Attend an event about open source development and collaboration in financial technology, and you will see developers and executives from Capital One, Barclays, JPMorgan Chase, BlackRock and perhaps a handful of other financial institutions, along with open-source-focused vendors like Red Hat (now part of IBM).
You’re unlikely to see community bankers, regional bankers or very many actual bankers at all.
Yet to develop the next generation of software, especially decentralized applications (so-called "dapps") that run across multiple blockchains and networks, financial institutions will need to work together to create technology that is compatible across many companies and platforms.
Amber Baldet, who was formerly the blockchain program lead at JPMorgan, is one of the leaders of a new Decentralized Ecosystem Growth program at FINOS, an independent nonprofit that lets bankers, tech companies and fintechs collaborate on open-standard financial services solutions. Such software, at least according to its proponents, can help banks deliver more convenient solutions to clients, strengthen controls and reduce costs.
Groups that help companies collaborate on open source software projects already exist. The Linux Foundation’s Hyperledger Project, the Enterprise Ethereum Alliance and R3 are three that some banks have joined.
The Decentralized Ecosystem Growth program within FINOS is vendor agnostic and focused specifically on the financial industry, Baldet said. (The open source groups Hyperledger and the Enterprise Ethereum Alliance are industry agnostic but technology specific. R3 focuses on financial services but also on its own distributed-ledger technology, Corda.)
“We see FINOS as an independent, trusted, nonprofit foundation that can start from the real-life use cases and challenges in this industry and see them through to adopting technology,” said Gabriele Columbro, executive director of FINOS.
Baldet said this is important to her Decentralized Ecosystem Group because in bringing together startups with large financial companies and established tech vendors, the startups can learn what it would take for their software to be usable at large enterprises, and the big traditional players can have an easier time experimenting with smaller vendors.
“Having a shared sandbox through FINOS and having the outcome of that be not just specs and work proposals, but actual open source code that’s useful within the industry but also is open to the rest of the world is generally helpful to everyone,” Baldet said.
Need for collaboration
Banks tend to develop software on their own; they often distrust their rivals and are reluctant to give away intellectual property to their peers.
“For various historic reasons, the software developed internally has tended to remain closed source,” acknowledged Jim Adams, head of engineering and architecture at JPMorgan’s corporate and investment bank. Adams is on the board of FINOS.
They do not have to give this up completely, Baldet said.
“It’s valid for organizations to want to keep their secret sauce private and to want to keep their data private,” she said.
But they can still collaborate on nonproprietary applications that work across trust boundaries, she said.
“Everyone doesn’t need to invent bricks and mortar and copper wiring and engine schematics — we can work on some of these core infrastructure pieces together,” Baldet said. “We’re lowering the barrier to competition and making sure large companies have access to the most innovative ideas, many of which are coming from smaller startups that are doing the core research, especially when you’re talking about cryptographic research or decentralized mechanisms.”
Adams said that over the last few years, he has seen a real drive among banks to contribute software and collaborate with peers in the open.
“Much of this software in and of itself is not a commercial advantage, but creating and collaborating on solutions with our peers may help us quickly create industry solutions that, for example, help us meet our regulatory obligations in a consistent manner,” he said.
Open source software enables technology agility, Adams said. It can help solve technical challenges and therefore reduce the time to market. Open source applications tend to be secure, as issues are identified and resolved by many eyes looking at the code.
It also helps with hiring top engineers.
“This level of engagement is important to evidence we are a modern, evolving engineering organization,” Adams said.
Under the FINOS umbrella, JPMorgan launched the Data Analytics Visualization Program, which looks to consolidate the many solutions that are used across financial services to illustrate data. The bank contributed a streaming data visualization engine for JavaScript that it built in-house called Perspective to kick things off.
“Every bank has developed solutions in this space,” Adams said. “We had, too.”
Keeping large banks from seizing control
Columbro said FINOS helps build trust among bank members.
“In most cases they’re able to openly discuss some of the common challenges,” he said. “When that fails, they trust us to collect the data, collate it, and present it back to the group in an organized way.”
FINOS can prevent any initiative from coming under the control of a single vendor or financial institution.
“We provide a developer environment that protects intellectual property in a place that ensures that that code, that standard, is never going to go away or become controlled by any company, which fosters collaboration, even between competitors,” Columbro said.
FINOS is a nonprofit that charges membership fees. Most of its funding comes from platinum members — the largest investment banks, buy-side firms and large tech companies. But people and companies do not have to be members to work on FINOS projects.
“We want the working groups to be accessible to anyone, whether large or small bank or vendor or individual,” Columbro said. “This is not a big boys club.”
The open source collaboration methodologies FINOS uses also prevent large members from grabbing outsize control.
“Decision-making is transparent, [and] everything we do happens in the public domain,” Columbro said. “The decision-making process is fully based on technical merits and what we call provenance by contribution: The more you contribute, the more sweat equity you put in, the more you have a say. It’s a truly meritocratic organization that piggybacks on what the Linux Foundation has done over the last 30 years.”
Help for smaller banks
Though many of FINOS’ members are top-tier banks, small banks will be able to reap some of the benefit of the work, Baldet said.
“At this point, less than 1% of businesses in the world have even been able to experiment with blockchain technology because currently the cost to entry is so high,” Baldet said. “There are consultants and fees, and you have to dedicate people and resources. The more we can lower that barrier to entry with quality, usable tools, the faster we can take innovation for everyone.”
FINOS can help provide assurance that the entity that kick-starts the network initially does not have an unfair advantage, she said.
Some of the work of the Decentralized Ecosystem Growth program will be to create discrete items useful to all like a financial math library, document-signing workflows, or standard object models for writing smart contracts.
Baldet launched a fintech startup called Clovyr six months ago. The company develops software for public and permissioned enterprise blockchains.
“We’re focusing on making it easier to build decentralized applications, whatever that means to you,” Baldet said. “I don’t believe that necessarily always means a blockchain is involved. There are other protocols that are interesting. We are interested in helping people build applications that challenge existing business models.”
Clovyr is helping to bring some of the pilots that were built on Quorum, the Ethereum-based distributed ledger JPMorgan developed under Baldet’s watch, to production. It also aims to make other protocol choices like PolkaDot, a relay mechanism that facilitates authenticated transactions from one blockchain to another, usable within the financial services industry.
“It’s still much more difficult than people imagine,” she said.
At Devcon, a large Ethereum developer conference in early November, Clovyr released its first product — a code search tool for Solidity, a programming language for smart contracts — to help Ethereum developers as they are building dapps.
Baldet acknowledged that the financial industry is littered with blockchain proofs of concept that never made it into production.
“The industry knew or should have known that nine out of ten of these initial prototypes were not going to be great ideas that would not make it to full-scale production systems and that was OK,” she said. “I don’t think that should be a cause of concern.”
In newer pilots, companies are finding the sweet spots for blockchain technology.
“I think that will be around data connectivity and being able to continue to collaborate across trust boundaries with your peers in ways that aren’t just the same as if you all used a central database, that actually provide some new features you really only get with a decentralized, privacy-preserving system,” Baldet said.
The end goal for the work at FINOS is innovation.
“These banks look at Silicon Valley with a bit of" fear of missing out, Columbro said. “Ultimately a big product of what we do is moving innovation outside of the innovation labs — I like to say the beanbag doesn’t necessarily deliver innovation itself — and make sure modern developments and workflows can be firmwide. That’s how financial institutions would really be able to catch up with some of the tech giants that are threatening the status quo.”
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