New wave disruption with quantum computing and Artificial Intelligence
The financial industry has always been a forward-looking sector, keen to embrace new technologies and innovation in order to improve customer service, reduce risks associated with human error, and improve overall profitability. We have already seen massive advances, from physical cash to an electronic banking system, from local branches to web-banking and from bearer bonds to high frequency trading. The ceaseless quest for technological innovation has seen a new sector, FinTech, emerge and we are today all familiar with the buzzwords of Blockchain, Bitcoin, Big Data and Sentiment Analysis.
These are however current technologies and live projects - tangible tech with real world uses. Beyond the cutting-edge of today’s technology, institutions are investing heavily into two major areas of innovation, both with enormous potential to severely disrupt both the financial sector, and the wider world. These technologies are Quantum Computing and Artificial Intelligence. You will be forgiven for thinking that this is the realm of science fiction, but both technologies, although in their infancy, are being tested and refined in labs around the world - this is not vaporware.
Let’s start with quantum computing which makes use of a quantum mechanical phenomenon (superpositions) that allows them to solve certain sorts of computational and algorithm-based problems orders of magnitude faster than classical binary computers. Quantum computers will render useless some methods of cryptography used in financial services. What is more, this encryption cracking capability could come anytime within the next five years, so it is essential to plan for post-quantum security now by selecting encryption methods that are deemed ‘Quantum safe’.
As always, with technological threats come opportunities, and the massive power of quantum computers can be harnessed to gain a significant first-starter advantage in areas such as high frequency trading and stock option pricing. However, building the algorithms that are optimised for quantum computing power in areas like cryptography, pattern matching and data sorting will have a major impact on security, fraud detection and data analysis once the power of quantum computing arrives.
The second topic is Artificial Intelligence, which ranges from complex rules-based engines such as the chatbots or robo-advisors used on online banking platforms all the way to true AI that can enable funds to absorb vast amounts of data, combine it with self-optimising algorithms and make increasingly accurate predictions about the financial markets. Indeed, there are several hedge funds today that are already fully autonomous and make all stock trades using solely artificial intelligence.
As chatbots improve, robo-advice becomes increasingly accurate and AI outperforms human managers, it will be essential to focus on how humans and machines can best co-exist. Machines’ lack of human bias could help us find new correlations in to vast silos of data, but human intuition, common sense and imagination will remain an important balance to AI’s weaknesses. Both Quantum computing and AI, central topics at 2018’s Fund Forum International and its Data Science, will have an increasing impact on the financial industry.
As always, CACEIS is monitoring the forefront of technological developments to ensure we can deliver the robust security, data insights, information accuracy and business efficiency that our clients require now and in the future. The human element is central to our business and will remain so, but the assistance capabilities that AI and quantum computing offer will give our staff, and therefore our clients, is a significant advantage in an increasingly competitive industry.