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This is how BBVA anticipates the quantum revolution in finance

 

Escolástico Sánchez
Escolástico Sánchez, leader of the Research and Development discipline in NDB

Always be one step ahead. That is the philosophy of BBVA’s New Digital Businesses (NDB) division, focused on constantly monitoring innovation horizons. Its mission: To ensure the Bank is prepared for the changes coming in the next few years. A clear example of this is its research in quantum computing, a technology that BBVA is already actively working with.

Many technological goals have been accomplished in the last five years that were unthinkable a decade ago: There is an artificial intelligence ‘software’ capable of learning by itself to defeat a human in a board game; for the first time, we have obtained an image of a black hole in the galaxy, and we can eat hamburgers 100% grown in a laboratory.

Are we ready to innovate at the pace of changes in society? “Our job is always to be several steps ahead of the industry to anticipate the changes that will transform the financial sector in the next few years,” explains Escolástico Sánchez, leader of the Research and Development (R&D) discipline in NDB. This unit has a clear mission: to be the spearhead that allows the Bank to stay ahead of the competition in terms of scientific-technical innovation.

Because of this, on the one hand, one of the main tasks of the R&D division is analyzing and understanding which sciences and technologies will set the innovation agenda in the next five years. And on the other, to take the necessary steps so that the Bank is prepared to take advantage of the opportunities that will come once they are consolidated in the coming years. An example of this is quantum computing, a technology that promises to change the financial sector from top to bottom, but whose tangible applications are yet to come. “Quantum technologies, and specifically quantum computing, will exponentially increase the possibilities of calculation, meaning a radical change in the way we manage our money and our data,” adds Escolástico.

The R&D discipline, together with NDB’s Beyond Core pillar, has been working since mid-2018 to resolve difficult financial challenges, using disruptive technologies and basic sciences. In this regard, the team works with an approach similar to that of DARPA, the Agency of the Department of Defense of the United States, responsible for the development of new technologies such as GPS, ARPANET (a precursor of the Internet) and research in artificial intelligence in fields such as speech recognition and signal processing. To work following this model, there is a team of internal and external experts that works together for a limited period of time with autonomy to find the best way to resolve the problem.

The collaborative work of these areas is now beginning to materialize in tangible results. One of the first results is the agreement that BBVA, through NDB, has signed with the Higher Council for Scientific Research (CSIC, initials in Spanish) to create a joint research team that will be dedicated to exploring a series of financial applications for this technology. In addition, as part of this agreement, the team of researchers set up by both institutions is already working on a series of scientific publications that will be released in the coming months.

But what are quantum technologies?

In order to try to understand the real scope of this technology, it is possible to establish a parallelism with the laws that govern classic computing, allowing us to visualize its potential impact. “The bit is the basic unit of information storage that is used in classical computing, and that can be in two states: ‘0’ or ‘1’”, Sánchez explains. This duality is the basis of all the computer systems we use today: depending on whether bits are “on” or “off”, computers encrypt the information that powers the programs, either to indicate which colors correspond to each pixel of an image or to send instructions to a space rocket.

In contrast, quantum computing slots in the logic of quantum mechanics into this framework. Among other properties, according to this discipline, atomic particles are in a combination or superposition of multiple different basic states. In this way, when we measure the state of the particle, it transforms, with a certain probability, into one of those basic states. This would happen with the famous cat in the mind experiment of Erwin Schrödinger, who paradoxically cannot be considered alive or dead until the box is opened. When introducing this approach in computing, the qubit emerges as the basic quantum information unit.

In a recent report ‘The quantum Spain: a business approach’ carried out by Ametic‘, the most important characteristics that allow one to understand the importance of the qubit for computing are summarized. First, a qubit can hold information on the two basic states simultaneously (“superposition”). In addition, it is possible to “entangle” two qubits with each other, constituting a single system, so that knowledge of one’s state gives you information about the state of the other. And finally, they can’t be copied (“uncloning”). The three properties “open up a processing capacity that grows exponentially with the number of qubits that we are able to control intertwined with each other, taking us to capacities that exceed our perception,” the report explains. For example, a quantum computer of 100 qubits could have a processing capacity equivalent to the number of atoms that make up our planet.

A record-breaking calculation capacity

Bringing this new exponential calculation capacity to the world of finance opens up a huge range of possibilities. Specifically, the joint team of CSIC and BBVA are already investigating two lines of work: the optimization of investment portfolios, and the improvement of Monte Carlo simulations.

As regards the first line of work, we are working on the development of quantum algorithms with which we could improve the way the Bank helps customers to make decisions thanks to the possibility of introducing multiple variables. “The use of these algorithms would allow us to optimize costs in these processes and reduce the calculation times to figure out the best product for a client from days to hours”, explains Sánchez. In addition, it will make it possible to introduce the study of new variables to create and offer more sustainable products in the future, in line with the Group’s commitment to sustainable finance.

Regarding the Monte Carlo simulations, which allow one to simulate the evolution of different variables’ path in a scenario with random conditions, quantum algorithms would enable a quicker study of the evolution of values in scenarios of randomness and volatility. “We will try both quantum algorithms and classic solutions to compare their performance and utility,” says Sánchez.

Looking to the future, these technologies are also gateways to new challenges in the field of security, for which the Bank must prepare. At the same time, they have the potential to improve “security and privacy in an increasingly data-driven economy,” adds Sanchez.

To explore the different lines of work, the team’s expectation is to start up proofs of concept with these algorithms to determine in which conditions this technology constitutes a greater advantage and what technologies of those available in the market may be the most appropriate. “Although the full potential of quantum computing is still far from being fully developed, thanks to these advances, the Bank is already laying the necessary foundations on which to build new solutions in the future that will mean a real revolution,” Sánchez concludes.

 

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