Four Questions (And Answers) About Open Source Software In Finance

The subject of open source software came about in several recent discussions and I thought the key points would be relevant for this blog. Here’s a summary in the form of a Q&A.

1. Open source software has been identified as a tool that can be used for highly commoditised IT tasks, including compliance, measuring performance, etc. Is this generally where financial services organisations use open source or is it transferring into other areas too? 

Open source has been used primarily in IT shops and especially on Unix platforms, where a number of necessary components are by tradition open source (things like file systems or graphical user interfaces).

Over time, cost pressure has led the IT organizations to consider open source for mission critical components such as database management systems (mySQL) or the operating system itself (Linux).

What I’m seeing now is the open source approach being used in the application space, driven by commoditisation and also the search for new profitable business models. Let me point out two interesting examples-

  • OpenGamma is a UK based startup. They were the winner of last year’s Innotribe Startup Challenge regional showcase in Belfast. OpenGamma used the open source approach to provide a risk analytics platform to financial institutions. Quoting  Kirk Wylie, CEO of OpenGamma:
    “The idea of OpenGamma came from a need I noticed while working in the risk and front office technology for financial services firms.
    My job was building generic infrastructures,  but infrastructure for which there wasn’t a viable commercial offering. With financial services firms looking for cost reductions in every part of their operations, it seemed absurd that most of their IT budget was spent on building and maintaining expensive in-house systems that didn’t hold any proprietary value to the company. Trading and risk analytics systems are plumbing; as long as it works you shouldn’t notice it.
    So why should every firm build their own from scratch? Why shouldn’t there be an open source solution out there available to all?
    This thought triggedred an email to the other two co-founders, and the idea for OpenGamma was born”
    See more about OpenGamma here.
  • Allevo is a Romanian based software company. They took a big bold bet, and decided to put their core product – FinTP, a financial transation processing platform – in open source. They want to attract new customers for their platform, and want to transform their business model from software seller to support provider. Quoting Sorin Guiman, the CEO of Allevo: “Why shouldn’t every bank out there, doing the exact same thing in the back-office systems, use the same payment application? Customers don’t care what these systems look like, they care about what customized cool products and services their bank is able to deliver to them and the way these are delivered. We see no dangers for financial institutions to adopt open source software in their back-office systems, but rather an opportunity to become more relevant, in pace with technology”
    See more about Allevo here.

2. Are there any serious security issues in mixing open source and proprietary software? 

I’ll quote Sorin Guiman again: “Security by obscurity is widely denigrated – it does not mean that if one doesn’t have access to the source code, that code cannot be cracked.”

One of the main advantages of open source software is that any security issue is transparently known and can be collectively & rapidly solved by the community developers, making the application at least as secure as the proprietary one. Thus the mix of the two cannot hurt more than mixing any types of software.

3. Is there not an argument that open source security problems are easier to pick up – and solve– than ‘commercial’ software?

Having more eyes to see the code, getting issues solved, patches released and installed is definitely a faster process in open source software. I like to quote Bill Vass , the COO of late Sun Microsystems:

“If the Trojan Horse was made of glass, would the Trojans have rolled it into their city?”

4. How do you see open source take-up developing in 2013? Are there any clear trends that could emerge?

Financial institutions are starting to take open source software more seriously.

Allevo, OpenGamma are examples of firms pioneering the way in 2013 for financial services. I also think this is not only a financial industry trend; governments have started for a few years now to create policies designed specifically to encourage the use & adoption of open source software.

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