With the digital-first push in payments, many organizations are running into time and resource constraints. Does open-source technology present a unique opportunity?
The finance landscape may still be dominated by a few legacy players, but the industry is increasingly embracing a digital-first strategy. FinTech, or financial technology, has been growing rapidly for years now, with Statista estimating the total value of worldwide FinTech investments at $33.9 billion; it takes into account 10,755 FinTech start-ups in the Americas alone. Organizations across multiple markets recognize the utility of incorporating digital financial services into their portfolio — and FinTech is the way to do it.
These services are not yet ubiquitous, but this is an issue of access, not of value. Deploying new technology is often complicated and even more challenging when combined with the rigorous regulations of the financial sector. The cost of investment can be prohibitive, while rollouts can be time-consuming and resource-draining. As a result, choosing the right service for an individual organization is a high-stakes decision.
When this conundrum emerged in other markets, the solution was clear: Open Source. With open-source services, companies of all sizes and capabilities can leverage high-quality product development for free. The mass availability of these solutions means they offer a limited competitive edge but can protect businesses from falling behind the market due to a lack of digital products. Developers all over the world can then improve upon the technology for all to access, with updates available in real time.
The payments space has been slower to adopt open source, but this is not a huge surprise; the industry has been more measured in its digital transformation than other industries, due to the sensitivity of its products and services. Many organizations have also opted to invest in complex, tailor-made technology systems that cater specifically to the geographical regions and services that they offer.
This approach can work well but misses the great opportunity provided by open source. The same complexities of the market that push organizations towards individual solutions are exactly where these businesses can gain the most value. Rather than crafting entire systems from scratch (at great expense), companies can leverage existing solutions for free and then modify them for their purposes. This maximizes resources and operations.
For instance, a financial institution may do business with specific countries in Europe and Asia. Configuring individual programs that fulfill local regulations is expensive and laborious, but it is unlikely that a third-party provider covers exactly the areas where the FI does business. With open source, the FI would be able to access software support for each region in a compatible format with their existing platform — for free. They can then make adjustments to their own usage as needed, but with that base-level performance assured.
Due to the collaborative nature of open-source code, companies can trust that their infrastructure will be up to date as developers will improve the code as needed. Payments institutions won’t need to dedicate as many resources to maintenance; instead, they can redirect their energy to deploying new tools like AI and machine learning. These more complex products are less likely to be available through open source, but there will be more bandwidth to invest in product development and separate the company from its competitors.
The functionality of open source is the same for payments as it is for other industries: it democratizes access to technology so that more companies can roll out digital solutions and keep up with customer demand. When deployed specifically for payments, however, open source creates a few critical opportunities that we will likely see more of in 2022 and beyond.
Open source makes it much easier to deploy software that meets cross-border regulations. Companies that are already doing international business can access cheaper services, but this accessibility will also encourage more payment companies to expand geographically. Without that barrier to entry, more organizations will be able to grow their user base and increase their revenue opportunity — without spending a cent.
Similarly, blockchain and cryptocurrency capabilities are expected to scale across the payments industries, thanks to open-source technology. These trends have a clear audience, yet the challenge has been how to support these complex mediums within a traditional payments architecture. Through open source, it will be possible for everyone to take advantage of any breakthroughs and deploy processing capabilities so that these tools become mainstream.
The fast pace of digital transformation means that payment companies need a comprehensive technical platform; without it, they will fail to meet customer expectations and fall behind their competitors. Until now, keeping up with innovation required a substantial investment of both time and money. This prohibited smaller businesses or cash-limited companies from staying competitive in the market.
With open source, this is expected to change. The basic programs available will only be the starting point for product development, but they will ensure that everyone can begin their transformation journey. The collaborative environment will also encourage new technologies to roll out faster, due to many minds working towards one goal. Once these initial services are launched, the opportunities will become limitless.
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