Breaking the Mold: Open-source Software in the Finance Industry
Financial institutions have historically been risk-averse with regard to technology. They operate under the constraints imposed by information security requirements and legal compliance. A radical transformation of technological infrastructure is thus quite a scary proposition for a decision-maker at one of these organizations. Banks operate expensive, on-premise monoliths. Abandoning the legacy infrastructure for an open-source one, regardless of the possible rewards, entails many risks during the transition, which few banks would be willing to undertake.
Banks employ huge IT departments to maintain proprietary software programs and shore up security. This model gives the organization complete control over the operating system, infrastructure, and data. Switching over to open-source involves relinquishing some of that control, which banks are reluctant to do for a variety of reasons:
Decision-makers believe that switching to open-source code increases the risk of data breaches. Using open-source software has been associated with handing over to competitors any competitive advantage a bank has. Decision-makers do not want to get tangled up in the intricacies of open-source licenses.
Although financial institutions have made piecemeal use of open-source software in the operating system, infrastructure, or database depending on their needs, wholesale adoption of open-source did not happen because of the hesitations of the decision-makers in these organizations.
These concerns were confirmed by a field study commissioned by the Fintech Open Source Foundation (FINOS), a non-profit organization founded to promote the “adoption of open source, open standards, and collaborative software development practices in financial services.” This worldwide survey was conducted among developers, IT leaders, executive management, security, legal, procurement, and HR. The findings of the survey were gathered in The 2021 State of Open Source in Financial Services report, which revealed some interesting points about the corporate attitude toward open source in the finance industry:
- Although open-source consumption is encouraged throughout organizations, there are rules and restrictions in place that deter employees from contributing code to open-source projects. Only 8 percent of the respondents said that upstream contributions were encouraged in their companies, which is less than a quarter of the average figure in other industries.
- Concerns about exposing intellectual property and thus losing part of the competitive advantage were limiting factors in open-source use for about 70 percent of the respondents. Around 60 percent agreed that the complexity of open-source licensing played a role in holding back more liberal usage of open-source.
- DevOps, cloud, and AI/ML are thought to be the top three areas where open-source can make a difference.
However, staying away from open-source software is akin to swimming against the tide nowadays. The banking sector has been undergoing a digital transformation for the last few years, and fintech applications are expanding the sector’s reach into the three billion unbanked people worldwide. These huge changes cannot be managed by proprietary software bought off-the-shelf and implemented by the in-house IT department. Adapting to this sea change is only possible if the industry leverages continuous, iterative innovation through open-source code development, to which thousands of developers around the globe consistently contribute.
In addition to promoting continuous innovation, open-source also helps with cost reduction in the banking sector. Thanks to open-source projects, financial organizations do not have to reinvent the wheel whenever they want to launch a new future. Instead, they can take advantage of and build upon proven code in an open-source repository. Using open-source code also lowers license costs significantly, although open-source does not necessarily mean “for free.”
Adopting FINOS as the open-source mentor
Aside from conducting surveys on open-source adoption in the finance industry, FINOS has also assumed a leading role in introducing financial organizations to open-source. Here are a few projects from notable finance companies that open-sourced projects their projects under the guidance of FINOS:
Big players in the finance industry believe that there are efficiencies to be unlocked through standardization of data modeling and management across the industry. These organizations are subject to the same regulatory frameworks, face similar challenges in defining data and standardizing the way it is shared, and engage in high-volume daily trading. Solving a problem for one of them will solve it for the whole industry, promoting easier data sharing and trading.
In accordance with these goals, the investment bank Goldman Sachs collaborated with FINOS to open-source its Alloy database management platform in 2019, which it developed over 14 years. For years, the company used Alloy to reconcile the thousands of different databases used across different departments. By open-sourcing it, the company aimed to contribute toward the creation of a standardized data modeling form, which would bring down transaction costs. It would also be passing on to the open-source community the burden of developing and maintaining Alloy.
People in the finance industry use various tools for messaging, data sharing, and news. This lack of standardization renders collaboration and knowledge sharing difficult, posing an obstacle to trade. Deutsche Bank developed Plexus Interop to solve this problem. The platform makes interoperability among all these different apps possible, helping different organizations talk to each other. Deutsche Bank open-sourced this solution in 2017.
Having reaped the benefits of open-sourcing projects, the German finance giant made two further contributions to the open-source community: First, in 2018, it open-sourced Waltz, a platform that shows where different applications and data sets reside in an organization, lays out how they are connected, and opens them up to all employees. Then, in 2020, it contributed Symphony Java Toolkit, an interoperable suite of libraries facilitating tasks like identity management and building workflows.
Application development is a resource-intensive process. However, the resulting applications rarely turn out to be resilient to last long enough—a change of technology renders them obsolete in a short time, making an upgrade inevitable, which means a rewrite. Determined to make sure that its internal tools would stand the test of time, Morgan Stanley used Morphir to seamlessly translate business logic into different languages and platforms for years.
Morgan Stanley open-sourced Morphir in 2020 in collaboration with FINOS. This was an attempt to develop a standard business logic format optimized for storing and sharing across different departments. By enabling free movement of business logic within an enterprise, Morphir reduces the need for different departments to write their own code to solve the same problem, bringing about less technical debt.
The finance industry had its doubts regarding the open-source movement at the beginning, and not without reason. However, with digital transformation in full swing and fintech firms wanting an ever-bigger share of the pie, legacy finance organizations found themselves with their backs against the wall and had to take steps to adapt to the times. FINOS has orchestrated disparate efforts, unlocking efficiencies for the whole industry. In the end, finance organizations discovered that they could use open-source to diversify their offerings and make their code base more resilient. The whole episode illustrates how transformative open-source can be, even in one of the most traditional industries.