Global banking group Crédit Agricole has successfully run proof-of-concept quantum computing experiments to be applied in finance and banking. The bank partnered with French company Pasqal, a quantum computer manufacturer, and the Spanish firm Multiverse Computing, which specializes in quantum and quantum-inspired algorithms.
Quantum computing is the evolution of supercomputers. Developers believe that the rapidly-emerging technology, which uses laws of quantum mechanics instead of digital systems to solve complex problems, can be used to face global challenges that require massive computational processing power.
In finance and banking, quantum computing is expected to provide faster, safer and more accurate stock calculations, credit analysis, transactions and other fintech operations. Companies like IBM with IBM Quantum or Microsoft with Azure Quantum have been operating cloud quantum computing resources for several years, with thousands of users leveraging the technology, though quantum computing is still in experimental stages.
- The future of finance: Quantum computing use cases
- The quantum market and its leading fintech players
The future of finance: Quantum computing use cases
On Jan. 26, 2023, Crédit Agricole, Pasqal and Multiverse Computing announced positive and conclusive results on two experiments that used quantum computing in real-world situations.
The two experiments, which began in mid-2021, aimed to evaluate the contribution of an algorithmic approach inspired by quantum computing and quantum computers’ potential in two areas: The valuation of financial products and the assessment of credit risks.
“These two proofs of concept demonstrated the potential and reality of quantum computing for finance, despite these technologies still being in their infancy,” said Ali El Hamidi, the project’s sponsor at Crédit Agricole. “We took advantage of this initiative to start developing the internal skills to prepare for a technological breakthrough. If it happens, it will have a direct and decisive impact on competitiveness in our sector.”
Derivatives valuation challenges and calculations
The valuation of financial products is becoming one of the most challenging areas for organizations. An increase in regulations, pressure for transparency and adjustment models for derivatives have made calculations highly complex. For years, fintech has been eyeing quantum computing for its ability to solve these operations efficiently.
The French bank explained that the goal of their quantum computing experiment was to assess the performance of quantum computing in the valuation of derivatives — a complex type of financial security used by traders to access specific markets and trade different assets.
The global banking group reckons that the use of quantum neural networks has been proven by research to be beneficial for these types of calculations. However, in reality, the technology is too resource-intensive and suffers from lengthy processing times.
Based on the results of their quantum computing experiments, Crédit Agricole noted that the technology can be used to optimize speed and memory if specific algorithmic techniques are applied.
Credit risk assessment with quantum computing
Credit downgrade and risk management calculations have also been affected by the same factors — increased complexities of the compliance and governance landscape, transparency standards and new factors like ESG.
Crédit Agricole’s second experiment on the anticipated downgrade of financial rating had the goal of measuring quantum computing’s ability to solve a concrete problem, given the current stage of development of the technology. The bank chose a production use case, providing a real point of comparison: The anticipation of a counterparty credit rating downgrade over a 6 to 15-month period. According to the bank, quantum computing, in theory, makes it possible to find optimum solutions more efficiently for this field than when using conventional computer technology.
The bank reported that both experiments were successful, revealing improvements in computing time and memory footprints. The bank added that the experiments pave the way for quantum computing to be used in real-world applications of the valuation of derivatives and credit analytics.
“This is the most instructive experiment carried out in the industry so far, offering concrete comparisons for the first time, launching a new era for quantum computing,” said Georges-Olivier Reymond, president of Pasqal. “One of the results is that the tipping point is not that far away, probably less than two years, and that it is therefore urgent for users to quickly adopt these new methods, as Crédit Agricole CIB has done.”
The quantum market and its leading fintech players
The recent Research and Market report expects the global enterprise quantum computing market to reach $6.4 billion by 2028. The research, released on Jan. 24, 2023, reveals a rising market growth for the sector of 24.4% CAGR.
Government, military, technology and finance are the leading quantum computing sectors. The technology is being driven by AI and machine learning advancements and quantum computing in the cloud. Leading companies include Alibaba Group, D-Wave Systems, Google, Huawei, Toshiba, Intel, IBM and Microsoft.
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Additionally, all top banks are investing in quantum computing or partnering up to drive fintech into the new era. In early 2022, HSBC and IBM announced a partnership to explore quantum computing applications for financial services under a three-year collaboration partnership.
“Financial institutions and organizations around the world are eagerly awaiting real-world applications of quantum computing, and exploring industry applications for quantum computing should be a key tenet of any enterprise strategy today,” said Darío Gil, senior vice president and director of IBM Research.
IBM Quantum has over 175 clients experimenting with the technology — including Fortune 500 companies, start-ups, academic institutions and research labs — in areas that range from risk analysis to cybersecurity.
On the other hand, JP Morgan Chase created its own in-house internal team of scientists to explore and build new quantum algorithms and applications to address business use cases in finance, AI, optimization, standardization and cryptography. The company explained the technology has the potential to be used in portfolio optimization, option pricing, risk analysis and numerous applications in the realm of machine learning, ranging from fraud detection to natural language processing.
JP Morgan Chase, working with Toshiba and Ciena, also demonstrated the first quantum essential distribution network to secure mission-critical blockchain applications. Other leading banks committed to quantum computing include BNP Paribas, the Japan Post Bank — partnering with startup A*Quantum to optimize logistics — Citigroup, investing in quantum companies 1QBit and QC Ware, and Wells Fargo, Barclays, the ING Group, Goldman Sachs and others.
From big data management to security, compliance and governance, contemporary challenges are moving fintech complexities to a new level. In response, the sector turns to technology for solutions, speed and reliability. While quantum computing is still in experimental stages, it is expected to soon mature into testing and deployment.