Open source has the capability to transform the financial services industry. This evolution will shift the power in the $25 trillion industry from business executives to state-of-the-art developers, not just for FinTechs, but for old-style banks as well.
Before the evolution of digital transformation in the banking industry, building and offering financial services was a tough task. FinTechs and Startups combined with the latest tools and services, inflexible core systems, complex payment architectures, compliance challenges, fraud prevention, and more.
Just imagine, you have financial institutions that rely completely on software that can be arranged and rearranged to build new financial services. These software-based services can be reassembled to support different use cases. This is what Open Source finance has to offer for the banking industry. Open Source offers services for multiple people, and isn’t restricted to geographical location, and is freely available for all to use.
FinTechs will have access to the best technologies from all over the world which they can leverage to build an endless series of financial products and services that weren’t possible earlier.
Shifting from Traditional to Banking-as-a-Service
Due to the major challenges and traditional policies of the banking industry, the banking systems have had an expensive infrastructure by relying on an expensive data center. With the help of technologies, banking systems are becoming better and less expensive to manage. By embracing cloud services, online document verification software, online KYC verification software, open banking APIs and others can assist in building a better banking industry. Banking-as-a-service has helped in building and adding financial services significantly simpler and easier. This allows any company in the world to offer financial services without having a financial background.
Encouragement for Future Innovation
While software as a service (SaaS) has helped significantly in rebuilding existing financial products and services, there’s an enormous need for modernization for the digital banking industry.
Financial services used to be just limited to banks, but now any company has the capability of adding financial services in terms of embedded finance. As consumers and enterprise companies have started becoming ambitious in their approach to finance, they will also require more customization to develop innovative solutions for the customers.
FinTechs are more than often locally based, most banks on the other hand are country-specific and they have to operate based on the country’s regulations, infrastructure, and consumer payment preferences. As global companies look forward to boosting their financial services, they’ll need to build global banking applications.
Furthermore, almost 3 billion people across the globe are underbanked and unbanked. Big entrepreneurs understand the need for spreading financial services globally. Immediately accessible open-source financial services library would enhance the process.
The Open Source Evolution
The huge availability of Open Source financial services would help in building products and services that aren’t yet available. For instance, it will be easy to combine crypto and fiat currencies, which will certainly improve digital payments and money transfers. Digital transformation of financial services like Open banking will help in better managing of finance. Flexible, open-source financial services will unleash a plethora of digital products and services.
Change Industry Standards to Increase Reliability
The payments industry has several standards, but most of the services are old and tedious to build. In 2020 over $55 trillion were moved via the ACH payment network. Open-source software libraries will help developers utilize existing services instead of having to spend time from scratch.
Payments usually have thousands of problems, too many for even sizable teams to keep up with. Modern open-source libraries have been made more robust by contributors who run payment through them.
Several countries including the UK and Brazil are leveraging open banking regulation in which banks are obligated to create and maintain APIs that enable customers to give third-party applications access to their financial data. Allowing access to financial data will lead to open finance which allows FinTechs to build custom financial services based on customer preferences.
Developers at banks around the world are developing technologies and open banking APIs that can push the banking industry to whole new heights. If banks used a series of open-source software for building open banking APIs, underbanked and unbanked can have better access to the financial service.