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How open-source technology is securing the future of financial services

How open-source technology is securing the future of financial services 41

By Tim Oldfield, Financial Services Client Director at Mango Solutions (an Ascent company)

A decade or so ago, financial services firms would have run a mile at the thought of entrusting the future of their businesses to open-source technology. It was considered far too risky to expose such a highly regulated industry to software whose source code any member of the public can inspect, modify, enhance and even distribute – all free of charge. The advantages of financial bodies being able to manipulate code to meet their specific requirements to support fast and competitive innovations was clouded by security fears, many of which prevail.

However, financial services leaders are now waking up in a world where competition is fierce and fast. New fintech rivals are taking advantage of open source to offer customers better products and services that meet fast-evolving expectations. Open-source technology is no longer a risky option; it is the fearless future of financial services.

The “olde worlde” of financial services technology – shattered

Traditionally, the financial services sector relied on developing its own, tried and tested, proprietary software. Closed source, of course. Why? Because it wanted to address compliance and security concerns with confidence, while creating and protecting its competitive Intellectual Property (IP).

Then, a few years ago, as the rest of the world was starting to embrace open-source technology with open arms, something happened. Established technology vendors started acquiring open-source organisations. In 2018, Microsoft bought GitHub for $7.5 billion. The following year, IBM acquired Red Hat for $34 billion. New challengers were now running ahead with digital transformation and disrupting the market with a stream of innovative digital banking services. Established financial services were having to jump to it, or risk losing out to ambitious new competitors.

A brief history of open source in the financial sector

Some would argue that the shift to open source within the financial services sector began around 10 years earlier, when the financial sector started to move from closed-source Unix servers to open-source Linux platforms. This would massively speed up data processing, storage and trading infrastructures.

In January 2016, the Second Payment Services Directive (PSD2) – the European regulation for secure electronic payment services – boosted innovation and helped financial services adapt to new technologies, increasing the importance of Application Programming Interfaces (APIs). Many finance businesses started to depend on open-source programming languages such as JavaScript to build and implement APIs, as well as micro-services and other front-end assets to manage multiple customer activities.

Then in 2017, the Open Banking initiative – promoted by the European Commission to open up financial services and stimulate competition and innovation – further pushed the adoption of open source integration standards and APIs to help financial services firms work together better across borders.

These key developments allowed financial services firms to innovate faster and at a lower cost than before. Customers benefited from new services such as automated loan approvals and trading, chat bots and fraud detection. Success stories such as Capital One started to appear. They invested in open source so they could deploy software faster and at scale while managing code vulnerabilities and security risks. Within six years, Capital One was one of the world’s largest digital banks with millions of accounts.

A new generation of data science driving business intelligence and real-time analytics

Open-source programming languages such as R and Python are driving advancements in AI and machine learning, generating live data insights across the board – from risk management to customer intelligence – allowing businesses to deliver hyper-personalised experiences in real time.

While a cultural shift in many financial organisations is still a work in progress, global IT and data quality teams can rest assured that many of the latest generation of analytics solutions now deliver secure and compliant access to popular analytic languages like R. Secure end-to-end validation mitigates the risk of adopting and managing open-source software for repeatable and consistent analytic environments, saving time and resources while generating tailored, dependable results.

Governance-related concerns that previously formed a barrier to open-source adoption among financial services can be safely consigned to the history books. Instead, firms can deploy the latest AI tools and machine learning approaches to predictive modelling and statistical analysis, extracting business-critical information from many thousands of data sources.

Moreover, organisations can draw on a rich pool of today’s graduates, who are experienced in programming languages like R for data science, big data analysis and visualisation.

The future of open source in the finance sector

Today, banks are working out how they can use open-source technologies to turbocharge their business intelligence and fuel data-driven transformation. The benefits of open-source technologies are compelling: powerful, low cost and reusable platforms and procedures that can be adopted across many projects. And with the next generation of open-source solutions delivering ready-made access to the tools required, it will be fascinating to see where data innovation in financial services takes us in the next 10 or even two years.

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