HSBC taps IBM to explore quantum for financial applications

Interesting blue sky research aims to put the quant in quantum, although progress in sector isn't rapid

IBM is working with HSBC bank to explore potential applications for quantum computing in financial services.

The three-year project will examine the use of quantum technology in areas such as pricing and portfolio optimization, as well as mitigating risks and identifying fraudulent activity.

Under the agreement, HSBC will join IBM's Quantum Accelerator program, which will give it access to Big Blue's quantum systems in order to validate and progress potential quantum use cases. In other words, it is a blue sky research program to explore how quantum computing might be useful in future financial services applications.

HSBC Bank and HSBC Europe CEO Colin Bell said: "This technology has the potential to transform how we run areas of the bank by addressing challenges which classical computers may never be able to solve, alone. Our work with IBM, a leading provider of quantum computing, is essential to harnessing this potentially game-changing technology for financial services."

The bank's intention is to explore the use of quantum computing for pricing and portfolio optimisation: using it to gain an advantage in trading and investing. Other areas it will investigate include mitigating risks, including identifying and addressing fraudulent activity.

However, the bank also said it is seeking to give employees skills in quantum technology through internal training programs, and intends to recruit quantum computing research scientists to build a dedicated capability within its "innovation" team.

IBM has been looking into the potential use of quantum computing in financial services for some time. In a report published in 2019, it identified some of the possible uses for the technology. It said that applying quantum technology to financial problems, particularly those dealing with uncertainty and constrained optimization, should prove hugely advantageous for first movers.

It also identifies that quantum computing may enable financial services organizations to re-engineer processes such as treasury management, trading and asset management, and business optimization, including risk management and compliance.

But the report also states that "while broad commercial applications may remain several years away, quantum computing is expected to produce breakthrough products and services likely to successfully solve very specific business problems within three-to-five years."

As this was written three years ago, it demonstrates that progress in quantum computing is perhaps not as swift as some in the industry had expected, and that potential users should beware the hype.

An HSBC spokesperson told The Register that it is "super early days" for quantum applications in the banking sector, too early to even suggest when such applications might come into production deployment.

The spokesperson said the point of the relationship with IBM is to explore potential applications, and any developments after the three-year project is complete will depend on progress made with the pilot projects.

Omdia chief analyst Roy Illsley said that the reality is that commercial quantum adoption is still five to 10 years away, but that things are now moving as specific use cases are being identified and picked up, and forward-looking businesses are preparing the ground for quantum adoption.

"Organizations like HSBC are getting to understand quantum in a business sense, so they can start to adopt it quickly when it becomes practical for problems that they can't currently solve," Illsley said.

At the same time, IBM is putting a lot of investment into quantum, resulting in its 127-qubit Eagle processor and plans to scale up to a 1,121-qubit processor codenamed Condor by 2023.

"IBM has realised that they need the commercial side to grow, and they need to start building up business interest for when those thousand qubit systems are ready," Illsley said, so we should expect more partnerships like this one in future.

HSBC is also a participant in the European NEASQC project (Next Applications of Quantum Computing). This is a group of 12 European companies and research laboratories examining quantum use cases, including financial services. HSBC has contributed to a paper here [PDF] that covers quantum alternatives to Monte Carlo simulations as well as other quantum methods, such as quantum algorithms to solve the Black-Scholes model for pricing options. ®

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