The financial sector has always been conservative in its approach to software development. This is especially true when it comes down to selecting open-source apps over proprietary ones. This caution is easing as more financial firms are embracing open-source.
A recent study shows that 87% believe open-source is important for the future financial services industry. Open-source code is an integral part of most software — even proprietary products. Open source, despite its lower adoption cost, has been a challenge to the fintech sector over the years.
Open-source software offers other advantages and opportunities to the financial sector, according to industry reports. Michal Nosek – senior enterprise architect of open-source software firm PerconaOpen source is becoming more popular in the financial sector due to its value.
“True open source solutions, as opposed to source available solutions facilitate faster innovation, since developers are already familiarized with them.” Nosek said to LinuxInsider that open-source software does not require complex procurement procedures in order for users to be granted rights.
He said that open source is attractive because of its combination of high-quality and lower costs than proprietary solutions, especially in difficult economic conditions when infrastructure costs are an important consideration.
Expanding Usecases are Evident
Open source is becoming more popular in fintech. In the past open source was perceived as inferior to proprietary software. However, this perception has changed due to the acceptance of open-source solutions for security.
Many industry leaders think that the security inherent in open source code is better than security in closed source code. Nosek shared findings from a Red Hat survey. “A significant percentage [89%] IT leaders are convinced that enterprise open-source software is as secure, if not more so than proprietary software.
Percona’s survey shows that 73% cite security, control and flexibility as the main reasons for choosing open source databases over proprietary alternatives.
Open-source database systems have attained a maturity level that allows them to be used in even the most regulated industries and for use cases. Nosek added that the variety of open source solutions makes it possible for engineers to pick the right tool without having to worry about licensing restrictions.
Challenges Still Exist
Open-source still has some challenges to overcome before it can be widely adopted in the financial sector. Nosek believes that these challenges will decrease as the use of open source in the financial industry becomes more widespread. The challenges that currently exist in the financial sector are preventing some integration opportunities.
“One of these challenges is the open-core model, where an open-source basic solution may not conform to regulatory requirements and necessitate the use proprietary licenses for compliant deployment in production,” he said.
It is also difficult to determine the limitations and restrictions associated with each license and whether they are suitable for a particular application. Furthermore, risk-averse organisations may view the use of less popular open source projects as a high risk in terms of abandonment or discontinuation of development.
“Finally the response from the community to security flaws and bugs may not be enough for critical use cases within the financial industry.” In order to mitigate these risks, Nosek said that it was important to find vendors who would support the selected open-source project.
In Finance, Rules Compliance is Critical
Open-source databases are used in the financial industry. It is vital to adhere to industry standards and comply with regulatory requirements.
The open-source ecosystems of database systems offer many different solutions. These solutions are so numerous that it is hard to put together a complete solution.
Nosek’s solution to the compliance dilemma is Percona Distribution for MySQL PostgreSQL MongoDB. This distribution provides tested and integrated software packages that meet enterprise needs, including compliance.
Open-source software has some key characteristics that allow financial institutions to integrate it with existing infrastructure and systems. Open-source software is often based on open standards. This makes it easy to integrate with existing systems.
He explained that “These solutions can be expanded, either by integrating plugins, extensions, or extending them internally, which is impossible with proprietary solutions.”
The popularity of open-source solutions, like MySQL and PostgreSQL encourages vendors of proprietary solutions to offer out-of the-box integrations. This makes it easier to integrate proprietary solutions into existing infrastructure.
Nosek says that the two biggest security concerns in relation to the use of open-source databases by the financial industry is the lack of support in case of a flaw in security and the belief that open-source software is less secure. It is possible to reduce these risks.
A support agreement with a vendor independent can help you solve the problem of support by providing patches and service level agreements.
“Additionally the transparency of Open Source Code works better in the practice of security as it allows a comprehensive evaluation and implementation of patch or workarounds, when necessary,” he said.
Open Source Options for Fintech
Fintech organizations can select and evaluate the best open-source solutions for their specific requirements and use cases using a similar evaluation process to proprietary solutions. The main requirement is that the tool meets specific requirements.
Nosek explained that “evaluating open-source technology is often easier, because it can be used instantly with all its features without needing a vendor’s relationship.”
But there are some areas that still need to considered when evaluating.
In order to avoid vendor lock-in, it’s important to check if the open source version of the software can deliver on expectations. Evaluators must also examine the license that comes with the open source solution to determine if it is really open source and not only the available sources.
Another aspect to consider is the ownership of the project — whether it is owned by a community or a commercial entity. The size of the community and its activity, such as contributors and the user base can offer insight into the project’s reliability and development.
Nosek said that it was important to consider whether or not there would be an easy way to move away from a particular cloud provider if necessary.
Open Source: The Financial Industry’s Best Practice
The financial industry has many promising uses for open-source databases. Nosek says that there are likely open-source alternatives to almost every proprietary solution available. According to Nosek, the solutions are feature-rich and comply with many regulations within the financial sector.
He concluded: “Nearly any use case can be a candidate for open-source databases solutions.” Today, many large financial organizations have significantly modified their enterprise architectures in order to prioritize open source solutions.
This includes banks and payment providers. Dedicated teams are now focusing on the implementation and management of open-source databases within organizations.
PostgreSQL is a good example of an open-source alternative to proprietary databases like Oracle. As an open-source platform becomes established and proven in an organization, it is used for more workloads including Tier One applications.