Cloud transformations continue to accelerate within the financial services industry. Ben Slater, CPO at Instaclustr, discusses why open source technologies have been increasingly part of that equation.
Financial services businesses face an acute and unrelenting demand to deliver more scalable and flexible applications. Customers now expect the same level of innovation and ease-of-use they’re accustomed to getting from consumer technologies. If a customer can’t get that digital experience from one finserv business, they’re increasingly likely to find it from a competitor. But the onus of facilitating financial transactions for businesses serving myriad customers across locations and currencies requires extraordinarily tremendous data capabilities to get right.Â
Maintaining compliance with ever-increasing regulatory obligations – as well as the operational risk compliance and security that’s checkbox-number-one for financial services’ value proposition – also calls for nuanced data controls. Said another way: data is a macro challenge that necessitates micro orchestration. As a decisive trend, financial services businesses are more readily embracing cloud transformation and, arguably more interestingly, trusting open source data-layer technologies to meet these needs.Â
Breaking Free From the Monolith for Market Innovation and Agility
Despite progress, many finserv businesses still largely rely on traditional monolithic and on-prem architecture even as the competitive disadvantage of doing so accelerates. As Antony Jenkins, CEO of 10X Future Technologies, put it: “…the problem with large financial institutions is they are like museums of technology.†This really is the case for organizations with monolithic architectures — they spend a majority of their IT budget just on maintenance and upkeep, leaving crumbs remaining for transformative improvements and innovation.
In contrast, shifting to the cloud enables finserv businesses to effectively eliminate costly technical debt while also reducing the expense of both providing services and introducing changes. Cloud agility allows these companies to quickly reallocate resources, accelerating experimentation, and innovation to bring high-value projects to market quicker. In this way, the cloud makes it possible to test ideas and pivot toward successes at a pace inherently impossible with monolithic on-prem architectures.Â
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6 Reasons Why Financial Organizations Are Bringing Open Source Into Their Cloud Transformations
Open source has been a key area of option in these transformations, and in many ways, it provides an antidote to costly and unwieldy legacy systems. Importantly, this is particularly the case when utilizing open source technologies in their 100% open source versions, as opposed to “open core†solutions that promote vendor lock-in and drive up costs. Here are some of the reasons why utilizing (or expanding) open source has increasingly become an asset to financial services organizations.
1. Meeting Extreme Scalability and Latency Requirements
Legacy data technologies simply can’t scale to the levels required by the finserv industry today. In contrast, newer highly-scalable, highly-available, high-performance open source technologies like Apache Cassandra, Apache Kafka, Apache Spark, and other data-layer enablers offer more linear scaling as finserv businesses scale up to handle more transactions.Â
For example, 7 out of 10 banksOpens a new window now utilize Apache Kafka as a distributed streaming platform supporting their applications. These open-source technologies are designed to meet the latency requirements, and expectations of the world’s leading consumer web applications – names like Netflix, Spotify, and Apple iCloud services – and are just as purpose-suited to the needs of the modernizing finserv industry as well.
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2. Supporting High Transaction Volumes Affordably
Legacy platforms not only face scalability limitations but also tend to include transaction-based pricing that becomes prohibitively expensive at scale. Open-source technologies and optimized cloud environments offer finserv businesses not only linear scaling but linear expenses as well – ensuring that they can meet extremely high transaction volumes at a reasonable cost.
3. Providing (Truly) Always-On 24/7 Services
With today’s financial services‘ consumer-facing applications serving a global audience, it’s no longer acceptable to have a few hours’ worth of maintenance downtime on weekends. These applications must remain fully available 24/7. Open-source technologies delivered via the cloud are designed to meet this requirement, with architectures including robust built-in redundancy for high availability.
4. Enabling Analytics and Big Data AI/ML-Driven Innovation
The combined scalability, agility, and affordability of open source data technologies operating on the cloud pave the way for transformative analytics – utilizing big data and AI/ML capabilities along the way.
For example, the AWS Cloud makes it simple to migrate data, create a data lake using S3 or AWS Glacier, and leverage Amazon Glue for ETL purposes using open source code written on Apache Spark or Scala. From there, finserv businesses can perform analytics with Redshift, big data processing with Spark-based EMR, and further BI and AI/ML services to collect insights.Â
The cutting edge in these spaces is firmly rooted in the open source world, enabling the technologies essential to the finserv industry’s future, with freedom from the vendor and technical lock-in that can dangerously limit any business’ flexibility and potential.
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5. Maintaining Data Caches
A typical use case, as enabled by open-source data technologies and the cloud, is accelerating consumer banking appsOpens a new window and open banking APIs by maintaining a cache of all required financial information. Open-source technologies like Cassandra, Kafka, and Spark can facilitate this practice, while the linear cost structures of the cloud make it affordable.
6. Providing Fraud Detection Analytics
Separate (and in addition to) analytics aimed at deriving consumer insights, advanced fraud detection analytics are a crucial financial services function. Open-source technologies that enable high volume financial transactions and processing at low cost can be similarly applied to provide fraud detection that is in-line with all pertinent regulatory frameworks.
In Conclusion
As the trends toward open-source technology and cloud implementations continue fastest among fintech startups and growth companies, I expect this adoption to expand into more traditional financial services areas as those solutions are proven out in the fintech space. With innovations continuing to arrive, the capabilities and agility that open-source solutions and the cloud offer will become not just beneficial but competitive necessities.
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