Research from Juniper Research has suggested that cybercriminals will have stolen 12 billion records by the time we reach the end of 2019 and estimate that could be as much as 33 billion in 2023. With the growth in digital and connected technologies, cyber attacks are becoming a larger problem by the day.
As you might expect, with the likely promise of financial gain, banks are prime targets for any form of cybercrime. To combat the threat, it is important that banks update and review their systems and procedures. They cannot wait for hackers and need to proactively invest in the right technology that meets the needs of a modern-day consumer. Beyond that, banks are processing millions of transactions every day. There is a fear that classical computing will reach its optimum in terms of size and power, especially as data volumes grow and financial institutions invest deeper into artificial intelligence (AI).
To combat these challenges, financial institutions have started to turn towards the field of quantum computing. Experts believe that quantum technology could solve problems related to security, processing power, and data efficiency. In this post, we look at what quantum computing is and how it might impact the banking and financial services industry.
What is quantum computing?
Quantum computers are expected to exceed the capability of classical computers on the next 5 to 10 years. This will provide a vast increase in the processing power over the traditional silicon chips. The finance sector has many areas where more secure, faster transactions would be a huge benefit. With quantum computing, this is made possible whereby the data is represented by what are known as qubits, rather than standard binary bit units (0s and 1s).
Qubits provide greater flexibility as they can allow for a combination of 0s and 1s simultaneously rather than one at a time in classical computing. In short, this means they can store more data than traditional bits. The ability to quickly analyze data and spot patterns is massively increased.
Bloomberg has reported that Google’s most advanced quantum computer, Sycamore, could solve a computational task that would take a traditional model 10,000 years, within just 3 minutes.
Quantum computing in banking
There are several ways that quantum computing could impact banking.
Financial data that can be encoded with quantum cryptography will be far more secure than any other kind of digital security method. Data in a quantum state is always changing state meaning it cannot be read, prevent ambitious hackers from getting their hands on too much information.
One of the examples of how quantum cryptography is being used is known as a “quantum distributed key system.”
Quantum Distributed Keys
Measurement-Device Independent Quantum Key Distribution (MKI-QKD) promises secure digital communication that cannot be broken, even by a quantum computer itself. The system creates very complex mathematical equations that are very time-consuming to complete. However, quantum computers make the calculations instantly simple.
MKI-QKD protects data by combing a secure quantum distributed key with a long message that cannot be broken without the associated key. Without huge technical detail, third-parties can be detected if they eavesdrop, meaning keys created by two parties are no longer identical, disturbing the quantum event. Banks such as ABN-AMRO are already starting to integrate this type of secure technology.
A clear benefit of quantum technology for banking lies in fraud detection. Automation of fraud detection relies on recognizing patterns in data. Quantum computers are perfect for supporting pattern recognition algorithms thanks to their qubit setup, rather than standard bits, as discussed earlier in this post. More advanced fraudulent acts can be detected thanks to self-learning networks and banks can mitigate fraud before it even happens.
Blockchain has been around for some time now but arguably, has never really fulfilled its potential as the next great banking innovation. According to Deltec Bank, Bahamas- “A combination of quantum computing and blockchain technology could change things as transactions can be even more secure and faster with increased encryption.” It also means that the computing power is there to remove any latency and power issues that exist within blockchain technologies.
Quantum computers will accelerate the field of high-frequency trading. Banks like Barclays and JP Morgan are already experimenting with this kind of technology. This comes through the ability to handle billions of transactions per second in a world where institutions can quickly get overloaded with data, especially where it comes to areas like stock markets. Quantum computing reduces the likelihood of crashes and data loss. Algorithms can be built that automatically initiate trades based on pre-defined strategies.
Quantum computing will likely accelerate the field of artificial intelligence (AI) in banking. AI is heavily reliant on large volumes of data to be able to learn. Given quantum computing can process data faster than ever before, machines will quickly gather feedback that shortens their learning curve.
For example, functions like bank loans could be almost instantaneous as quantum machines can process the data without any latency. Portfolio managers will not need to worry about managing their investments as a quantum system will be able to continuously provide them with optimal solutions.
The future of banking with quantum technology
Reports say that major banks like Barclays and JP Morgan are already looking towards quantum computing as a way to secure their future. These institutions are already experimenting with the technology and researching how it can be deployed in the real-world. The theories are still in their infancy and we will not truly know the impact until such time banks are running tasks fully on quantum machines. This brand new way of working is being referred to as the “quantum advantage” and will likely be something we hear a lot more about over the forthcoming decade.
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.