As quantum computing and quantum communications shift from theory to application, finance is emerging as one of the leading industries to benefit.
From portfolio optimization to cybersecurity, the financial sector is in for a complete overhaul. What once took hours to compute will soon be solved in mere seconds. What once was reactive will become predictive.
It’s why major players like JPMorganChase, Goldman Sachs, Wells Fargo, HSBC and Mastercard are already investing heavily in quantum research. McKinsey predicts that a fault tolerant quantum computer could be a reality by 2035, creating up to US $622B in value for the financial services sector.
While quantum’s full capabilities are still unfolding, the time to get ready is now.
Let’s explore the key areas where it’s already reshaping finance:
1. Portfolio optimization
Portfolio optimization is one of the most challenging areas in finance. It requires maximizing returns and minimizing risks in an ever-changing market. Traditional methods require complex and intense computations, which can take hours or even days, especially as the data sets and constraints grow. As markets become more volatile and interconnected, these conventional approaches often fall short of delivering optimal outcomes.
Quantum algorithms, with their enhanced computational capabilities, open new possibilities in this space. By providing speed, scalability, robustness and precision, quantum algorithms promise superior portfolio optimization.
YiyaniQ, a fintech startup from Perimeter Institute’s Quantum Intelligence Lab (PIQuIL), is working on this front by using quantum intelligent algorithms to advance portfolio optimization.
" The financial sector is expected to experience significant disruption, ranging from areas such as post-quantum encryption protocols to risk and asset management. The Waterloo region, with its vibrant ecosystem, is well-positioned to drive this disruption. "
Estelle Inack
Research Scientist at Perimeter Institute, Cofounder & CTO at yiyaniQ
2. Risk management
Risk management is another critical function in finance that requires identifying, mitigating and reporting risks in real time. But as market complexities increase, traditional systems often fall behind.
Quantum is set to redefine this space too. Quantum computing has the potential to perform complex risk assessments at an exponentially faster pace than classical systems. For instance, calculating Value at Risk (VaR) for a million-asset portfolio could drop from hours to just 30 minutes – enabling precise and efficient decision making.
Beyond speed, quantum also brings depth.
Quantum simulations can enable better stress testing, more accurate credit scoring and deeper insights into the market behaviour by simulating multivariable scenarios. To put it simply, quantum could flip risk management from a reactive to a proactive strategy.
3. Cybersecurity
As quantum computers mature, they will be able to break widely used encryption protocols of today, exposing financial businesses to massive cybersecurity risks.
Many hackers are already harvesting encrypted data to decrypt later when quantum capabilities become available. This hypothetical tipping point, known as Q-day, poses a serious threat to financial businesses.
In this context, it’s essential for the financial industry to befriend quantum tech before bad actors befriend and exploit it.
The good news: there’s a lot of work happening in quantum cybersecurity and quantum-safe cryptography right here in our community. Waterloo-based evolutionQ and ISARA are leading the charge in quantum cybersecurity and cryptography by building protocols to protect businesses when Q-day arrives.
4. Fraud detection
Today’s systems of fraud detection rely on pattern recognition and rule-based heuristics. Although effective, it’s not fool proof.
Quantum machine learning offers new opportunities for smarter fraud detection by processing vast datasets in real time to uncover subtle anomalies that may go undetected in the traditional systems.
Technologies like Post-Quantum Cryptography (PQC) and Quantum Key Distribution (QKD), promise ultra-secure communication to prevent unauthorized access, thus reducing the risk of fraud.
Waterloo-based QEYnet and Aegis Quantum are working towards innovative QKD solutions for various industries requiring data security.
What should financial leaders do today?
While the full impact of quantum is still a few years out, there’s never been a better time to dip your toes in quantum. Financial institutions are already taking action. BMO, for instance, partnered with IBM to explore how quantum computing can innovate portfolio optimization, risk management and fraud prevention.
Deloitte estimates that financial businesses will invest US$ 19B in quantum technologies by 2032, growing at an annual rate of 72%.
The message is clear: quantum-readiness isn’t about future-proofing, but about building a competitive edge today.
Why Waterloo?
For those wondering what it takes to join the quantum revolution, Waterloo offers a distinct advantage.
With its leading quantum ecosystem anchored by research institutes like Perimeter Institute and the Institute of Quantum Computing, unmatched AI expertise and more than 300 world-class quantum researchers, our region’s reputation speaks for itself.
We’ve promising startups like Open Quantum Design – building the world’s first full-stack, open-source quantum computer – that offer opportunities for companies to partner for research and innovation. But most of all, our quantum ecosystem offers the full breadth and depth of quantum expertise needed to solve the complex financial challenges of today and tomorrow.
Our team of experts can help you navigate your quantum journey.