The finance industry has many areas where faster and more secure processing are welcome. The financial sector has many transactions run by algorithms. Using quantum computing would exponentially increase the speed of these transactions, allowing institutions to scale their processing with lower costs as opposed to employing more human or IT resources. Thus, quantum computing is increasingly attracting the interest of financial services firms that are seeking to boost their trade, transactions, and data speed. Quantum computing is a field which applies theories developed under quantum mechanics to solve problems.
Faster processing is made possible because, in quantum computing, data is represented using qubits as opposed to traditional binary units (0 and 1). Qubits are more flexible and allow for a combination of 0 and 1 simultaneously, whereas in the previous data had to be either a 0 or a 1. As such, a set of qubits stores more data than traditional bits.
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According to Dr. Marcos Lopez de Prado, founder of Guggenheim Partners’ Quantitative Investment Strategies and CEO of True Positive, “Quantum computing will become increasingly important over time,” and “In 20 years, quantum computing will not be just an option. It may be our only option, from an energy perspective, let alone from a computational standpoint.”
Quantum systems are still in the early stages of their development with its adoption within the financial industry expecting to take at least ten years. Capital markets are becoming more and more interested in the potential of quantum computing. This is true because part of it are individuals seeking to minimize their overall risk and maximize their returns. JPMorgan and Barclays have been testing IBM’s quantum computing software since 2017 in hopes of speeding up their portfolio with optimizations like the Monte Carlo simulation. True Positive itself has been working with quantum computers since 2014 for scenario simulations and portfolio optimization.
Dr. Marcos Lopez de Prado also claims that quantum computing will solve financial firms’ need for increased computing capacity in the future while requiring less energy than what’s used by traditional computers. Industry executives who utilize quantum computing can anticipate increased computing capacity that will require less energy than traditional computers.
There are pros and cons of the impact this will have on fintech. Thus far, reasons have existed to believe that when applied to finance, quantum computing could solve growing problems in critical areas including cybersecurity. Quantum computing could be used to detect fraudulent activities by recognizing such patterns of behavior at a much faster rate than what’s conceivable from normal computers. Financial data encoded with quantum cryptography is, by far, more secure than other kinds of digital security. The advent of the internet has made it possible for hackers to take control of remote devices and copy or edit confidential data. One cannot read data encoded in quantum states because they shapeshift by changing states and as such prevent eavesdropping, in addition to other techniques hackers may attempt. As with most opportunities, there will be also risks. Ascent (2017) states that “threats to some conventional security techniques and even business models [will appear], as current encryption methods become trivial to break and are therefore rendered useless.
The vice president of IBM Q Strategy and Ecosystem, Dr. Bob Sutor says that “The most advanced organizations are looking at how the early development of proprietary mixed classical-quantum algorithms will provide a competitive advantage.”
In conclusion, the implications of quantum computing will be far-reaching. Banks and financial institutions like hedge funds now appear to be most interested in quantum computing to help minimize risk and maximize gains from dynamic portfolios of instruments. The speed at which major developments occur will increase. Human interaction will only be relied upon to ratify flagged-up solutions. The impact of quantum computing on the financial sector will predominantly be a good thing.