Why Open Source Software is Critical to the Future of Financial Services
In recent years, we’ve written at length about how increasing regulatory pressures, rising customer expectations, innovative technologies and the threat of newer, nimbler challengers have combined to disrupt financial services like never before. In this quickly shifting landscape, banks of all shapes and sizes need to find every possible way to respond and compete.
One of the best ways to level the playing field while also accelerating the pace of digital business transformation is by leveraging open source solutions to get products and platforms to market faster and help solve challenges facing the industry. What follows is a brief history of open source in financial services and our perspective on why it’s critical that organizations consume and contribute to open source in 2019 and beyond.
Where Open Source Has Already Made an Impact in Financial Services
Historically, banks – especially large ones – have tended to protect all technology as intellectual property and the driver of competitive advantage, with large-scale engineering teams building all software from scratch. The reality is that open source and other kinds of turnkey solutions and components have already infiltrated financial services over the last decade or more in the following ways:
- Back-end technologies: Servers supporting the massive compute landscape, data storage and processing, and trading infrastructure – essentially all back-end software capabilities – largely run on open source Linux platforms. This has become the preferred method in recent years because it provides ease of maintenance, increased speed of delivery and other benefits. Moreover, a significant part of all software developed by banks is already based on open source software engineering libraries and systems.
- Engineering layer: Financial services software development has been commoditized with the large-scale use of open source for network communications, database storage, workflow management, web application development and much more.
- “as a Service” offerings: While not necessarily open source, these range from infrastructure and compute power to software and entire platform offerings that are now available through the cloud. Similar to open source solutions, these offerings greatly reduce the customization and integration effort required by banks.
- Regulator-mandated openness & standarization: Regulators have started mandating the industry to open up, standardize and become more transparent, with Europe leading the drive with PSD2 and Open Banking in the UK. Payments, account queries and other types of basic banking services are now covered by standardized APIs, providing any institution with the ability to consume the services and data as commoditized implementations and package them into new and innovative offerings.
By plugging in open source and turnkey technology solutions, valuable resources are freed up to focus efforts on integration and, importantly, the development of the unique business value for the bank.
The Future of Open Source in Financial Services
In a 2018 white paper created by the Fintech Open Source Foundation (FINOS) and its partners, the authors outline how and why financial services should welcome open source with open arms, boldly stating that “[t]he question is not whether to use open source but how to do it more strategically, efficiently, and extensively than your competitors.” With digital disruption handled collectively by technology solutions that become “de facto industry standards,” financial services companies become defined not by their software, but by “execution and differentiation in customer service.”
It is only natural that as plug-and-play open source and turnkey solutions become more ubiquitous, banks will need to increasingly interoperate with each other and will see little advantage gained from developing the basic applications that provide digital banking services. In the same way that the technical engineering of applications has been transformed by open source, so too will commodity banking services begin to conform to regulatory mandates or de facto integration standards and APIs.
Financial services software development will move towards a future in which engineering teams rapidly construct service offerings and applications by assembling and integrating a wide variety of technical and business building blocks, adding additional proprietary capabilities and functionality to differentiate the offering and drive consumer benefit.
Making a Long-term Commitment to Open Source
Banks, fintechs and technology companies at the forefront of financial services business and software engineering are making a long-term commitment to open source by becoming FINOS members and uniting with a shared goal of “shaping the future of open source in financial services.” EPAM is now among these members, and we are looking forward to further spreading the benefits of open source software components to our financial services customers.
As can be seen from our recent announcements – the launch of the Open Source Contributor Index (OSCI) and EPAM SolutionsHub – and the scale of our commitment to open source, EPAM is also contributing back to the community with features and quality improvements from our engineering teams. Naturally, we will continue this process as financial services evolves along with other industries and technical domains, such as data science, machine learning, software frameworks and lifecycle management platforms.
We are looking forward to engaging with the financial services open source community, starting with our participation in FINOS!