Oct 14, 2021, 11:00 AM ETConference Presentation

The Open Source Movement in Fintech

The financial services industry is undergoing a transformation driven by developers, shifting power from traditional institutions (suits and lawyers) to technical teams.
Banking infrastructure has evolved through three distinct eras:
- Era 1 (Physical): Focused on securing physical money via marble buildings and paper ledgers.
- Era 2 (Digital): Began in the 1960s with mainframe COBOL systems, enabling interbank transfers and virtual money security, followed by desktop and mobile accessibility.
- Era 3 (As-a-Service): Modern cloud computing allows core banking layers (deposit accounts, credit issuance, compliance) to be consumed as services, enabling non-banks like Lyft and Procore to offer financial products.
A new Era 4 is emerging, characterized by the decomposition of banking layers into basic, open-source primitives (e.g., network-level payment libraries, ledgers).
This shift enables a "LEGO" model where composable, open-source building blocks allow developers globally to customize and innovate beyond existing constraints.

User Demand: Consumers and enterprises require greater customization to address local regulatory structures, infrastructure differences, and specific geographic needs.
- Current "As-a-Service" models struggle to support true global financial infrastructure for enterprises (e.g., Shopify adding merchant accounts globally).
- Approximately 3 billion people remain unbanked; open source lowers the software cost barrier to entry for serving the bottom of the economic pyramid.
Developer Demand:
- Legacy Debt: 40% of bank code remains in COBOL, which is rare in modern top-tier universities and lacks sufficient developer talent.
- Automation: Developers are naturally driven to automate repetitive, frustrating tasks by open-sourcing solutions rather than rebuilding existing infrastructure.
Industry Efficiency:
- Standards Compliance: Adhering to complex, outdated standards (e.g., the 497-page Nachospec for ACH, ISO 8583) is resource-intensive; open source provides modern, maintained reference implementations.
- Reliability: Open communities can identify and fix edge cases more effectively than isolated small teams.
- Connectivity: Open source avoids the fragmentation of proprietary aggregator models (e.g., Plaid) by creating unified frameworks for global open banking (e.g., Tsobe).

Move (Payments Infrastructure):
- Explodes payment layers into primitives for ACH, RTP, and wires, open-sourcing them to provide modern reference points for 1970s-era standards.
- Community testing has identified and fixed 1,600 edge cases in payment processing that were previously inaccessible due to legacy COBOL mainframes.
Open Banking (Tsobe):
- Provides libraries for integrating legacy systems and maintains API consistency with evolving regulations like PSD2 in Europe.
- Aims to replace fragmented proprietary aggregators with a shared, standardized framework for transaction data access.
Anti-Money Laundering (AML) & Sanctions:
- Problem: Financial institutions spend $30 billion annually in North America on AML, yet 95% of alerts are false positives, and only 3% of the $2 trillion in laundered money is caught.
- Solution: Projects like Watchman, Open Sanctions, and Red Hat's entity matching initiative enable global collaboration on watch lists and rule sets, preventing money launderers from simply targeting the weakest institutional link.
Financial Inclusion (Mephos):
- An Apache-licensed core ledger that allows micro-lending institutions and small merchants to spin up P2P lending and QR payment acceptance at low costs.

Economic Shift: Buying power is shifting from C-suite budget approvals (e.g., $100,000 contracts) to developer and product manager teams who can access tools for free or low cost.
Developer Roles: Developers are transitioning from being solely creators of proprietary tools to becoming the primary buyers and sellers of infrastructure primitives.
Innovation Forecast: The next generation of billion-dollar companies will likely emerge from developers combining open-source primitives to solve previously intractable problems (e.g., frictionless crypto/fiat integration, AI-driven savings).
Call to Action: Developers are encouraged to:
- Prioritize open-source libraries over proprietary solutions.
- Contribute back to the ecosystem to improve standards.
- Consider open-sourcing their own internal infrastructure tools, as "boring" tools often become the foundation of the next major infrastructure company.