A few months ago there was an announcement about HSBC and IBM exploring applications for quantum computing in financial services together. The story highlighted how HSBC would explore the use of quantum computing for pricing and portfolio optimisation. As part of the announcement, HSBC also committed to upskilling colleagues in quantum technology, as well as actively recruiting quantum computing research scientists.
The importance of the story should not be underestimated. The topic of quantum computing has been on the radar of many banking CTOs for years now. And HSBC are not the only bank looking at the space. Last year a research paper conducted by Goldman Sachs and QCWare showed how quantum computing could be with us within 5 years. Today that timescale is being revised.
The research showed how some companies are looking for “quantum advantage” already. That companies are not simply waiting for “quantum supremacy” to arrive. The distinction between these two concepts is key. What the research has suggested is that some programmers are looking to achieve practical results sooner than was expected. Meaning that banks should be worried about the potential of their data getting accessed by quantum computers bypassing encryption sooner than they thought was possible.
One of the leaders in this space at IBM is Prakash Pattni, Managing Director – Digital Transformation, IBM Cloud for Financial Services. Fresh from speaking at events like Innovate Finance Global Summit 2022 in London, Prakash found time to speak with us about the quantum dilemma that banks must solve. And lots of other things.
How real is the Quantum Dilemma?
There exist a lot of concerns surrounding cybersecurity when it comes to quantum computing. In a recent blog post on the website of the National Institute of Standards and Technology (NIST), Alexey Gorshkov shared some insights on the topic. Alexey is a NIST theorist who works at the intersection of physics and computer science research.
In the blog, Alexey shared how “it’s important to remember that not all of our encryption will break. Some encryption protocols are based on math problems that will be vulnerable to a quantum computer, but other protocols aren’t.”
Prakash agrees with Alexey’s explanation. He shared how there were several companies short-listed by the NIST to assist with post-quantum cryptography (PQC), or quantum-resistant cryptography. Companies and programmers who can create quantum-resistant public-key cryptographic algorithms are in demand. So are those who can help companies prepare for any security issues their current computer systems will face because of quantum computing.
Prakash explained how banks are starting to realize that they need to act now. That the five-year timeline that many of them had hoped for, has inextricably shrunk. If banks have two years to get ready now, then that might even be too ambitious.
Prakash also feels that quantum computers won’t necessarily replace traditional computers. When it comes to running simulations, this is where he feels that quantum computers are excelling. But he doesn’t feel we have seen the end of the traditional computer.
In fact, IBM have taken a huge step in addressing the quantum dilemma. Pre-empting the needs of their clients, the team at IBM have already launched a first ever quantum-safe system on their cloud platform:
Are banks taking quantum computing seriously?
The approach that IBM have towards security and the cloud is working. Awareness may still need to rise in the meantime, whilst some banks are already ahead of the game. Indeed, JP Morgan, Citi, BNP Paribas, Credit Agricole, Japan Post Bank, Wells Fargo, Barclays, Royal Bank of Canada, Goldman Sachs and ING have all joined HSBC in growing their quantum teams. But it’s still only a handful of banks who are taking quantum computing seriously.
So, we asked Prakash why there haven’t been that many hires within banks in the quantum computing space. Surely this would appear to be a reasonable gauge of the preparation levels of individual banks. In response Prakash shared how even just recently IBM ran a workshop for banking customers about future trends. Some representatives of the banks turned up to the meeting thinking they still had five years to prepare for quantum computing. However, they all left believing that there was a lot more acceleration needed than they had anticipated was the case.
“The trust only lasts as long as you can keep your data secure,” Prakash explained. However, he also believes that we are “really at the starting point. At some point there will be people that will have to understand how quantum computing works. How do I test, secure, and manage it in this new environment?”
We wrote about post-quantum cryptography in February last year. In the story with QANPlatform we highlighted the benefits of being ‘quantum resistant’. For banks, the biggest benefit quantum resistance offers, is retaining or increasing ‘trust’ amongst their customers.
Not just another cloud solution
However. It’s all well and good if you are one of the global systematically important banks, but what if you are one of the many small boutique banks? What happens when your budgets are too low, or your priorities are elsewhere? Will we see one of these banks pay the price for not preparing in time?
Prakash, of course, had the answer. He explained how one of the things that IBM has been undertaking in the space is to recognize how “we’re all solving the same problem.” Furthermore, IBM has been busy bringing the best solutions together in one place. Putting it all into the IBM Cloud and offering these solutions to its customers. In other words, IBM Cloud for Financial Services. Which is designed to build trust and enable a transparent public cloud ecosystem.
Other cloud providers haven’t been standing idly by. Google Cloud and IONQ partnered last year to offer customers access to quantum computers via the Google Cloud Marketplace.
Ultimately, though, it’s all about letting the banks innovate. And Prakash wants to take the security and compliance issues away from the banks so they can focus on innovating their core business. And staying competitive in the market.
Partnerships remain key for banks
Implementing innovative products into banks is different depending on which region you are based out of. U.S. banks sometimes want a supplier to sit alongside them within a project. Banks in Europe prefer to buy the know-how and implement it themselves. Prakash believes in co-creating with customers. He pointed to recent projects undertaken with BNP Paribas where IBM work in partnership with their banking customer.
“The approach we take is to build strategic partnerships rather than short term transactions.” He explained.
When IBM bought Red Hat back in 2018, they already staked their ambition to grow into the number one hybrid cloud provider in an emerging $1 trillion growth market.
With regulators encouraging banks to use multiple cloud providers, as well as their own on-prem solutions, there is every reason for banks to be looking at IBM. Not only for its cloud solution, but for the multiple solutions available within its cloud. For instance, artificial intelligence is now just one of the many solutions available with IBM’s cloud. You can tap into much more.
Does IBM compete with Fintechs to help banks?
It all sounded very ‘Fintechy’, the things that Prakash shared. However, IBM isn’t really a fintech in the strictest sense of the word. IBM might offer solutions to fintechs and banks, but it doesn’t have all the bells and whistles that some of the unicorns we have written about out there do.
IBM, for some fintechs, is just as much a target client as any of the big banks in the market. Naturally then, IBM is also partaking of some of the innovative ideas that fintechs are producing in wealth management, regtech and many other areas. In 2019 IBM partnered with Copenhagen FinTech for instance. The partnership would allow Danish fintech startups a competitive advantage amongst IBM’s customers. There were more partnerships like this one to follow.
In fact, IBM have been building a cloud banking platform “geared to a heavily-regulated industry known for a web of regulations meant to protect the interest of consumers and businesses. To guard against fraud and criminal activity.” Howard Boville, Senior Vice President at IBM shared in a story last year.
Prakash is responsible for the same platform here in Europe, the Middle East and in Africa. Prakash shared how he recently had a conversation with a UK banking representative who told him that he is trying to work with fintechs. But that he simply can’t.
“They’ve got a great idea, but I can’t just throw them the same legal document that I would to a larger organization as they don’t have the legal resources. I can’t get the commercials done with them,” the representative explained to Prakash. To help his customers with this type of challenge, Prakash assured us that the IBM Cloud incorporates a way to help banks work with fintechs. By onboarding companies who can deal with the legal and commercial challenges alongside the fintechs, within the cloud. To ensure that we [IBM] “take all the friction points out to make it easier,” Prakash explained.
Less worry, more cloud solutions
And it’s not just about helping banks work with fintechs either. At a recent workshop Prakash highlighted how some of the banks talked about how they were wary about the data that their supply chain had access to. Data that could encourage hackers to become more expedient. Due to bad security processes at the fintech, or various other reasons. Bank technology leaders are worried about topics like this. The words systemic risk came up. Regulators started to worry too.
Could IBM have come up with the best solution to this problem? Prakash assured us that the IBM Cloud Platform is the only one where the cloud provider has security experts and others working on resilience within the cloud on the providers team. This takes a lot of the ‘worry’ out of working with a cloud provider. Perhaps it’s time for your bank to be talking to IBM as well?
Author: Andy Samu