More and more financial services firms are fully committing to open source software, but as Glynn Davis finds, issues remain

Open source (OS) is described succinctly on Wikipedia as a method of producing and developing software that promotes its free re-distribution and allows access to the end product’s source materials. Whereas this might have been the case in the early days, technology is never that straightforward and OS today encompasses a myriad of hybrid models, with varying degrees of openness and sharing, which are intertwined with commercial elements.

One of the problems has been its umbrella branding, according to Tomas Nystrom, senior director at Accenture, who believes its name suggests that it is free and therefore comes with some risks, when it actually it covers a variety of models. “It implies certain things and the branding is not ideal. It’s a source of tools of which some are truly OS, whereas others are not and they come with support and the relevant ‘legals’,” he says.

This flexibility in the definition has led to an increasing adoption of OS software by financial services firms, with Accenture finding in late 2010 that around 60 per cent of companies in the UK, Ireland and US were fully committed to, and already using, OS software.

Paul Lightfoot, managed services director at The Bunker, which provides systems for a number of financial services companies including Anderson Zaks and Moneybookers, says: “The vast majority of our clients incorporate some elements of OS in their systems as certain components are more secure, higher performance, more configurable, and lower cost than proprietary components. Approximately 75 per cent of our clients are in financial services.”

Nystrom says that since the survey was taken there has been an even greater adoption but he says its emergence as a force has been gradual: “It’s never been a ‘big bang’ thing. It’s more about taking more ground from proprietary systems. OS is a commodity play and is about more bits of IT becoming commoditised.”

He points to the trend for ‘big data’ (involving the merger of structured and unstructured data), and the emergence of Software-as-a-Service (which is separating applications from IT infrastructures) as among the drivers of the adoption of OS software.

Wider appeal
Nobby Akiha, senior vice president for marketing at Actuate, says that whereas OS was initially aimed at developers (and came up from being an infrastructure play) today its appeal has been broadened. “There is now more of a focus on applications that are web-based such as CRM. Financial services firms are not looking at OS for their infrastructures but for tools to solve a problem. And they are not looking at choosing either OS or proprietary solutions, it’s just a case of wanting to use IT to solve a problem,” he explains.

As such Davy Nys, vice president for EMEA and APAC at Pentaho, finds OS usage in an ever expanding range of areas, from compliance reporting on customer transactions, measuring call centre performance, analysing the performance of IT operations, as well as analysing things like security and server capacity.

But what the Accenture survey also found was that only 13 per cent of companies felt OS would provide a ‘true competitive advantage’. This does not surprise Nys who suggests: “Typically the lower you go down in the technology stack, the less competitive advantage you’ll be able to measure.” However, he says that for applications supporting sales and marketing teams with customer relationship management and/or business analytics, there have been measurable returns.

This is certainly the case for Lesley Jarrett, applications analyst for Bank of East Asia, who uses Actuate’s BIRT technology OS software solution for financial reporting and Business intelligence activities, as well as MySQL. Like many other companies he uses OS in the form of a mix of free software (“for the basic bones, the developer tools”) and complements this with paid-for managed aspects such as allowing the distribution of reports beyond a single desktop.

This highlights the growing trend for mixing OS and proprietary models, according to Akiha, who says: “OS licenses have become a lot more flexible and many of our customers now use a mixed environment with some software having OS standards and some commercial standards. Solutions have become blurred and many OS vendors offer dual licenses.”

This means a lot of the software today does not mandate that any changes made by a company have to be shared with the other users - the ‘community’. “If there are certain things that are critical to their IP then they’ll not want to share it,” says Akiha.

Recognition of the value of mixing models led Actuate to move from being a proprietary software vendor to an OS exponent that derives its revenues from value-added functionality and services. This has driven a wide adoption of the company’s product - to 1.2 million developers - and the model works well as financial services as such firms have an appetite for custom-driven elements because they see it providing them with competitive advantage.

Akiha also suggests many companies in the sector regard security as an issue when using OS out-of-the-box. Jarrett agrees, adding that the industry has been wary because of its “college kids” reputation, referring to its origins in universities and colleges.

Nys suggests this is outdated thinking and believes one of the main challenges within the financial services industry is the need for a change of mindset from procurement and legal people when it comes to dealing with OS vendors, contracts and licenses.

“To disregard a technology simply because it’s developed and licensed in an open source way would really disadvantage companies that would otherwise stand to benefit from its favourable commercial terms, open architecture and modern technology,” he suggests.

Lightfoot also refutes the security concerns and points to bug fixing: “OS is patched very quickly to deal with any bugs or weakness to new threats while proprietary systems tend to issue patches very slowly and often only at fixed quarterly points. They don’t want to highlight the severity or number of issues in their systems.”

It is the community of developers using the software who are fixing these bugs and Nystrom says they are a critically important part of the OS model. But with the number of users on hybrid commercial/OS licenses increasing, he questions the implications for OS if there is a shift in the ratio of participating users who share their coding changes and those who do not give anything back.

Steven Gaines, head of middleware at Red Hat UK, agrees that community engagement can be one of the key advantages of OS and can provide some competitive advantage: “There is growing confidence in OS software, and once additional business capabilities are realised on a grander scale, companies will gradually become aware that community action is the route to remaining as competitive as possible.”

The community should also be regarded as a good source of finding out the full capabilities of a solution before a company makes any commitments. “The biggest concern for financial service companies is to go down a path (with a solution) and to hit a wall. I recommend they go into the community, do the research and look at the advanced capabilities,” explains Akiha.
There is certainly a growing level of interest from firms investigating the value of OS as they seek ways to cut costs in the current tough economic climate. “If you look at saving costs on commoditised IT then companies will be doing this in a downturn,” says Nystrom.

Jarrett believes the increased levels of regulation could also prompt more companies to explore OS. Since there could be demands on them to split off some of their activities into separate functions, which could then be dealt with in a more scaled fashion, these could be ripe for these solutions.

Regardless of the definition of OS, it is clear the difficult economic backdrop combined with the major changes that are being forced upon the financial services industry, will ensure such solutions to play a major role in the future.

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