Banks are using open source to collaborate, not compete
- Goldman Sachs, JPMorgan and Citi among others have joined the Fintech Open Source Foundation
- Historically, the finance industry has a defensive patent-seeking reflex for its IP but by embracing open source, which makes software code freely available for anyone, is slowly saying goodbye to that
In the era of truly digital finance, competitors can be partners.
On the consumer side, product and marketing teams in banks in the Zelle network currently face new challenges as their partnership is crucial to their success. And on the backend, when banks began paying attention to blockchain technology (the original bitcoin blockchain was a breakthrough of open-source development), the largest companies including JPMorgan Chase and Wells Fargo joined industry consortia working on open-source blockchains.
It’s a departure from the past. Historically, the finance industry has a defensive patent-seeking reflex for its IP; whereas open source development makes software code freely available for anyone to use or modify. The industry is slowly saying goodbye to its old you-can’t-touch-this approach, which is evident in the participation of so many big-name banks in a new forum for collaboration on open-source projects called FINOS, or the Fintech Open Source Foundation.
Goldman Sachs, JPMorgan, Citi, UBS Group, Thomson Reuters are among its current members, as well as tech companies GitHub, Red Hat and Nodesource.
“There is a cultural shift that is happening, or needs to happen, in our organizations to understand there is business value to be had from open source,” Alejandra Villagra, head of product development for Citi’s trading platform Velocity, said at a recent industry gathering at New York’s Nasdaq MarketSite. “We have a couple of pilots we’ll demonstrate to executives who may be skeptical or still learning what open source is about. Once we start to prove that out, the cultural adoption and changes will accelerate.”
Open source is a model for developing software in which the original code, or source code, was written in an open, collaborative way and is available for anyone to download and use freely for their own purposes. By making code open source, banks can let third parties build applications on top of their own, effectively making them distribution channels for their product.
The nonprofit group was created with the idea that the industry’s legal, IP, and compliance regulations and practices create a substantial drag on their productivity and that that can become even more complicated when companies and their developers engage with others. By providing a secure platform for developers to work collaboratively it hopes to lower the barriers to collaboration more broadly and in the future.
“Our projects help transform the culture entirely — everything from policy, procedures, code of conduct, how we operate,” said Peter Spera, head of client intelligence technology at JPMorgan. “It’s generating a buzz and excitement, and we look forward to building upon them.”
The ability to co-develop products with other bank partners in the organization means there’s a greater likelihood that their software or API will continue to live on, grow and be more useful, said Gavin Leo-Rhynie, a managing director at Goldman Sachs — which ultimately benefits the banking institution more than any potential effort to take on the same projects alone.
One of the biggest challenges is the need to take code currently running inside one bank — that “probably has tentacles reaching into all sorts of other systems” — and preparing it to be reusable to outsiders, Leo-Rhynie added.
But doing so makes the code better and more useful within the company, ultimately, and more adaptable by others. Making code available to many experts in the field can help remove bugs in the code; if it’s code those people are using, they themselves also contribute to finding and perhaps patching flaws.
“In terms of future proofing any investments we’ve made, … it’s unlikely we’re going to be unique on that front,” he said. “We’ve probably also built things that … are still very useful, but maybe not core to our business, or are building blocks to something else for our business.”
Open sourcing signals an attempt by the industry to digitize the backend of their operations. Most innovation has focused on client experiences and outward interfaces — and boomed when banks began getting aggressive about their API strategies, which allowed external applications to plug into the financial institution.
It’s also the obvious way large banks can stay competitive as they grapple with how to actually transform their existing models and win the talent war with Silicon Valley.
“It’s amazing the number of times we speak to developers and engineers from outside the industry and they are so surprised at the level of sophistication we exercise within the finance industry, the problems we work on,” said Leo-Rhynie. “The more we can expose the types of software we write and the types of problems we solve, that’s going to attract more people to the industry. The goal is to think differently.”