A Conversation With ... David Foss

This month, Jack Henry announced a multiyear strategy that centers on the development of a single, open-banking platform allowing integration to services and fintech. The pandemic accelerated the move toward digital financial services. How is this strategy responding to that?
We're one of the three largest providers of technology to banks and credit unions in the United States. The pandemic quickly expanded this phenomenon where people are expecting to do all their banking digitally and wanting to use more tools than just the tools that their bank or credit union has available to them. We've been working on this strategy for three years. What we're creating now, and this is a long-term strategy, we're creating this infrastructure that allows our customers to certainly buy technology from Jack Henry, but also integrate technology from other providers into the platform they get from Jack Henry and all this supported in the public cloud, so AWS, Azure. It's a next-generation technology offering for customers that none of the major providers has offered to them previously.

Explain banking as a service technology.
Banking as a service is the idea that a bank can offer to you, as the consumer, all kinds of different connections into various services. What we espouse, and what we're supporting with this platform, is the idea that the bank can start hosting a whole bunch of other things through the banking experience. So not only through your banking mobile app will you have your bank information, but let's say you have investment accounts, you pull in investment accounts; let's say you have (cryptocurrency) balances with Circle, you can pull in those crypto balances and see them there. Or you have a mortgage with somebody who's totally different from your bank, you can see that presented all through that exact same presentation that you get on your phone when you're doing any other transaction with your bank. We’re opening up these connectivities.

A customer service approach.
Very much. When you think about who our customers are, we serve community and regional banks in the U.S. The top 10 banks, we don't even try to sell them. That's not our market. How does OakStar in Springfield differentiate from (Bank of America) or Wells [Fargo]? They differentiate on an entirely different experience for the customer. And how do you differentiate on service when everybody expects to do everything with their phone? This is that approach.

A survey from marketing firm The Cargo Agency reported nine out of 10 small businesses use just one financial institution and only 24% think those institutions are innovative. Your new platform has integrated 850 fintech firms. How is this platform allowing banks and credit unions to leverage fintech for innovation?
I'll give you an example. Autobooks is a fintech company tightly integrated into our platform. Let's say you're running that small business and you want to do automated invoicing. You can do all of that through Autobooks tightly integrated into your bank's presentation. Or you're a small business and you want to be able to receive real-time payments, that technology is integrated through the Jack Henry platform. People think you swipe your credit card and that's a real-time payment; it's not, in reality. The merchant doesn't get paid for a day or two. For a small business, it improves cash flow, it improves efficiency. When the customer pays, it goes right into their bank account. That's all being done through these fintechs that are connected into the Jack Henry platform. We did a study with a company called Javelin, and what we found is the average person has 20 to 30 different financial relationships. You have your investment account, you have your 401(k), you have your health spending account, you have your bank account, you might have a mortgage, you have credit cards probably not with your bank. It's causing all this disruption today because people are banking all over the place. The idea is that the bank can now integrate all those different fintechs into their platform and the consumer or small business can see all that stuff in one place and can manage it in one place, including crypto. That is a major opportunity for bankers to deal with this disruption.

Do you think this digital disruption will cause some traditional banks to go by the wayside or spur mergers and acquisitions?
For about 30 years, the rate of consolidation among banks and credit unions has been running at about 4% per year. We don't see that changing through this. Is this another disruptive force? Yeah, but we've had all kinds of disruptive forces over the years and so 4% per year is about the right number. The interesting thing is almost all of that consolidation, it's the little, tiny institutions that are being acquired by the larger institutions. Most of the consolidation is happening at the low end and I believe that's only going to continue. They're going to struggle to compete with all this complexity that we're talking about. They're just not big enough.

What other factors are you closely watching?
Crypto is probably the top of the list. The Federal Reserve Bank is signaling that they may create a central bank digital currency, so supported by the Fed. What does that mean for bankers? What does that mean for us as a technology provider to banks? You have the state of Texas now that's allowed state-chartered banks to take custody of crypto balances. Kind of risky as far as I'm concerned. Today, crypto is the Wild West. Stablecoins are a new version of crypto that is supposed to eliminate the huge fluctuations. There's a lot of bankers out there who still kind of think it's a fad. It is not a fad. It's not going away. It is something that we have to be prepared for.

Cryptocurrency was developed to be an unregulated form of currency. Will people have any interest in digital currency if it's regulated by the Fed?
You'll have choices. You'll have things like Bitcoin, for example, that'll continue to be essentially unregulated, but then you'll have others that will be regulated. But for the average consumer, the average investor, they like the idea of some regulation. They like the idea that they're not putting that money at risk, but you have people who will continue to use the unregulated cryptocurrencies and they're happy with it and it works for them and they're fine with the fluctuation. It's not just the Federal Reserve, other countries are talking about introducing state-backed cryptocurrencies.

Last month you relinquished the president role to Greg Adelson, who also serves as COO. Is this part of a leadership succession plan?
We're always working through succession, but there's no announcement about me. I asked Greg to take on the chief operating officer role about two and a half years ago; he's done an outstanding job. He was ready for more responsibility and knowing that all of this was coming this year, this timing was great for him to take on the president role and for me to really be freed up to spend my time on strategy, communicating with Wall Street, communicating with customers. This next couple years, I think, is going to be a lot of time for me on the road talking about where our company is going, what we're doing, all the innovative things that we're doing. The other thing of course, for me, is I'm in the middle of a CFO search because Kevin Williams, our longtime CFO, announced a few months ago that he was going to retire. This allows me to spend a lot of time with that person as they come on board.

David Foss can be reached at dfoss@jackhenry.com.