Quantum banking: The next leap in financial services
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Quantum banking: The next leap in financial services

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Quantum computers are supposed to be much faster and more powerful than current supercomputers, and as such, their application could have a profound impact on any industry. As banks begin to embrace quantum computing, potential use cases for the banking industry are emerging. CaixaBank is one bank that is demonstrating these through its quantum banking programme.

Quantum computers have now probably reached the point at which they can carry out calculations that would be impossible even using the world’s fastest conventional supercomputers. But the Zuchongzhi quantum computer is claimed to be 10 million times faster than the current fastest supercomputer and the photon-based Jiuzhang 2 can calculate in one millisecond a (very specific) task that would, it is said, take the world’s fastest conventional computer 30 trillion years.

However, the real significance of the advances in quantum computing come not so much from quantum primacy in niche scientific tasks, but from what Dr. Darío Gil, senior vice president and director of research at IBM, calls ‘quantum [business] advantage’. That is where quantum computers would consistently outperform conventional computers on problems that are useful for companies. This requires commercially viable hardware and software that can deliver value in real-world business use cases. In industries like banking, the potential is enormous, and we are closer to this transformation than you may think.

While quantum technology is not at the point where any data scientist could use this kind of technology day-to-day, the potential impact on banking is huge

So, what kinds of real-world banking challenges may benefit from a quantum solution? Spain’s CaixaBank has been exploring this question since 2018, when it set up a team of experts with IT technicians, mathematicians, and risk analysts. This team identified areas such as overall risk assessment and tail risk simulators, fraud detection with artificial intelligence and machine learning, quantum safe cryptography, portfolio selection and allocation, and data mining optimisation, among other areas.

The bank has worked with IBM’s Qiskit simulator and 16-qubit quantum computer on complex multi-variate analysis – determining that quantum computing was indeed a step forward over conventional technologies. It has tested with the PennyLane quantum computing framework from Xanadu and tested its use in machine learning, particularly in defining a scoring model for risk assessment. And it has explored the use of high-performance quantum random number generation solutions in simulations, alongside QUSIDE Technologies, a Spanish spin-off from the Institute of Photonic Sciences, a government research centre in Catalonia.

These partnerships include experiments on real data and real risk management problems. In one example, CaixaBank explored the implementation of a quantum algorithm capable of assessing the financial risk of two portfolios created specifically for the project, one consisting of mortgages and the other, treasury bills.

The quantum algorithm reached the same conclusions as the traditional method, using just a few dozen simulations, versus the thousands or millions required by traditional methods. This speed advantage results in cost savings in compute time, faster and more accurate risk management, and, in the case of an application in, say, derivatives, could mean being able to price complex products for customers in real-time rather than needing several hours.

Optimising optimisation

Quantum computers as they currently exist could be much better at some kinds of problem-solving than others. One area in which they excel is optimisation, and here a technique known as quantum annealing can be used to tackle real-life problems, including portfolio selection and allocation. Again, CaixaBank has been a pioneer of this in the banking sector, with its life insurance and pensions’ subsidiary, VidaCaixa, working with Canadian D-Wave Systems Inc., leaders in the development of quantum annealing processors.

The most recent fruits of this collaboration came in 2022, when CaixaBank became one of the first banks in the world to apply quantum computing to investment portfolio hedging calculation in the insurance sector. Using D-Wave’s Leap quantum cloud service, CaixaBank Group’s team coded an algorithm, which markedly reduced the computing time necessary to reach an optimal solution for improving investment portfolio hedging.

What normally took the bank several hours of compute time, was reduced to just minutes – decreasing the compute time over the traditional solution by up to 90%. This reduction of compute time facilitates increased modelling complexity, allowing for a more dynamic model that is better adapted to real-time markets; it improved the hedging decision-making process and it made capital allocations necessary for hedging operations more efficient.

Theory or practice?

These types of study suggest that banks could already use quantum computing to gain a competitive edge over their peers in specific areas. So how does this square with the conventional wisdom that we are between five and 10 years away from commercially viable quantum computers for general purposes?

The answer is in those ‘specific areas’. Spanish quantum start-up, Multiverse Computing, says that banks can already get a 100-fold advantage by using quantum computers to solve narrow problems, such as portfolio optimisation and fraud detection, even though today’s quantum computers are still relatively limited, with less than 100 qubits and high error rates.

So, quantum annealing produces good results in optimisation, whilst quantum gate technology, such as IBM’s machines, most notably outperform in tasks such as machine learning. And there are problems, such as using Monte Carlo simulations to price complex financial instruments, where traditional computers are still a better solution.

Quantum head start

CaixaBank’s view is that, while quantum technology is not at the point where any data scientist could use this kind of technology day-to-day, the potential impact on banking is huge. This means that quantum computing should be a key tenet of any banking technology strategy today, and that banks which aspire to leadership in this digital age must embrace quantum technology as part of their innovation agenda.

Banks who start this work even before the machines have reached maturity will be in a far better position to utilise the bigger and faster machines as they become available. Being quantum ready is a critical head start. That is why CaixaBank chose to be one of the first banks in the world to incorporate quantum computing into its innovation activity.

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