Finextra is firmly focused on keeping our audience abreast of the key trends and updates impacting the financial services and fintech landscape. It’s only fitting then, that we take the time to delve into the world of quantum computing.

While it is still very early in the developmental stage of quantum computing, 2022 research from the World Economic Forum found that national governments have already invested over $25 billion into research in the space, with over $1 billion committed in venture capital deals in the preceding 12 months – tripling the previous three years combined.

Recent updates have brought the potential of quantum computing to the fore in conversations spanning regulation to security to privacy to capital markets innovation and ESG.

However, it isn’t just for the innovation it promises that quantum computing is making headlines. Rather, it is the threat of an cataclysmic ‘Q-Day’ where a quantum computer in the wrong hands may decipher or ‘crack’ our most secure data encryptions. Because of this, governments across the globe are focusing their attention on ensuring that systems across both the public and private sectors are ready and protected should that day arise.

What is quantum computing?

IBM defines quantum computing as a rapidly emerging technology that harnesses the laws of quantum mechanics to solve problems that are too complex for classical computers. Where our classical computers and even supercomputers are built of binary code-based machines that rely on 20th century technology, the hope is that quantum, which uses qubits to run multidimensional quantum algorithms, will be able to handle far more complex quantum problems very efficiently.

Quantum computing is based on the quantum mechanics category of physics, with qubits existing in multiple states at any one time. This is called superposition, and allows many combinations of zeros and ones to be processed at a given time – contrasted with the single binary process a traditional computer can handle. Its ability to digest significantly more information at once means it is far more efficient that traditional computers.

For an in-depth explanation of how the quantum computer works, we’re not going to try and one-up the FT’s excellent visual representation offered here.

This type of speed and problem solving sophistication is naturally attracting huge interest across the world, with the Global Quantum Computing Market Size valued at $13.67 billion in 2022. By 2032, the Worldwide Quantum computing Market Size is expected to reach $143.44 billion, according to a research report published by Spherical Insights & Consulting.

How will quantum computing impact financial services?

The financial services industry is positive about the potential quantum computing offers, with risk management, asset pricing, portfolio optimisation just a handful of areas that could be improved or significantly disrupted by the technology.

IBM expects that despite being in the developmental stages with general commercial applications very much on the distant horizon, breakthrough products and services in quantum computing should begin appearing for specific business use cases within three to five years.

Front-office and back-office processes such as client management around KYC, credit origination, and onboarding could be targeted early on. IBM also cites treasury management, trading, asset management, business optimisation, risk management and compliance as the key areas which are likely to gain quantum computing attention in the coming five years.

McKinsey sees significant value in the future of quantum in the financial services industry, noting that a reassessment of the potential economic value of quantum use cases in the industry has grown to between $394 billion and $700 billion by 2035.

Source: McKinsey

IBM classifies the use cases of quantum computing in financial services into three categories: targeting and prediction, trading optimisation, and risk profiling.

• Targeting and prediction: quantum computing could allow for significantly enhanced data modelling capability which will improve classification accuracy and predictions given its ability to process huge and complex data structures.
• Trading optimisation: as quantum allows for far more sophisticated combinatorial processing and optimisations, financial institutions will be able to improves portfolio diversification, more accurate portfolio rebalancing (factoring in complex market conditions), and less costly trading settlement.
• Risk profiling: increasingly complicated risk-profiling demands and regulations mean financial services will benefit greatly from quantum computing’s ability to efficiency and accurately execute risk scenario simulations across a higher number of outcomes.   

Why is quantum computing garnering so much attention in both private and public sectors?

Given the above examples, the vast and meaningful value that quantum computing promises to offer across financial services, it is natural that the technology is attracting significant attention from both the private and public sectors. Accelerating tech breakthroughs, increased investment, start-up proliferation are just a few drivers which mean that keeping up to date with such game changing technologies (like AI for instance) becomes an almost non-negotiable to remain competitive.

Beyond business-driven reasons, governments and central banks are paying increased attention to the risks and opportunities associated with quantum, with a particular focus being placed on the concern around Q-Day or quantum computing’s ‘Y2K’ moment. MIT professor, Peter Shor PhD, is renowned in the space for writing an algorithm which would theoretically run on a powerful quantum computer – he wrote the algorithm in 1994. Shor refers to the quantum computers available today as ‘toys’ and would require substantial development and breakthroughs in order to run his algorithm.

In an MIT publication Shor estimates that a quantum system would require at least 1,000 qubits, and to factor the huge numbers underpinning today’s internet and security systems would require millions.

“That’s going to take a whole bunch of years,” Shor said. “We may never make a quantum computer, ever… but if someone has a great idea, maybe we could see one 10 years from now.” In the meantime, he noted that, as work in quantum computing has ballooned in recent years, so has work toward post-quantum cryptography and the development of crypto systems that are secure against quantum-based code cracking.

While speculation around when quantum computing will become a reality – and indeed when Q-day could spell a global digital catastrophe – governments are working to ensure all necessary preparation has been undertaken in good time. They are also highly focused on ensuring that robust regulatory frameworks are in place to ensure that all use of quantum technology is carefully supervised.

Statista data shows that the US, Canada, and China are the leading countries in quantum computing adoption. Among surveyed countries, Japan and India have the lowest shares of organisations in the early or more advanced stages of adopting quantum computing.

In November 2022, the White House published a Memorandum on Migrating to Post-Quantum Computing, setting out extremely ambitious objectives to US government agencies. The Memo directed agencies to inventory their information systems that could be susceptible to quantum computers capable of cracking encryption. This seemingly impossible timeframe given to agencies underscores the focus and pressure the US is imposing on agencies to ensure that prompt and pre-emptive action is taken as a matter urgency.

Earlier this year, the UK Government announced it would pump £2.5 billion into quantum computing research as part of a 10 year plan to fund “new frontiers of quantum research, support and develop our growing quantum sector, prepare our wider economy for the quantum revolution and ensure that the UK leads internationally in the regulation and ethical use of quantum technologies.”