As we’ve grown accustomed to the conveniences of digital technology, we’ve let this technology take over our finances, specifically our wallets. It’s become all too easy to tap our credit cards or use our phones to pay for things, causing only a few people to carry cash with them. Credit cards are so popular, especially in the U.S. and western Europe, that around 79% of U.S. consumers had at least one credit card or change card in 2020, according to the Federal Reserve Bank of Atlanta. With so many people having credit cards, many banks and financial institutions struggle with the credit card application process, creating a bottleneck. This bottleneck is just one of many when it comes to the loan industry. As quantum computing works to optimize processes and, in turn, fix bottlenecks, it could help transform the entire loan industry into a faster, more efficient machine.
Breaking Down the Loan Process
No matter what sort of loan (credit card, student loan, mortgage, etc.) one applies for, there are many similar components in the application process. The lender looks at an applicant’s background, especially their finances or portfolio, to calculate how likely they are to pay back the loan. Based on the applicant’s history and the length of the loan, the lender will calculate a specific interest rate and possible fees in the terms of the loan. As loans represent a form of potential risk to a bank or a financial institution, they are involved in risk management. As discussed in a previous article, quantum computing can significantly help banks and financial institutions with risk management. But they could also speed up the loan process using quantum machine learning to research an applicant’s history or process loan documents faster. They can also help optimize interest rates so both borrower and lender are satisfied. This technology can also predict the future trends of interest rates and calculate accordingly. Using all of these methods, banks and other loaning businesses can offer clients a faster, safer, and more calculated process, ensuring better satisfaction.
Mortgages in the Loan Industry
Mortgages are one of the most common types of loans that individuals apply for and are a lucrative part of the loan industry. With the extremely low-interest rates during COVID, more mortgages were being finalized, causing many to realize the process would be more efficient if digital. According to an October 2020 article in Freddie Mac: “Nearly 90% of banking and leading executives said that the pandemic is proving a powerful catalyst for digitization of their firm’s mortgage process and 85% describe their efforts at mortgage process digitization prior to COVID-19 as aggressive or very aggressive.” With quantum computing, mortgages would no longer just be digital but could be processed faster and the rates are calculated to optimize both parties.
One company has already begun the process in real estate property evaluation. In 2019, Qindom published a press release showing the use of quantum machine learning in estimating real estate value for mortgage rates. According to the press release, the company had a 30% better performance than leading companies Zillow and Redfin in accurately predicting a property’s value, saving both the company and the home buyer money. “We found the key to facilitate the trillion US dollars market,” said Qindom co-founder Yao Wang. “Our system carries out accurate predictions on individual home values in Canada and the U.S., and has the potential to untie the knots existing in the home buying, selling, and investing process.” While Qindom led the charge in using quantum computing for property value, it may not have been as successful as people thought, as the company hasn’t really made any moves since 2018 (and I, Kenna can’t even find their website). This silence in company activity could imply something much direr than just a low level of activity.
Prior to Qindom, a different company called GenPact Mortgage Services developed a quantum Mortgage Operation System (MOS) to make the loan process more transparent and streamlined. “Quantum MOS is a truly customizable lending solution, offering functionality as a comprehensive platform with the ability to scale services to fit the specific needs of the lender, all while lowering costs and significantly reducing manual work and risk,” stated Roger Hull, the Vice President of Technology at GenPact, in a press release. While this product seems beneficial, the press release mentions no specific quantum technology or even quantum company, utilized in this system. Furthermore, the MOS was announced in 2012, with no newer reports on its successes (and no comment to this writer about it).
While both Qindom and GenPact Mortgage Services provide cautionary, even tenuous examples, other financial institutions are still pushing on with quantum technology partnerships to better their lending processes. Standard Chartered Bank in London is one such example, as they have recently partnered with Universities Space Research Association (USRA) to research quantum computing and its applications. According to Alex Manson, the Global Head of SC Ventures at Standard Chartered Bank, in a press release: “The world is currently in the process of identifying commercial use cases where quantum computer capabilities will surpass classical computers. We have a conviction that some of these use cases will transform the way we manage risks in financial services, for example by simulating portfolios and exponentially speeding up the generation of market data.”
Kenna Hughes-Castleberry is a staff writer at Inside Quantum Technology and the Science Communicator at JILA (a partnership between the University of Colorado Boulder and NIST). Her writing beats include deep tech, the metaverse, and quantum technology.