Tag: Finance

Quantum Computing in Banking and Finance – Threat or Opportunity?

What do companies such as J.P. Morgan, Wells Fargo, Barclays, Mitsubishi Financial Group, Citigroup, Goldman Sachs, or Caixa Bank have in common (besides being banking and financial giants)? They have all started to invest in and experiment with quantum computing applications.

Even though it is an emerging technology that still needs to mature in many ways to fulfill its wide range of promises, quantum computing has already started to make its way into various industries. The business world now faces steady pressure to familiarize itself with the technology, assess its potential, find specific use cases, and decide upon a potential long-term strategy.

Quantum computers are an entirely new type of hardware operating on quantum physics principles. While traditional computers use bits and a binary system of representing the information (either zero or one), quantum devices store the information in qubits, which can find themselves in a particular state, superposition (both zero and one at the same time). This allows them to process a vast amount of information significantly faster than classical devices. However, quantum hardware technology still needs to develop; therefore, most of the advantages that quantum computers offer compared to conventional computers are almost entirely theoretical.

Companies in the banking and financial sector are already experimenting with this technology to either harness its potential or take precautions with regard to its implications.

Quantum computing as a threat

Banks, hedge funds, asset managers, and all types of financial institutions deal with very sensitive customer data as well as information regarding transactions and contracts. Moreover, regulators require this data to be stored for periods ranging from several years to several decades. Therefore, it is paramount that it should remain secure and private. Some of the encryption algorithms used today rely on complex mathematical problems that classical computers cannot solve.

In a keynote presentation at the Inside Quantum Technology 2021 conference, Dan Garrison, who guided the creation of Accenture’s Quantum Computing Program, mentioned that if all classic computers would work together to break an encryption key (e.g., the one protecting a bank account), this would take approximatively 14 billion years. However, it has been theoretically proven that a quantum computer would be able to break some types of encryption in a matter of minutes or seconds, and several algorithms that can do that have already been developed.

Quantum hardware hasn’t yet reached the necessary level of development to run such algorithms. Nevertheless, as soon as large-scale, fault-tolerant universal quantum computers become available, there is a risk that all the data and private information concerning people, businesses, and transactions may be exposed. Some scientists expect this to happen in the next decade. Based on the principle “harvest now, decrypt later,” it is believed that nefarious actors are now hoarding encrypted data, with a view to accessing it as soon as more powerful quantum devices become available.

Therefore, by starting to use quantum-resistant algorithms already at this stage, the data owners could protect their information in the future, too.


“In the Finance sector, which deals with sensitive and private information, our greatest concern is what we call post-quantum cryptography (PQC). This refers to the landscape of privacy, cryptography, and encryption after the day when quantum computers become capable of breaking many of today’s encryptions. Post Quantum Cryptography should be something that is on everybody’s mind.” Peter Bordow, Principal Systems Architect for Advanced Technologies at Wells Fargo.


Quantum computing as an opportunity

Optimal arbitrage, credit scoring, derivative pricing – all these financial procedures involve many mathematical calculations and become even more complicated and resource-intensive as the number of variables increases. At some point, people have to settle for less-than-optimal solutions, because the complexity of the problem surpasses the capabilities of current technology and methods.

These so-called intractable problems (that can’t be solved by a traditional computer in a reasonable amount of time) represent the best use-cases for quantum technology.

One of the most acclaimed applications of quantum computing in the financial sector are the accurate simulation of markets and the ability to predict how a change in a commodity price will influence the cost of other assets.

According to experts in the field, quantum computers would be to perform so-called Monte Carlo simulations to forecast future markets, predict the price of options, or assess risk and uncertainty in financial models.

By optimizing machine learning and employing algorithms capable of recognizing patterns in large amounts of data, quantum computers could perform these highly complex forecasts and predictions.

Trading and portfolio optimization are other areas where quantum computing could significantly help. Having to consider the market volatility, customer preferences, regulations, and other constraints, traders are currently limited by computational limitations and transaction costs in simulating a large number of scenarios and improving portfolio diversification. Scientists have already proved that quantum technology can deal with the complexity of these problems.


Currently, Dharma Capital and Toshiba have joined forces in exploring the potential of quantum computers in assessing the effectiveness of high-frequency trading strategies for listed stocks in Japanese markets.


In a panel discussion during the Inside Quantum Technology 2021 conference, Steve Flinter, Vice President within Mastercard’s Artificial Intelligence & Machine Learning Department, declared that Mastercard had already started two years previously to explore use cases for quantum computers. Even though retail banking and payments are not typical use cases for these devices, Flinter believes that besides optimization problems, quantum computers could be successfully employed to make sense of petabytes of data.

Marcin Detyniecky, Group Chief Data Scientist and Head of AI Research and Thought Leadership at Axa Insurance, also points out that in the financial industry, quantum computers could have a positive impact in areas such as foreign exchange optimization, asset allocation, large-scale portfolio optimization, disaster simulations, and risk modeling.

Commercial quantum applications for the financial industry

Of the dozens of quantum software start-ups around the globe, Multiverse Computing and Chicago Quantum have already developed specific quantum solutions for the financial sector and announced encouraging results in the area of portfolio optimization.



Multiverse Computing’s most mature product, an investment optimization tool, is capable of improving asset allocation and management, generating twice the ROI on average while the risk and volatility remain constant. Besides that, the company develops quantum-inspired solutions to predict financial crashes, determine anomalies in big unlabeled datasets, and identify tax fraud.

Chicago Quantum’s proprietary algorithm identifies efficient stock portfolios and, according to the company, “is currently beating the S&P 500 and the NASDAQ Composite 100 indices”.

In terms of quantum security for financial institutions, there are already several companies on the market offering quantum encryption devices and solutions. QuintessenceLabs offers data-protection solutions and encryption keys based on quantum technology, designed to withstand any malicious attacks both from classical and quantum computers. ID Quantique is also commercializing a quantum random number generator, along with quantum-safe network encryption and quantum key distribution solutions. Similar services are provided by Cambridge QC, evolutionQ, IBM, Infineon, ISARA, and Microsoft, to name but a few.

“Wait and watch” or “go ahead”

The future development of quantum solutions within the financial and banking industry is not without challenges. Finding out which problems are suitable to be tackled by quantum computers and which not, increasing the interface accessibility and the availability of software, extending the interest in this technology beyond an elite group of mathematicians and physicians – these are only a few of the challenges that this field will have to deal with in the future.

However, experts have warned that adopting quantum-based solutions is a long and complex process that depends not only on the company’s capacity to define problems, migrate data, and adjust the infrastructure but also on its ability to include suppliers and clients in this process as well.


“This is a long game. It is not a light switch that you flip, and suddenly you’re all done in a few months, and you’ve mitigated all your risk exposure.” Peter Bordow, Principal Systems Architect for Advanced Technologies at Wells Fargo


Nonetheless, quantum computing technology is not fully developed yet, and most of its applications and promised benefits are still conceptual. Therefore, companies in the financial and banking industry are faced with two alternatives: To wait and watch, or to go ahead. The first option implies ignoring emerging trends and reacting only when the threats or the opportunities have been identified. The second one relies on a more proactive approach, where companies already start to familiarize themselves with the quantum technology, identify use cases, and start testing the integration of quantum security solutions. This option might prove more valuable in the long run and help them mitigate future risks.


Find out more about the expected breakthroughs in quantum computing. Read our report, Supertrends in Quantum Computing, for a complete overview of quantum technology, as well as key players and investors in this field.

© 2021 Supertrends

References

Egger, Daniel D, Gambella Claudio, Marecek Jakub, McFaddin Scott, Mevissen Martin, Raymon Rudy, Simonetto Andrea, Woerner Stefan, and Yndurain Elena. 2020. “Quantum Computing for Finance: State of the Art and Future Prospects.” IEEE Transactions on Quantum Engineering, vol. 1 (IEE Transactions ) 1-24.

Wells Fargo. 2020. Post-Quantum Cryptography (PQC) and the Quantum Threat. Position Report, San Francisco: Wells Fargo.

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The Future of Accounting is Digital

The financial services industry is evolving rapidly, propelled by the rise of new technologies and software. Accounting is also stepping up its pace, striving to implement and extend the usage of electronic invoice systems. Once rolled out on a larger scale, electronic billing has the potential to save costs, speed up transactions, and ease the environmental burden.

Serial entrepreneur, author of ten books, and fintech enthusiast Werner Valeur strongly believes that the future of accounting is digital. From automated data capture, direct data transfer between transaction participants, and real-time payments to the replacement of Excel spreadsheets and innovative ways to automate financial processes – Valeur is optimistic about the potential of this industry and the vast opportunities that digitalization will facilitate.


“Digitalized and automated processes allow for more data points. This way, the company has access to more information and can better optimize its strategy.”


Electronic invoicing is one of the major goals and an essential step in the future development of accounting systems. Electronic bill payment is a system that allows the transaction parties to generate, send, pay, and trace their bills electronically via the internet, instead of the obsolete exchange of paper invoices via post or email (scans). This process is sped up and facilitated by the latest technological developments, access to cloud services, widespread internet access, and the increase in digital literacy among the general population.

In 2017, 90 percent of the documents were managed as paper records, but experts and business analyses indicate a significant change in the future[1]. Valeur expects that electronic invoices will become a generally accepted transaction model in northern Europe by 2025, and in the other regions of Europe a few years later.

Werner Valeur in his office
Werner Valeur in his office; Photo courtesy of Werner Valeur

Currently, Latin America and Scandinavia are the world leaders in implementing e-invoices on all three primary levels: business-to-consumer, business-to-business, and government-to-business[2].

Multiple national initiatives have been launched across different countries, but the most important challenges are posed by cross-border harmonization, collaborative approaches, and the spread of adoption.

Already in 2014, the European Parliament and Council set in place Directive 2014/55/EU, aiming to develop a common European standard on electronic invoicing. This will lead to increased interoperability and better synchronization across countries.

Researchers have already identified a high adoption rate of e-invoices among young consumers, which will speed up implementation even more, given the rise of a new generation of “digital natives”. 


“In accounting, there are a lot of highly educated people, and the potential for advancement is huge. However, most of them have been educated according to outdated principles which don’t fit anymore in the current digital society. Therefore, the digitalization of accounting should already begin within the education system.”


Regarding the impact at company level, e-invoicing is expected to generate up to 80 percent in cost savings compared to paper-based processes, reduce the payment-associated risks and lead to centralized management of financial documents.

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© 2021 Supertrends

References

[1]Edicom Group, “E-Invoicing Status Worldwide,” June 5, 2017, https://globaleinvoicing.com/en/news/e-invoicing-status-worldwide.

[2]Bruno Koch, “The E-Invoicing Journey 2019-2025” (Billentis, September 2019).

Financial investments in the cultured meat sector. Hype or real opportunity?

With widespread disruptions of the traditional supply chain of meat and the emergence of new technologies as well as an increasing sentiment toward animal welfare, cultured meat is emerging as a viable investment option in the future of protein.

Cultured meat (in-vitro meat, lab-meat, clean meat) is developed in bioreactors, taking just a few cells (biopsy) from a living animal and multiplying them under sterile conditions in order to obtain the final product – minced meat, filet, steak, etc. Pioneered by the Dutch university professor Mark Post in 2013, the idea soon speeded all over the word. Currently, there are research centers and companies active in this field on every continent, each competing for market share and trying to come up with a scalable product. 

Mathematical models and financial analysts predict that the cultured meat market has the potential to grow by US$200.21 million during 2020-2024[1], reaching US$593 million by 2032[2]. Futurists dare to push the envelope and predict the total collapse of the cattle industry by 2030[3].  

More conservative opinions predict that these trends will coexist for a while. As soon as cultured meat is produced on a larger scale, at a lower cost, and with improved nutritional content, traditional meat might become an exclusive and exquisite treat in high-end restaurants. 

Cultured meat, an attractive investment 

Investor interest has been rising dramatically over the last four years, ranging from investments of less than US$20 million in 2016 to over US$160 million in 2020[4]. The US is the country with the highest investments, mainly due to Memphis Meat’s most recent fundraising, which surpassed US$160 million. Despite its small size, Israel has managed to secure over US$37 million in investments. 

Most of the investments are in an early financing stage (seed phase), raising funds of up to  US$2 million and aiming to cover their research and product development expenses.  

Only six companies among those that chose to disclose their financial status are in the Series A funding rounds, securing up to US$10-15 million in exchange for equity, while only one company works towards a scalable business trying to market their products on a larger scale through Series B financing (average estimated capital raised of US$32 million). 

Funds raised by cultured meat companies between 2016 and 2020[4]  

…In conclusion 

Some cultured meat start-ups are financially supported by established companies, usually in a similar or tangential industry. For example, in its Series B funding round, Memphis Meat raised money both from venture capital companies, public persons (Richard Branson, Bill Gates, Kimbal Musk), but also from the food giant Cargill. Investing in cultured meat might prove useful for traditional meat producers as a back-up solution for situations such as the current COVID pandemic. 

As every emerging niche, cultured meat has both high potential as well as drawbacks. The current development phase of the industry is still relatively far away from the promised benefits. Problems such as consumer perception, scalability, energy consumption, taste, and appearance still need to be addressed. 


The Supertrends dynamic report on cultured meat addresses in greater depth the current financial landscape and future opportunities that cultured meat presents as an investment. For more information on the report and the option to receive a sample, click here.

© 2020 Supertrends

Reference

[1] TechNavio. 2019. Cultured Meat Market by Product and Geography – Forecast and Analysis 2020-2024. Market Report, Toronto: Infiniti Research Limited.

[2] Markets and Markets. 2019. Cultured Meat Market by Source, End-User and Region – Global Forecast to 2032. Market Report, Hadapsar, India: MarketsandMarkets Research

[3] Tubb, Catherine, and Tony Seba. 2019. Rethinking Food and Agriculture 2020-2030. RetinkX.

[4] Swartz, Eliot. 2019. A Bit of Science. May 31. Accessed May 11, 2020. http://elliotswartz.com/.

Does cultured meat have what it takes for high investment returns? Does cultured meat have what it takes for high investment returns? Does cultured meat have what it takes for high investment returns? Does cultured meat have what it takes for high investment returns?

Investing in solutions for big problems

As a novel technology, will cell-based meat provide good investment returns? What will be the impact of COVID-19 on the future of food? When will a cultured meat company make its IPO debut? Few experts are better positioned than Andrew D. Ive, the founder and managing general partner for Big Idea Ventures, to answer these questions. 

It’s a chilly Wednesday morning in New York, and the coronavirus pandemic is in full swing. Since face-to-face meetings are still out of the question, I met up for a virtual walk with Andrew D. Ive, the founder and GP of Big Idea Ventures (BIV), which just kick-started their investment fund for plant- and cell-based protein start-ups.

Having grown up in both the UK and the US, Andrew spent most of his career building companies and teams. Now he wants to use his experience to make an even more positive impact. Or as he puts it, “I want my daughter to have a world which is better than the world I have lived in.”

Supertrends: BIV views both plant- and cell-based protein products as solutions for our future nutrition needs. Do you think plant- and cell-based protein companies are competitors in terms of being environmentally sustainable businesses?

Andrew D. Ive: We are all influenced by how we were brought up, our culture, and what kind of food we love. I think that over time, entrepreneurs and chefs will be able to create food that allows us to continue to have the same experiences, but in a healthier, more sustainable way. 

I see plant- and cell-based companies as providing different ways of achieving some of the solutions we need. Plant-based meat allows us to have very similar experiences as the original products. You can get plant-based meat with the same taste, texture, and experience as animal protein, but with a lower eco-footprint. Plant-based and cell-based proteins are similar in that sense. The main difference is that cell-based meat is not yet approved by the regulatory bodies as food for human consumption. I also think cell-based meat can be created from a technology perspective, but it still has to be accepted by consumers. What will happen in the next decade with consumer demand will be that people will begin to trust the cell-based meat system as being safer and healthier than the traditional animal livestock system. 

It may still take five years or more for cell-based meat to make a financial profit. As an investor, how do you view the return on investment for these companies?

Food production is just one of the many applications of cell-based technology. Another key area of application for cell-based protein is collagen and gelatin production. Gelatin can be used not only in food, but also in life science, photography, regenerative medicine, drug delivery and other areas. I think cell-based technology has the potential to be deployed across multiple markets above and beyond food. Let’s say the technology may take three to five years to be commercially viable in the food industry; it can also be commercially viable earlier than that in other applications to improve the quality of life.     

As an investor, I am prepared to wait five or six years to see a transformation in this multi-billion-dollar industry

Andrew D. Ive, the founder and GP of Big Idea Ventures

As far as food production is concerned, it is potentially transformative for the entire meat industry, which is a multi-billion-dollar business. As an investor, I am prepared to wait five or six years to be able to be a transform of a multi-billion-dollar industry, reduce our impact on the planet and potentially capture some of that value for the investors who help to create this new industry. The financial returns will be there from a financial perspective.  

Supertrends: What will be the impact of COVID-19 on the food industry?

COVID-19 made us look at the food industry in a different way. It made us realize how fragile our food system is, both domestically and internationally. For countries that rely on their neighbors to provide food and raw ingredients, the COVID-19 crisis has highlighted their concerns about food security. It has made us realize that life is not as predictable and controllable as we originally thought. In that sense, the only technology that can get you to self-sufficiency in protein during a border lockdown period is cell-based technology. It’s relevant to governments, it’s a matter of a country’s security. If I am a country that relies on my neighbors to supply me with food, I will want a backup. That backup will likely be cell-based protein. 

Supertrends: When could we see the first IPO from a cultured meat company? 

Usually, from an IPO perspective, companies need to achieve significant revenues; for instance, US$100 million in annual revenues. It will be a long time before a cell-based meat company hits that kind of revenue based on their current business model and the stage of the technology life cycle. What I think will happen is that the market will be excited about the long term potential for cell-based meat technology and will be prepared to respond to an IPO and invest in a cell-based meat company even though it hasn’t hit a revenue threshold such as a US$100 million in revenue.


Visit the Supertrends App and search for ‘cultured meat’ to find out when Andrew D. Ive thinks the first cell-based meat company will make an IPO. Not an App user yet? Visit the Supertrends Pro – page to learn about your benefits and request a trial – for free!

© 2020 Supertrends

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