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Quantum Leap (Part 3 of 3): Quantum Finance

By Matthew Dove (Digital Editor)

A blockchain versus quantum showdown might be grabbing headlines, but it’s arguable that the real potential of QC tech lies in its application to other areas of finance.

According to Markus Braun, when it comes to the application of quantum computing in finance, the sky’s the limit and everyone’s a winner;

“Everyone will benefit from it. In the long run, everyone will get in touch with it. In the short run, I think portfolio optimisation will be a part of it and risk management, credit scoring etc.

If you’re an insurance company and you want a risk model – say your customer is paying a higher premium because your model has a high error rate of calculation – then you can reduce the error rate, lower costs and raise liquidity as well as equity.”

No argument from Koltun, who agrees that managing investments and risk will form a cornerstone of QC’s remit;

“Risk assessment and portfolio optimisation probably have the most to immediately gain from the implementation of quantum computing. Risk assessment, due to its high number of variables and the time-sensitive nature of much of the data.

Not only calculating more, but calculating it quicker, would have immediate, real value. Portfolio optimisation would likely be a slower endeavour, but when it comes to managing vast portfolios with highly specialised and varied needs, quantum computers may well hold the keys to unlocking the next echelons of portfolio precision.

Quantum computers pose a threat to the current predictive modeling industry in banking and fintech. As always in any modeling business, accuracy and timeliness are everything, and a solution that could look at more variables, and assess them quicker, would pose a disruptive threat to the established methods.”

Who’s doing what?

quantum finance

When asked to name names, it’s obvious who Björn Stein thinks will be the big players in quantum finance but he also sees room at the table for smaller outfits like his, the QRL and JoS Quantum. “Fintechs have unique opportunities at this time. As the algorithms on which any potential benefits from quantum computing depend are still being developed, an investment in or a collaboration with quantum software companies might result in exclusive access to this technology.

On the other hand, a likewise investment in or partnership with a hardware developer might result in exclusive access to the first relevant quantum computer. Such hardware developments are not only pursued by giant corporations such as IBM, Alphabet, and Microsoft but also by many startups, some of which have a competitive edge. In particular, the technology of ion trap based quantum computing … is exclusively pursued by startup companies rather than by large corporations.”

As you’d expect, Markus Braun wholeheartedly concurs that fintechs like JoS Quantum can thrive in the space alongside the big hitters. “As we’re a smaller company I have to say that we’re going to benefit! Most of the smaller startups and the fintechs are focussed on the software and aren’t building the hardware as much because this is pretty tough unless you’re funded by 150 million!

The hardware isn’t important for the business client because the business client works with software. If you’re doing what we’re doing, which is building client facing and user-centric software, your customer will fall in love with the software and doesn’t care about the back end.”

Predictably, legacy banks are sniffing around in the usual fashion, eyeing their slice of the pie, as Koltun illustrates, “Both Barclays and JP Morgan Chase have been a part of IBM’s quantum network since late 2017. The banks were looking to utilise quantum computing for asset pricing, risk analysis, risk mitigation, trading, and portfolio optimisation. Given the amount of money tied up in risk mitigation, and lost to improperly-assessed risk every year, the potential value is massive.”

How about the potential value to the retail customer? What benefit, if any, will they reap from advances in QC?

The customer? Oh, right! The customer!

For normal guys like us”, Braun asserts, “walking around using our phones, we won’t notice the existence of quantum computing in the first place because there will always just be access via the cloud. You won’t need to buy new stuff, we’ll just have a connection somewhere in the back-up to quantum computers.”

In the medium to long term though, the quantum software developer foresees measurable improvements to the lot of the average customer. “Especially in 10+ years, I think that there’s going to be major benefits. Banking will become more seamless and more personal. Checks will take less time and if they don’t, they will be done with a better model which is more accurate. The customer will feel the difference but they won’t know that it’s coming from a quantum computer.”

Koltun feels that immediate benefits will be hard to spot but doesn’t rule out some tertiary advantages finding their way through. “Retail banks have been interested in the potential of quantum computing and its applications towards portfolio optimisation, asset pricing, trading, and risk analysis which, when addressed, could have a meaningful impact on the individual retail customer.”

Stein meanwhile remains unconvinced that QC will yield any rewards for the guys and gals in the street as, “benefits will likely be reaped by big players and not affect typical customers significantly.”

Did I forget to mention AI?

quantum finance

It seems that these quantum gurus are undisturbed by talk of hardware monopolisation as well as being decidedly underwhelmed by the hysterics surrounding the blockchain and encryption. Markus Braun, however, feels my enquiries into quantum computing are missing one significant and potentially hair-raising detail.

Apparently, I’ve entirely overlooked the utility quantum computing could have in the burgeoning field of machine learning.

“Artificial intelligence will benefit from the existence of quantum computing… infinitely. So, if you’re afraid of AI now, you’ll be more afraid of AI then! In five to ten years, you’ll hear a lot about that…”

But Let’s Not Sh*t Ourselves, Yet

When discussing fintech innovation, it’s all too easy to get carried away, and this is certainly the case with regards to quantum computing in finance. Hyperbole and inaccuracy are being spouted in equal measure, so I’ll leave it to Herr Braun to give us a remedial dose of cold hard reality.  “For now, we’re still simulating quantum computing. It’s still very error prone and in a research phase, it’s still emerging. What we’re doing right now is simulating these qubit systems, this universal quantum computer.”

And what of the perceived threats?

“You don’t need a quantum computer to save yourself from a quantum computer. There are already classical algorithms which are quantum safe…I don’t even like to call them threats because basically QC isn’t a threat, it’s what you make of it…”

Click here to go back to Quantum Leap (Part 1) and here to go back to Quantum Leap (Part 2)

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