Quantum computing and to a lesser extent blockchain and artificial intelligence feel like far-off, futuristic technologies to many bankers.
But in a panel discussion at In|Vest Wednesday, a bank executive and several startup leaders made the case for the practical use of these technologies in banking and wealth management.
Salvatore Cucchiara, head of wealth management technology at Morgan Stanley, said the bank sees promise in using quantum computing to speed up risk and performance modeling and improve security.
Traditional computers only allow bits of information to live in one state (0 or 1) at a time. A quantum computer, operating in an extreme environment, uses qubits (quantum bits) that enable bits of information to be a 1, 0 or both 0 and 1 simultaneously. The result is a computation system that can manipulate and assess many combinations of information concurrently.
“Where quantum could help us is with portfolio optimizations" and specialized simulations, Cucchiara said. “If I'm doing 10,000 simulations today, what happens if I do a million? I also think it could help us on encryption, creating an impenetrable system so that when the bad actors get into quantum computing, we can protect ourselves against them.”
Vern Brownell, CEO of D-Wave and former technology executive at Goldman Sachs, gave a scientific explanation of quantum computing.
“It's about using nature to do computation,” he said. Today, computers use Newtonian physics.
“The fundamental laws of physics and how nature works are quantum mechanics, discovered in the early 20th century by geniuses like Einstein and Schroedinger,” he said. “In 1981, Richard Fineman, the Nobel-Prize-winning physicist, conjectured if you could build a computer that leveraged quantum mechanics directly, it would have unprecedented performance against classical computing. That sounds simple, but the reality is quite complex. It's hard to separate a piece of matter from the rest of the environment and have it do a computation.”
D-Wave has built a chip that does this. It has to be kept in a special refrigerator that brings it down to a low temperature and shields it from the environment.
Quantum computing can solve problems more efficiently than classical computing can, Brownell said. It could be used in sophisticated computations known as Monte Carlo simulations, in portfolio analysis and in large-scale optimizations, and all that "will have a huge impact in the AI field,” he said.
“I think this will be the most important computational advance we've seen since classical computers were invented,” Brownell said.
Quantum computing is efficient and uses less energy than traditional computing, he said.
“These chips dissipate no heat at all,” Brownell said. “When I was at Goldman Sachs we had hundreds of thousands of servers that did nothing but run Monte Carlo risk calculations all day long. It was a huge waste of energy — those could be replaced by one quantum computer eventually. That's the scale of the evolution you're going to have.”
Blockchain for better security
Amber Baldet, a former blockchain program lead at JPMorgan Chase and current co-founder and CEO of the blockchain technology startup Clovyr, made a case for blockchain technology to help banks and wealth management firms handle privacy and security issues.
“If you're a wealth manager who is already running things in production and don't have an existing information security program .... good luck with that,” Baldet said.
As banks and investment firms “hoover up” data from an increasing array of sources into single, centralized solutions, security will become an even more serious issue, she suggested.
“The more things we pull into a single point, the more we create single points of failure,” she said.
This is why a decentralized blockchain makes sense.
“It’s not about you being disintermediated — that's what banks have gotten wrong. But it’s rather about keeping information you own close to you, while not necessarily needing to have as much access to other data you don't own,” Baldet said.
AI for client communication
Morgan Stanley is making “massive investments” in technology for clients and its advisers, said Cucchiara.
The bank has shifted from a primarily build-it-yourself approach to partnering with fintech companies, he said.
In its Next Best Action project, the bank is using AI to help advisers communicate with clients.
“We have a data lake, which is a good start, but in the past we were sending out millions of alerts to advisers every day on what they should do with their clients,” Cucchiarasaid. “That's not always helpful. Some of these are legacy alerts have been around for a while and they may not be meaningful."
He continued: "By looking at all the investment ideas, the life events that are happening with clients and all the alerts we're sending and using predictive learning and machine learning, we can optimize and prioritize what advisers should be talking to their clients about.”
The point is to keep advisers at the center of client relationships, but make them work on a large scale.
“We enable it with their workstation, we integrate it with our client relationship management system, and with campaign management so they can communicate at scale with clients,” he said. “It’s not just email, it can be text, and we're working on video as well.”