The Impact of Open-Source Software on Public Finance Management

Many government bodies have historically been averse to open-source software (OSS). Now that OSS has gained popularity and shown what it can do in the private sector, that’s changing. The open-source movement holds significant potential for public agencies, too, especially in the realm of finances.

Public finance has emerged as a leader in government-backed OSS, thanks largely to the move toward open banking. Regulations like Europe’s Second Payment Services Directive (PSD2) require banks, either directly or indirectly, to adopt open-source APIs for consumer products. As these projects mature and grow, their benefits and risks become increasingly clear.

Benefits of OSS in Public Finance

Whether in the form of open banking directives or another project, open-source software has many advantages for public finance management. The most notable are its cost-effectiveness, transparency, and flexibility.

Cost Efficiency

The most obvious benefit of OSS is that it’s often free or at least low-cost. Software is the fastest-growing government IT spending category, so switching to a more affordable platform could yield significant savings.

Government saving aside, open public finance solutions could reduce the financial burden on consumers. Consider how many U.S. citizens spend hundreds of dollars a year on tax preparation services, which typically use proprietary software. A free or low-cost open-source alternative could dramatically reduce this spending, making tax filing more affordable.

Of course, maintaining OSS isn’t free, as it requires ongoing support from IT employees. However, these ongoing costs are typically lower in OSS than they are in proprietary software, as there’s a larger body of help to capitalize on. 

Transparency

Public finance agencies also introduce more transparency by embracing OSS. The Consumer Financial Protection Bureau (CFPB) — an early leader in government OSS in the U.S. — cites this visibility as the key driver of its open-source philosophy. The Bureau even runs a public GitHub page to provide developers with OSS tools and show consumers how their platforms work.

Accountability is essential for government financial agencies like the CFPB. Consumers can only trust the office enforces regulations fairly and is truly open about its comparisons and advice when they understand how it approaches these issues. By relying on public repositories, the CFPB does just that.

The CFPB has enabled citizens to file over 4.6 million complaints as a result of this transparency, and its complaint management system is an open-source project. These actions stemming from OSS-driven accountability have resulted in billions reclaimed for consumers in civil penalties. 

Flexibility

Moving away from proprietary software can also make public finance management more flexible. When multiple solutions all use the same underlying OSS, it’s easier to switch between them. OSS has the added benefit of ongoing community support, helping government finance tools remain effective and secure as tech trends evolve.

Open finance software enables flexibility for consumers, too, which is the main idea behind the PSD2. Over 7 million consumers and businesses in the U.K. have started using open banking products since the nation required finance institutions to adopt open APIs. When the industry operates on a cohesive, open underlying system, people can use the services they want without worrying about lock-in or limited visibility.

Aside from the PSD2, the EU has pushed toward accountability and flexibility with the development of OpenBudgets.eu. This OSS framework provides scalable financial transparency tools to let users dive into government spending. Since it relies on versatile OSS, it can easily accommodate multiple data visualizations, search and analysis tools, and cover emerging segments.

Challenges of OSS in Public Finance

As open-source tools have grown in the public sector, OSS’s downsides have become clearer, too. These challenges don’t render open platforms unusable for public finance but do warrant more care and attention.

Security Risks

Cybersecurity is one of the most common concerns with any OSS, especially when dealing with public finance. On the one hand, code transparency makes it easier to patch vulnerabilities, but on the other, it means cybercriminals can inspect this code, too. Consequently, it could be easier for malicious actors to find a way to infiltrate public finance systems.

Using only tightly guarded public repositories, thoroughly inspecting code for issues, and implementing threat detection tools will help governments minimize these risks. However, these threats’ existence in the first place may make governments unwilling to embrace OSS.

Tech Talent Gaps

Tailoring OSS to government agencies’ specific needs may also pose a challenge. While the growing public sector labor market and flexibility of OSS make it a viable option, public finance organizations need developers familiar with these tools to make the most of this advantage. Considering more than half of tech leaders cite skills shortages as a prominent concern, that may be difficult.

Government finance agencies must frequently inspect and maintain their OSS code to ensure their solutions work effectively and safely. This issue isn’t unique to OSS, but it may be easier to address when government employees are the ones who developed the software in the first place. That said, finance agencies could offset this gap by capitalizing on the open-source community’s help, as the CFPB does.

Open-Source Software Is Changing Public Finance Management

As demands for affordability, scalability, and accountability grow, the benefits of OSS in public finance become harder to ignore. Governments across the globe are trending toward open solutions, and if this continues, OSS may become the norm before long.

Open-source software isn’t free of challenges, but none of these issues render it unviable. With the right approach, OSS could change public finance management for the better.