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PA OPINION

Why financial services need to experiment with quantum computing

Quantum computing is closer to reality than ever. In 2019, Amazon said it will give customers access to cloud quantum computers and Google announced its quantum computer performed better than a classical computer (albeit only for one type of problem that suits quantum calculations). For financial services, this is highlighting a pressing need to act on the imminent quantum computing future.

The progress of digital giants on quantum computing is ushering in a future that promises fundamental improvements in our computational abilities across a wide range of fields. In financial services, quantum computing promises to revolutionise the speed and accuracy of pricing and risk management, for example. In fact, firms like Barclays, J.P. Morgan and Goldman are already building programmes to explore business opportunities for the technology.

At this point, we’re still early in the technology curve for quantum computing, entering the era of NISQ (Noisy Intermediate-Scale Quantum). This is akin to the 1950s and ‘60s for classical computing, when it had limited application but the likes of Wall Street experimented anyway, seizing a global advantage that let it dominate the later 20th century.

This highlights the clear lesson that financial services organisations should be looking to experiment with quantum computers today. Just like their digital predecessors, they naturally suit financial markets, making a near term advantage for early adopters likely. And the limited availability of quantum skills makes it even more crucial to be a first mover.

Financial markets are quantum

We like to model markets classically with known prices moving in an orderly fashion. But the reality is that prices, particularly in derivatives, are constantly shifting probabilities. That is exactly how quantum computers work – processing probabilities rather than binary certainties.

There’s a reason so many former physicists work in finance. The market is a natural environment for quantum computers as they’ll let us calculate prices and risk faster (no more overnight risk calculations) and more accurately (no more limits to testing scenarios).

A trading edge might be closer than we think

Despite the power and accuracy limitations of today’s quantum computers, even a small edge could create large gains if deployed on the right problem.

There are many areas of finance, from option pricing in volatile periods to liquidity calculations, which require the consideration of multiple simultaneously changing variables. For this type of complex calculation, even today’s quantum computers could be faster than classical ones.

There will be a first mover advantage

The pool of quantum computing experts wanting to work in financial services is tiny. But once firms start to build a successful capability, they will have the institutional knowledge, development capability and track record to attract these resources, creating a strong and persistent advantage.

Leading firms are already building a quantum computing capability to explore the commercial advantages promised and secure a first mover advantage. And with cloud access to quantum computing becoming available, the cost to benefit is falling rapidly.

Financial services can seize an early advantage from quantum computing

Financial services firms should be considering how they prepare for the quantum computing technology that’s certain to transform the market. Failing to do so risks others developing the ability to move faster in the short term and attract the resources that will be essential for long-term success.

The challenge will be in combining scarce quantum technology skills with deep knowledge of the challenges surrounding financial services to quickly realise value from new initiatives. While it won’t be easy to overcome this challenge, doing so will unlock immense opportunity.

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