Keeping up momentum on open source for financial services

The financial services industry achieved a major milestone last year, with 87% of professionals surveyed believing open source was valuable for the future of the industry. Increasing support for open source represents a sea change in thinking for an industry where building new products and services is complicated, time-consuming and costly.

There is tremendous opportunity for open source to accelerate innovation in financial services, from central bank-backed digital currencies to streamlined identity management, open regulation, standardized payment vehicles and more.

Let’s take a look at the state of open source in financial services, based on the aforementioned survey by Finos, and discuss three key areas for growth:

Focus on AI, machine learning, data and analytics: Nearly half of survey respondents identified these categories as valuable to the future of financial services. Of course, AI and machine learning are now widely used for portfolio composition and optimization, fraud prevention, underwriting and other core functions, but there are further opportunities for these tools to decrease costs and improve user experiences.

More use of open source industry standards: For example, FDC3 (a standard for universal connectivity across desktop applications in finance) saw its greatest level of adoption in 2022. We expect this growth to continue this year, improving interoperability on the trading desktop and bridging gaps between financial institutions, vendors and other parties.

In addition, with Legend (which provides an end-to-end data platform experience covering the full data lifecycle) and Morphir (a multi-language system that captures an application’s domain model and business logic), we can expect to see more collaboration around risk models and regulatory interpretations. Now that ISDA’s Common Domain Model (a standardized, machine-readable, and machine-executable blueprint for how financial products are traded and managed across the transaction lifecycle) is moving to a fully open-source model, we’ll see increased openness and faster enhancements to derivatives trade models and workflows.

Developer experience improvements: The Open Resource Readiness Initiative (and others) have been committed to making it easier for technologists to consume and contribute to open source while maintaining safety, control, and compliance standards. The Finos study highlighted the need for enhancements to policies, processes, tooling and governance, but the key goal is to increase contribution. We believe there should be a greater focus on streamlining the developer experience, especially when it comes to collaboration – be it with peers or across the industry.

Over the next two years, we expect to see an increase in projects focused specifically on this, like the open source maturity model, which helps financial services organizations gauge their current open source maturity and identify priority focus areas for improvement.

Of course, all of this is dependent on a cultural shift among organizations that is currently under way. Support for open source – both among company leadership and employees – continues to trend upward. Among Finos survey respondents, nearly half said they work in organizations where open source consumption is encouraged, nearly doubling the value from 2021.

One such way this shift is taking shape is through the growth of open-source program offices (OSPOs). OSPOs act as a centralized place where organizations can define and implement policies and processes that accelerate open source consumption and contribution within an organization. They also inform developers and other participants about best practices and standards, aspects critical to meet compliance and security guidelines.

As the industry matures, the prevalence of OSPOs is likely to continue to increase. For example, a September 2022 survey found that adoption of OSPOs across various industries has grown 50% year over year.

The continued growth and momentum of open source in financial services is an encouraging sign. We’re looking forward to seeing both increased commitment from senior leadership and pressure from technologists to overcome obstacles and improve their organizations’ ability and appetite to actively consume and contribute to open source projects and standards.

While there is still work to be done, the rest of 2023 and beyond promises to feature open source as a key component across financial services.

Tosha Ellison is strategic advisor at Finos.