In the realm of software development, the financial sector has traditionally held a more conservative stance, particularly when choosing between open-source applications and proprietary code. However, there has been a noticeable shift in recent times as an increasing number of financial institutions are now embracing open-source software.
According to recent studies, a significant majority (87%) of individuals in the finance industry recognize the importance of open source software in shaping the future of the financial services sector. It is worth noting that open-source code plays an essential role in various software, including proprietary products. However, despite its cost-effectiveness in terms of implementation, open source has encountered obstacles within the fintech industry throughout the years.
Open-source products have been found to offer numerous advantages and possibilities within the financial sector, as indicated by industry reports. Michal Nosek, a senior enterprise architect at Percona, a company specializing in open-source database software, emphasizes the pivotal role of open source in the financial industry. In recent years, it has gained significant traction across diverse applications, thanks to its demonstrated value.
According to Nosek, genuine open-source solutions, which are different from commercially available solutions, promote faster innovation as developers are already well-acquainted with them. Additionally, utilizing open-source technology eliminates the need for time-consuming procurement procedures in order to acquire usage rights, as stated by Nosek in an interview with LinuxInsider.
He emphasized that the blend of exceptional quality and noticeably reduced expenses in comparison to exclusive solutions renders open source a compelling option, especially in difficult economic situations where infrastructure expenses are a major factor to consider.
Diverse Applications Made Apparent
The applications of open source technology in the fintech industry are growing. In the past, open source solutions were often considered to be of lower quality compared to proprietary ones. However, this perception has changed because open-source security measures are now widely accepted.
According to a recent survey conducted by Red Hat, it has been highlighted that a large number of IT leaders (89%) view open-source code, with its inherent security through transparency, as equally secure or even more secure than closed-source code, which often relies on security through obscurity. This perspective is shared by many industry experts who consider transparency to be a superior approach to security in the software development industry.
Percona’s findings also indicate that a significant majority of participants, specifically 73%, consider security and control to be crucial determining factors when opting for open-source databases instead of proprietary options.
Open-source databases have evolved to a point of high development, making them suitable for even the most regulated industries and use cases. Moreover, the extensive range of open-source solutions grants engineers the freedom to select the most suitable tool without being constrained by licensing limitations, according to Nosek.
Challenges Still Exist
Certain obstacles related to open source still exist and pose challenges for broader implementation of open source in the financial sector. Nosek believes that these obstacles will decrease as the use of open source becomes more common in the financial industry. However, these challenges are currently limiting some possibilities for further integration in the financial sector.
“The open core model presents a specific challenge in which a fundamental open-source solution may not meet regulatory standards, leading to the need for proprietary licenses to ensure compliant deployment in production,” he explained.
The wide range of open-source licenses adds to the challenge of comprehending the restrictions and limitations associated with them, as well as determining their appropriateness for specific purposes. Additionally, cautious organizations may consider the risk of utilizing less popular open-source projects to be too great due to the possibility of abandonment or lack of future development.
According to Nosek, the response received from the community regarding security flaws or bugs may not be adequate for critical use cases in the financial sector. To address these risks, it is important to rely on trustworthy vendors who can provide support for the selected open-source projects. This ensures the continued advantages of adopting open-source software.
The Importance of Following Financial Regulations
When it comes to the financial industry, ensuring compliance with regulations and industry standards is of utmost importance when choosing and utilizing open-source databases. This plays a crucial role in the decision-making process.
Open-source database ecosystems provide a wide range of options. The sheer number of these options can pose difficulties in putting together a comprehensive solution by combining different components.
To tackle this problem, Percona’s Distribution for MySQL, PostgreSQL, and MongoDB comes into play. This solution offers pre-tested and integrated packages that cater to the demands of businesses, ensuring compliance with various regulations. Nosek recommends considering these solutions to overcome the compliance dilemma.
Open-source databases can be seamlessly incorporated into the systems and infrastructure of financial institutions, thanks to the key attributes of open-source software. The solutions offered by open-source databases typically comply with open standards, facilitating a smooth integration process with existing systems and interfaces.
“These solutions often have the ability to be expanded, either through the use of plugins or extensions for integration or by being extended internally, which is not an option with proprietary solutions,” he elaborated.
Furthermore, the prevalence of numerous open-source initiatives, such as MySQL and PostgreSQL, prompts vendors of proprietary solutions to offer seamless integrations. These elements facilitate a smoother assimilation into pre-existing infrastructure when compared to proprietary alternatives.
Addressing Security Concerns
Nosek states that in the financial industry, there are two primary security concerns associated with the utilization of open-source databases. These concerns include the absence of adequate support in case of a security vulnerability and the mistaken belief that open-source code is inherently less secure. Nevertheless, there are ways to address and minimize these risks.
A possible solution is establishing a support contract with a third-party vendor who can offer reliable patches accompanied by service level agreements, thereby resolving the support-related concerns.
Moreover, the practicality of open source code is advantageous in terms of security because it enables thorough scrutiny of modifications made in each iteration, allowing for the timely application of patches or solutions when necessary.
Assessing Open-Source Choices in the Financial Technology Sector
Fintech companies, with their specific requirements and use cases, can assess and choose suitable open-source technologies by employing evaluation processes akin to those used for proprietary solutions. The primary criterion is that the tool meets the specified requirements.
According to Nosek, assessing open-source technologies is usually simpler as they can be readily utilized with all their functionalities without the requirement of a vendor association.
Nevertheless, there are still essential aspects that require careful consideration during the assessment.
In order to ensure that the expectations are met without the need for a proprietary license that could result in vendor lock-in, it is essential to assess whether the open-source edition of the solution is sufficient. It is also important for evaluators to thoroughly review the license linked to the open-source solution to verify its authenticity as a genuinely open-source offering rather than just being source available.
When analyzing a project, it is important to also take into account who owns it, whether it is a community-driven initiative or a business entity. The magnitude and engagement level of the community involved in the project, including contributors and users, can offer valuable indications of its dependability and potential growth in the future.
According to Nosek, when contemplating the use of an open-source database in a cloud environment, it is crucial to ascertain the feasibility of transitioning to a different cloud vendor if necessary, or whether there exists a potential for vendor lock-in.
The Financial Industry’s Bottom Line on Open Source Technology.
Open-source databases are increasingly being utilized in the financial sector, offering various potential applications. Nosek suggests that there are numerous open-source alternatives available for almost every proprietary solution currently available on the market. Additionally, these open-source databases have evolved to include a comprehensive set of features, allowing them to meet the regulatory requirements of the financial industry.
“According to his conclusion, open-source database solutions are suitable for almost every use case. In today’s financial industry, numerous large organizations have made substantial changes to their enterprise architectures, giving priority to open-source solutions.”
Banks, payment providers, and other institutions are now actively pursuing the implementation and management of open-source database solutions, resulting in the formation of specific teams within these organizations.
In the realm of technology, a significant trend that is worth mentioning involves the shift from exclusive databases like Oracle to open-source ones, particularly PostgreSQL. As organizations establish and validate the effectiveness of open-source technology platforms, they gradually transfer various workloads, even those belonging to Tier One applications, onto these platforms.
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