Decades-old computer systems are at the heart of most of the world's financial institutions, and those antiques could be the industry's greatest vulnerability to technology companies that are looking to move into the market.
Though they could also be the industry's greatest defense.
Fintech is making everything from investing to splitting a bar tab easier and more convenient. Today few banks can match the user experience of sending money on PayPal, just as few advisory firms can match the ease of setting up and funding a new brokerage account the way robo-advisers do.
Even when they try, such as Merrill Lynch did by adding Zelle to its mobile app to make it easier for clients to move money, the financial institutions have to integrate the new technology onto their legacy systems. And these systems can only go so far.
More than a third of financial institutions said legacy platforms are their biggest obstacle to improving data and analytics capabilities, according to research from Asset Control, a data management firm. A poll of financial professionals conducted by Adox Research found that 56% of financial institutions named "integration of legacy systems" as their biggest consideration when considering future capabilities.
Data is the lifeblood of Google, Amazon, Netflix and every other Silicon Valley giant. Financial institutions' legacy platforms leave them exposed to an outsider such as these firms that can offer a better experience to users.
But that doesn't mean serious disruption, like what happened to retail, home video and telecommunications, is coming anytime soon for the financial industry. Even the fastest growing fintech startups haven't been able to put a dent in the supremacy of the existing firms.
For example, Betterment grew very quickly to $15 million, but that's still tiny compared to Vanguard, said Elizabeth Kelly, United Income's senior vice president of operations.
We are still a long way from a mass migration of customers from existing firms to new ones, not least because the new firms still rely on the old, she said. Betterment's automated portfolios primary consist of Vanguard ETFs.
"The reality is a lot of these fintechs are using a lot of the same back ends as these big providers," Ms. Kelly said at The Economist' Finance Disrupted event. "For instance, the technology we're seeing at most of the robos, is the same stuff that Financial Engines and Morningstar were deploying back in '98."
Thomas Brown, a partner in the litigation department at law firm Paul Hastings, added that while there is a lot of innovation, "it's not necessarily replacing the existing system with something completely new."
This is because while the existing infrastructure is old, its "remarkably resilient" and hard to replace, said R. Jesse McWaters, the financial innovation lead for the World Economic Forum. Legacy systems may be outdated and Frankensteined together to support modern consumer demands, but they are at least interconnected.
Amazon would have to figure out how to work with technology at least 20 years older than it is, or figure out how to build the entire infrastructure itself. Not an easy task, considering it took Morgan Stanley several years and a few billion dollars to build a new, modern database to capable of supporting next-generation technologies like artificial intelligence.
The FAANGS and robos may threaten the smaller firms out there, but the large institutions are likely safe, for now.