Vendor Lock-In Creates Barriers to Digital Transformation Efforts

Whisper it quietly, but “legacy” isn’t such a dirty word. The sometimes transformative fintechs that serve banks and buy sides will—if successful—one day join the ranks of the legacy platforms that firms are increasingly trying to rebuild or replace.

While speaking at this year’s Waters USA conference, Bill Murphy, Blackstone’s chief technology officer, said that rather than pick the shiny new vendor, firms need to ask themselves where those fintechs will be in 5-10 years, because a bad choice can slow down a firm’s overall digital transformation efforts.

“We all have to realize that we’re getting married a lot to these vendors. We used to think maybe we were only dating, and we’re really getting married,” Murphy said. “They know and we know that once you commit to a significant piece of your architecture, it’s very difficult and expensive to rip out, so you have to go in knowing that’s the case. …It’s not something you can take lightly.”

As an example of a new tool quickly becoming old, Julia Bardmesser, head of data, architecture and analytics at Voya Financial, pointed to Hadoop, the once-hyped Apache collection of open-source software designed for processing massive amounts of data among select computer networks. But the majority of new providers are cloud-based now, she said, and though Hadoop can run on a cloud system, its architecture wasn’t designed with cloud in mind, such as its competitor Snowflake, a SaaS-based data warehouse. And while cloud might always be a thing, it won’t always the thing.

“I don’t really know…what’s going to be after cloud, but there’s going to be something after cloud,” said Bardmesser, who was speaking on the same panel as Murphy. “And all of those companies that came up on the cloud and started on Amazon—if some of them still survive 10 years down the road, guess what—they’re going to have legacy [issues to deal with]. They’re going to have this old cloud infrastructure that they now have to do something with; that’s not easy to deal with…and doesn’t allow you [to do] all the wonderful things, [that cloud provides].”

A real digital transformation will require more than a revamp of legacy systems and tools. At the same time, firms have to juggle their old-school policies, data management practices, and understanding of rapidly changing regulations. But the next year, at least, has some execs such as Murphy excited.

“Eventually, everything’s going to move,” he said. “We’re a smaller enterprise, so it’s probably going to take two to four times as much time and money as you expect to get to the cloud—to get to the future—but you need to do it or else you’ll just fall further behind.”