Financial Services Embrace Open Source to Gain Edge in Innovation
NEW YORK—By now, it’s pretty much a cliché to say that all companies should be technology companies. But in the case of banks and financial services these days, it’s true.
Many finance companies are early adopters of new technologies such as blockchain, artificial intelligence (AI) and Kubernetes as well as leaders in open-source development. And as they seek an edge to retain customers and win new ones, they are not afraid to try new things.
At the Linux Foundation’s inaugural Open FinTech Forum here last week, attendees got a chance to discuss the latest state of open-source adoption and the extent that open-source strategies are changing financial service businesses.
Further reading
The fact is, banks really do have tech businesses inside of them. Capital One’s DevExchange boasts several products that it has developed for internal use and also made available as open source, including the Cloud Custodian DevOps engine and the Hydrograph big data ETL tool.
Contributing Back via GitHub
Toronto-based Scotiabank has also built up its Platform Organization (PLATO) and posts its Accelerator development pipeline code on GitHub. “We are a value-add reseller [of technology] to the rest of the bank,” said Yuri Litvinovich, senior cloud engineer at Scotiabank. “And we are hiring.”
The road to open source wasn’t always easy or natural for the banks, which are traditionally risk-averse as the custodians of other people’s money. But the need for innovation was too strong, as customers started demanding more control of their finances through online and mobile applications.
“The pressure to innovate is solved by open source,” said Jagadesh Gadiyaram, head of open source for Capital One. “We are way past the days where we have to build everything from scratch. There’s code out there to start from and build scaffolding around that gives you access to innovative ideas as well as features that accelerate your time to value. It gives you a head start on building stuff you care about faster. If you embrace it and understand it and know how to utilize it, you can really get ahead.”
That “understanding” is critical and multifaceted. The bank needs to have the tech skills as well as the support of upper management to make it work throughout the firm. The challenge, Gadiyaram said, is to be able to develop with open source in a “well-managed way,” which means the company buying into open source and building up risk management, legal and fulfillment processes around it.
Cooperation and ‘Coopetition’
As more banks and fintech startups adopt open source, they are finding themselves in the odd position of working together as competitors. So far, it’s working, they say, because of the value they are seeing from the applications built with open source code. The Linux Foundation plays a key role here—not for tech support, but for governance, so the banks can proceed with projects with confidence, and with the pace demanded by emerging business opportunities.
LF’s Hyperledger blockchain project is one example of open source enabling rapid innovation. Banks are formulating blockchain use cases as they are developing the blockchain to support the applications.
“Financial services has always been an early adopter of open source, and they are now really opening up and contributing code upstream [to the open-source project],” said Brian Behlendorf, executive director of Hyperledger at the Linux Foundation. “[With Hyperledger], we’ve introduced a nice middle ground between buy versus build—which is collaboration.”
That level of cooperation extends to the guardians of open-source projects themselves. Earlier this month, Hyperledger and another blockchain project, the Enterprise Ethereum Alliance, agreed to join each other’s projects to build interoperability between the two.
Key Enabler for Financials to Become Their Own Software Companies
Open-source adoption is the key enabler for the banks, not applications like blockchain. In the process of embracing open source to build the blockchain, the banks are learning how to leverage the process and execute on it better—in other words, becoming a software company.
“Yes, [open source] levels the playing field. You have to embrace it, and … you have to understand it,” said Jason Poley, distinguished engineer and cloud architect at Barclays. “But I don’t think everyone is embracing it the same, and I don’t think everyone understands it the same. So it may not be as level as you think.”
Scot Petersen is a technology analyst at Ziff Brothers Investments, a private investment firm. He has an extensive background in the technology field. Prior to joining Ziff Brothers, Scot was the editorial director, Business Applications & Architecture, at TechTarget. Before that, he was the director, Editorial Operations, at Ziff Davis Enterprise. While at Ziff Davis Media, he was a writer and editor at eWEEK. No investment advice is offered in his blog. All duties are disclaimed. Scot works for a private investment firm, which may at any time invest in companies whose products are discussed in this blog, and no disclosure of securities transactions will be made.