quantum computing. The high costs currently associated with mapping simulations would be effectively reduced as well.

Cracking qubits

The largest quantum computer currently has 64 qubits. John Martinis, professor of physics at University of California at Santa Barbara, tells Digital Finance the scaling of these quantum bits reveals how far away the banks are from widespread quantum computer integration. In order to run software effectively, a program requires roughly 1 million qubits. While the current 64-qubit computer seems to be far from that lofty number, exponential growth is likely to occur, and experts predict a 50 million-qubit computer will be able to crack encryption data.

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