Embracing the Quantum Economy 2024

Appendix Use cases covered in financial services A.1.1 Quantum computing Currency trading (Toshiba and Dharma Capital)71Currency arbitrage high-frequency trading (HFT) is a common algorithmic trading strategy in financial services. The key is to find as many profitable currency combinations (or trading paths) as possible and avoid unprofitable transactions or wrong trades. There are two industry-wide challenges in this use case. First, profitable arbitrage opportunities can be as short-lived as less than 1 millisecond. Existing technologies can hardly identify these opportunities due to speed limits. Second, it is difficult to consistently maintain a 50% higher trading success or profit rate, as the company would like to. These challenges form a bottleneck to all currency arbitrage HFT solutions on the market. Financial crash estimation in enterprises (Yapi Kredi Bank and D-Wave)72Focused on estimating financial crashes within a network of small and medium enterprises (SMEs) that are customers of Yapi Kredi Bank, the team have developed a quadratically constrained quadratic programme as a mathematical optimization model aimed at identifying significant vulnerabilities and potential failure points in this network. Solving this NP-hard problem73 using classical methods is challenging; therefore, they have leveraged the quantum annealing technology of D-Wave74 to efficiently explore the solution space and produce decision variables that indicate the likelihood of financial distress for each SME in the network. Reinsurance optimization (AXA)Reinsurance optimization involves the strategic evaluation and selection of reinsurance arrangements to maximize the benefits and minimize the risks associated with transferring insurance liabilities to reinsurers. It aims to optimize the reinsurance programme to achieve an optimal balance between risk reduction, cost-efficiency and capital utilization. Credit card payment fraud detection (Rigetti, HSBC, University of Edinburgh and National Quantum Computing Centre)75It involves the use of advanced algorithms and ML techniques to identify and prevent fraudulent transactions. By analysing transaction patterns, user behaviour and other relevant data, these systems can detect anomalies and flag potentially fraudulent activities. This helps financial institutions and payment processors to minimize losses, protect customers’ financial information and maintain trust in the payment system. Continuous learning and adaptation of the models ensure that they stay effective against evolving fraud tactics. Settlement optimization of securities transactions (Bank of Italy, Intesa Sanpaolo, IBM and the universities of Exeter and Verona)76Transaction settlement is defined as the exchange of securities and cash between parties and is crucial to the financial market infrastructure. This case study considers the transactions occurring in TARGET2 (Trans-European Automated Real-Time Gross Settlement Express Transfer) Securities. Improving the settlement process by identifying the optimal set of transactions that will settle is a complex optimization task. Teams at Bank of Italy, Intesa Sanpaolo, IBM, University of Exeter and University of Verona are designing a variational quantum algorithm for the settlement optimization of securities to run on NISQ hardware, and to benchmark the results against classical and quantum-inspired solvers. Quantum sensing Detecting magnetic anomalies in transactionsQuantum magnetometers can detect extremely subtle changes in magnetic fields. In a financial context, they could be used to detect fraudulent card readers (skimmers) at ATMs (automated teller machines) or point-of-sale terminals. The precise measurement capabilities can identify tampering or the presence of unauthorized devices. Infrastructure integrity monitoringQuantum gravimeters measure minute changes in gravitational fields. They can be used to monitor the structural integrity of physical locations where financial transactions occur, such as bank vaults and data centres. Any unauthorized entry or structural changes can be detected with high sensitivity, which can indicate potential fraud or security breaches. Accurate timestamps for financial transactionsQuantum clocks offer extremely precise timekeeping. They can be used to create highly accurate timestamps for financial transactions, ensuring that transaction records are tamper-proof. Any discrepancies in transaction times can be detected immediately, helping to identify fraudulent activities. Detect tampering of ATMsQuantum acoustic sensors can detect minute vibrations and sounds. They can be used to monitor ATMs, vaults and other sensitive areas for unusual activities, such as drilling or tampering. The high sensitivity of these sensors ensures that even the smallest anomalies are detected, which can indicate an attempted fraud.A.1 Use case description This section provides descriptions of all the use cases mentioned in Section 3.2. Embracing the Quantum Economy: A Pathway for Business Leaders 49