Digital innovation in finance – the open source imperative

Digital innovation is transforming finance. Advances in financial technology such as mobile money, peer-to-peer (P2P) or marketplace lending, robo advice, and insurance technology (InsurTech) are reshaping many areas –  from payments to wealth management.

Over the past decade, fintechs have already driven enhanced access to financial services for retail users. Technology advances in connectivity, data processing, and storage have contributed to the current wave of technology-based finance. Meanwhile, artificial intelligence (AI), cloud services, and distributed ledger technology (DLT) are transforming both retail and wholesale financial markets in areas as diverse as financial market trading, regulatory and supervisory technology.

These developments are making the finance industry more diverse, competitive, efficient and inclusive. In principle, most financial services can be now delivered directly and digitally, vastly increasing access to finance.

GSMA estimates that there are more than 5 billion mobile subscriptions worldwide [Exhibit 1].

Building on this user base, there were nearly 1.6 billion registered mobile money accounts in 2022 [Exhibit 2]. The rapid increase in connectivity has strengthened the position of established intermediaries offering mobile networks and subscriptions in embedded finance, particularly in emerging markets and developing economies. 

Compute efficiency and low storage costs fuel transformation

Computing efficiency has risen exponentially, as the cost of data storage has rapidly declined. Lower storage costs have made the volume of data generated globally  increase exponentially – to an estimated 48 zettabytes (48 trillion gigabytes) in 2020 [Exhibit 3]. The ability to process such data rapidly has also risen with advances in artificial intelligence (AI) and machine learning.

These advances have enabled the creation of huge amounts of capturable data, new tools to analyse data, and new business models . The exchange of both personal and non-personal data through (open) Application Programming Interfaces (APIs) has expanded beyond the banking sector. Open APIs are promoting industry wide innovation and increasing the agility of financial institutions to respond to changes in customer needs and expectations. 

Advances in information and connectivity have also led to an unbundling of financial services consumption. Open finance can be seen as another development that has been underway for some time, focusing mainly on the banking sector and PSD2 (open banking) that facilitates financial innovation.

As digital innovation in the finance sector unfolds, technology and data assumes a more pivotal role, igniting organisational change and fostering innovation in the finance industry.
Financial institutions are increasingly adopting open source software to embrace essential technology enablers for transformation such as cloud computing, cloud-native technologies, AI/ML, advanced analytics and big data. Secure open source solutions offer a powerful combination of flexibility, transparency and robust security measures.

The role of open source

Open source software allows financial institutions to customise and tailor technology solutions to meet their specific needs at lower costs compared to proprietary solutions as open source is typically free to use. This cost advantage allows firms to allocate resources to other areas of digital transformation, such as training, infrastructure, or additional development efforts. 

Financial institutions are using open source software to design scalable and interoperable solutions that integrate easily with the wider existing application landscape and expand their digital capabilities quickly.

The technology transformation of the finance sector also introduces cyber risks as the digital attack surface is broadening with the disaggregation of services and a greater number of distinct entities involved in the provision of a single product or service, creating complex webs of operational dependency.  

With open source, financial firms have full visibility into the underlying codebase. This transparency allows for thorough security audits, and identification of vulnerabilities. Additionally, the large and diverse community of open source software developers scrutinising the code enhances security and reduces the risk of undetected flaws or malicious activities.

While open source provides numerous benefits and accelerates innovation, factors such as governance, security policies, and the availability of skilled resources should also be carefully weighed.

Secure open source for digital finance

As this reliance on open source deepens, so does the need for robust security measures that safeguard against vulnerabilities, exploits, and data breaches. The enterprise open source journey often starts with the operating system but covers every part of the technology stack. The foundation of a future proof digital infrastructure that leverages open source technologies is built on enterprise Linux. 

Ubuntu is one of the leading enterprise Linux distributions both in public clouds and in private data centres  thanks to its predictable release cadence. Ubuntu Pro broadens the scope of Ubuntu’s ten-year security coverage, encompassing a multitude of packages beyond the core operating system. 

Working our way up the technology stack, open source cloud platforms like OpenStack can help financial services companies couple the agility of public clouds with the price performance of private data centres. When coupled with cloud-native technologies like Kubernetes, financial institutions can create cost-effective, scale-out containerised infrastructure, ensuring they remain at the forefront of innovation. AI/ML technologies are also playing an increasingly vital role in driving financial innovation. As firms navigate their AI/ML journeys, the sourcing of open source libraries and AI/ML toolchains from trusted providers becomes a critical consideration. Canonical addresses these concerns with Charmed Kubeflow, a fully supported open source MLOps platform that enables banks to adopt AI/ML at scale securely.

Explore strategies and open source solutions for AI deployment at scale through our on-demand webinar.

A solution that helps you innovate at speed with open source

In conclusion, the role of open source in driving digital innovation within the finance sector cannot be overstated. Financial institutions are leveraging open source software to harness the power of cloud computing, AI/ML, advanced analytics, and big data, all while maintaining a strong focus on security. Open source solutions offer the flexibility, transparency, and cost advantages that enable these organisations to tailor technology solutions to their specific needs, allocate resources efficiently, and seamlessly integrate with their existing application landscape.

However, as financial firms embrace open source, it’s crucial to recognise the need for robust security measures. The ever-expanding digital attack surface and the complex webs of operational dependency demand a proactive approach to security. 

Canonical’s Ubuntu Pro subscription provides security maintenance and transparent, predictable pricing for every layer of the stack, enabling financial institutions to focus on driving innovation rather than maintaining open source.

Want to learn more about secure open source for financial services? Read our white paper