By John San Filippo
Financial technology provider Jack Henry held its annual Connect user conference for banks and credit unions Oct. 7-11, 2024, in Phoenix, Ariz. Finopotamus was onsite for the event and conducted interviews with four key executives:
Greg Adelson, president and CEO (best of breed versus best of suite, tech modernization, establishing corporate priorities, shifting revenue streams)
Ben Metz, CTO/chief digital officer (SMB banking, Banno Business, financial institutions (FIs) as commercial hubs, Data Broker)
Lee Wetherington, senior director of corporate strategy (open banking, struggles with data, selling members on open banking, the ongoing need for branches)
Brynn Ammon, president of credit union solutions (credit union tech priorities, different tech needs of credit unions, artificial intelligence (AI) and data, SMB banking)
Finopotamus has distilled nearly two and a half hours on conversation down to these 16 questions and interviewees’ answers.
Greg Adelson
Finopotamus: There’s been a back and forth over the years regarding credit unions wanting to assemble tech stacks from best-of-breed solutions to credit unions wanting to buy most of their technology from a single provider. Where does the industry stand now?
Adelson: The way the industry has flowed over the last several years, you went from a best of suite to a little bit of a best of breed, back to a best of suite. A lot of that is stemming from things around regulatory and security and other concerns. When you're trying to manage a whole host of large vendors, it’s sometimes difficult to do. What we've been able to do with our technology modernization strategy is really be able to show that the strength of our technology is about the level of integration, the level of products that we are bringing innovatively to the market.
That’s really curbed, I think, a lot of our institutions from looking outwardly for things that maybe Jack Henry didn't do very well in the past. They’re seeing that we are now being very innovative, whether that be digital, whether that be fraud, lending, our payments platform for real-time payments. All of those things have been significant differentiators for us. And I will tell you that I believe these are the reasons we're winning so many core deals. The strategy of what we're doing with our core and what we've built with the complimentary and payment products, really, I believe is the differentiator.
Finopotamus: You mentioned Jack Henry’s tech modernization strategy. This has been a key topic at the last couple of Connect conferences. Where do things stand now?
Adelson: It's really about where the industry is going. When you think about the advantages of being public cloud native – let me talk about what that is. It's not just about core, but let's start with core. In the core component, we are taking roughly 30 different components that make up the core – the deposit side, the lending side, the exceptions, item processing, wires – everything that you can think of that generally runs the core and we are decoupling that from the core and building each individual component in a public cloud native manner.
First, this gives us a ton of opportunity to build what we call compliance and security as code. So as the code is being built, it actually follows a certain set of protocols that are auditable and traceable. And through that process, it helps the regulators figure out where opportunities are or where they're not. So, that's a big part of having compliance and security as code.
But the biggest part of the public cloud is the DevOps component, which allows you to iterate and innovate at a much faster pace. So, giving a perfect example, we actually can push to production in Banno (Jack Henry’s digital banking platform) today up to 300 times a week. What we want to see happening over time is the ability to innovate on the core much faster, as well. Today, almost all core providers do a single core upgrade every year. You have to wait a year, in most cases, to get additional features. [The cloud native approach] creates a huge opportunity for those institutions to be able to innovate and accelerate the things that they're working on.
Finopotamus: Jack Henry has always had a wide range of products. Now you’re talking about turning core into 30 different “products.” How do you decide which products get the attention today, which products get the attention tomorrow, and which products get the attention the next day?
Adelson: That's part of my product rationalization strategy. To be candid, today they all get attention and you can't do that. For us to be successful, for our clients to be successful, we need to figure out ways to deprecate things that are duplicate products. I mentioned earlier today that we have six wires platforms. We don't need six wires platforms, but it's just what we have as part of acquisitions or what we built in the core. Same thing with ACH.
So, part of it is our focus to either deprecate those, sunset those, sell them off. The wires and the ACH, we will deprecate them over time as we move people off. But we have other products that came through acquisitions that don't really move the needle. What I want to do is stop putting money into those.
But as we approach our customer base, we don't just stop doing something and not talk to them about it. We actually publicly show them in a roadmap, so they see every single product that Jack Henry is going to sunset. We provide a lot of communication to them. We don’t want to surprise anybody with what we're going do. But for us it's about making sure that we lessen the amount of investment in products that don't move the needle.
Finopotamus: Is core still Jack Henry’s big money maker?
Adelson: No. Core is a huge opportunity to tie payments and other complementary products to it. The average Jack Henry core client has 56 products with us. So that's 56 tag-along products that come with a core. But if you sold digital or in some cases payments and other things [without core], there are, depending on the number of members and a lot of different factors, the actual revenue that comes in from the core versus digital or payments could actually favor digital or payments depending on the customer itself.
The other thing that we are doing is looking at core much differently than everybody else because we are componentizing it. When you look at a customer that says, ‘I want to buy your general ledger, your exception processing and your deposit solution, and that's it; I'm going to keep some of the other base stuff from my current core,’ well that's three different products that we've sold to them. Depending on what the revenue flow looks like, they're going to typically look at those three particular products and they're going to want to tie some other payment or complimentary product to them later.
Ben Metz
Finopotamus: Judging from the buzz around the conference, Banno Business (the business banking component of the Banno digital platform) seems to be gaining traction. What’s the current state of business banking for SMBs?
Metz: Business banking and financial services writ large is like one of the most horrific user experiences that's ever been created by anybody. It's too bifurcated, bolt on, challenging, difficult. I'm going to speak broadly. I'm trying to be roughly right versus precisely wrong.
So broadly speaking, our commercial banks have always done a really amazing job competing using a team at the bank. A team of human beings that's able to go win and service customers. It's very difficult for them to scale that into small business. And most of the attempts that have been made, I would consider to not have worked. That is why most of the small businesses in the United States have a JP Morgan Chase card, they have a PayPal account. They use Intuit. They're utilizing Square or Stripe to some means. They're a Shopify customer. They have this big bifurcated experience if they're working, say with a large bank and/or they have a merchant or an acquiring relationship with like a TSYS, etc. Still super bifurcated. If you just drill in, if you double click through that big landscape I just described and down into the weekly grind of a small business, there's just way too much waste in hours. Nobody's sat down and really tried to solve the problems.
Finopotamus: Where does Banno Business fit in?
Metz: What we announced yesterday is a very strong new investment and effort to go actually build something new that'll take this experience and turn our financial institutions into a hub for a small business and then help them scale that. It's no secret that credit unions in the past have not been as inquisitive and have not moved strongly into commercial small business or treasury. But I see them all interested and then I see some actually doing it. And then there are others on the credit union side that are, for example, buying banks and purposely buying commercial banks, and then they're coming to us. I think we have 10 plus customers that run both Symitar (Jack Henry’s credit union core) and SilverLake (Jack Henry’s primary banking core). And now, by decoupling components from the core and building each individual product in a public cloud-native manner, we're making it easier for our clients to pick and choose what products they need and want to invest in e.g., business banking components.
What we announced yesterday on the stage is an example of us being able to help our customers go compete for that micro to small businesses. But those features that we're building will scale all the way through to a large a $100 million annual revenue company. So, what we showed yesterday will be used by large companies as well as small, but it'll solve more pain for the small company.
Finopotamus: Can you elaborate?
Metz: Jack Henry's getting into the merchant services game. We puzzled hard over the years. Obviously, our competitors are in that game, but they are providing payments services directly to the merchants. We wanted to offer payments services to merchants through our customers, regional and community banks. We didn't want to go around our customers. We really wanted to see if we could enable new technology that would be literally cutting edge for the small business, but then delivered through our customer’s brand and then see if we can build the brand equity for them versus trying to build our own brand equity.
Finopotamus: There’s been several mentions during sessions about something called “Data Broker.” Can you explain what that is?
Metz: What's happened in the last two years in AI is just a massive breakthrough. And we've been working in AI for the last year and a half building specific functions for customers. And what we figured out is that we can, with the right data sets and the right work, working with these models and their context windows and getting the right prompt control structure, you can get to a hundred percent, meaning you can take a task and get it to a hundred percent accuracy a hundred percent of the time. That's shocking that you can do that and then you can repeat that. For our AI assistant, we're able to categorize customer inquiries a hundred percent of the time and we're also now able to take those categories and build task flows that can be automated inside the credit union or the bank.
As we chip away at those and as we've worked across all those dimensions, what we realize is that we have to get all the data to one place. The traditional word inside banking has been a data warehouse. But most of the attempts at data warehousing, including our own, have been, I would say, somewhat subpar.
We have to get all the data to one place. And Jack Henry's actually never done that for our customers. We tried and we sell a couple of products that have made valiant attempts to do so, but this time there's a company mandate and we're making a big leap to cloud technology to do it. So, the technology that's in the modern cloud is built for AI and built for analytics. It's built to make things shockingly easier. The ability to do this now is like orders of magnitude easier than it was five years ago.
Lee Wetherington
Finopotamus: Credit unions can look at open banking in three ways: as a threat, as just another compliance burden, or as an opportunity. Are all three valid?
Wetherington: It's all three of those things. The first way is fear based. It's all this member data that's leaving and going to other places and creating meaningful money experiences with third parties that don't have anything to do with the credit union. That cow has been out of the barn so long, it's amazing that we can still gin up novel fear around that. Why are you still scared about that?
The second piece, oh man, this is another expensive, difficult, hard compliance box we're going to have to check. And to some extent that's true. Now, in general that's true. But the beautiful thing about all of the really heavy infrastructure rebuilding and investments we've made and continue to make, especially as it relates to data infrastructure in particular, is to make that load comically light.
This gets to the third characterization of open banking as an opportunity – the fact that you're going to have to get permission, track permissions for data sharing, etc. That might seem like just another net negative cost and expense, an easy little checkbox. The real interesting stuff is all the different new value that data stack gives the credit union to create not just new value, but to generate revenue with as well.
Finopotamus: Credit unions often struggle to turn their own data into meaningful, actionable intelligence. Doesn’t adding external data further exacerbate the problem?
Wetherington: Now you've got even more data not to do anything with. There's so much that is already not being done with the already relatively small amount of member data that you have. But I can tell you the pressure is extraordinary now on things like improving operational efficiency. There are a lot of credit unions, banks too, by the way, who are so inefficient right now because of what happened with both interest expense and non-interest expense last year. If they don't get their efficiency ratios back into some kind of normal state, they will be functionally non-competitive, period.
So that pressure is going to force them to do the things that are not that fancy and that they can do already with data on hand in the back room, just to automate a lot of backroom inefficiencies. The other thing is all of these developments, but specifically the Consumer Financial Protection Bureau’s (CFPB) new open banking rule and the advent of AI is backing everybody into having to understand what data they have, what data they don't, what data infrastructure limitations they have with current infrastructure or tech stacks in place, what kind of new infrastructure they might need.
Finopotamus: What about the challenges getting members to understand concepts like permissioned data and how it’s used?
Wetherington: This to me is the most interesting thing – not the technical aspects of complying with what the CFPB’s 1033 rule requires in terms of data sharing, but it’s what is your pitch to the member to secure their permission to the credit union, for the credit union to go out and aggregate back to the credit union on behalf of the member, all of their data from these disparate providers.
For people like me, it's a no-brainer, right? It's like, do you want to just continue checking in to 14 different apps on your phone for three seconds a pop? Is that working for you? Does that feel good? Or would you like to have a window onto everything that is consistent and reliable and the links don't break because it's actually API (application programming interface) standardized and it's not screen scraping anymore?
Credit unions are going to have to figure out the right few magical words in one question Hey, would you like to see all of your data from – and the credit union can actually list – would you like to see all of your data from Venmo and Square and PayPal and these other providers that we can see your payment flows so we know who those are? Would you like to see all of that data here in one place? Just click here to permission that. Or even on account opening, if it's a new member, hey, would you like us to bring your information from other financial service providers here in one place so you can see all of your money in one place?
Depending on the final version of 1033, there's also going to be a mechanism for renewing those permissions. Right now, it's currently drafted as, each year you've got to renew those permissions to ensure continuity, otherwise they time out and they are revoked by default.
Finopotamus: Since 2020, credit unions have opened about a thousand new branches. That seems to fly in the face of our allegedly all-digital world. Are branches making a comeback?
Wetherington: Look at Chase. Chase is opening up branches and they're doing that to establish themselves in specific markets that they're targeting. They're also doing that by the way, because they're verticalizing their small business strategy, which is to say they know they need people locally to have a better chance at securing not just SMB business, but commercial business generally
It's important to have a physical presence because the relationship work is more intensive in a small business or a commercial relationship than it is even in a retail member relationship.
I wouldn't go so far as to say we're going to see in the aggregate some grand new golden era of rampant branch building in the United States. But I would say that branches are still key and critical to particular strategies, but specifically commercial strategies.
There's another thing too. We’re fresh off this session on financial health and financial wellness and I think there is a lot to be said about the connection between financial wealth, financial health and wellness and having a local presence. Because what we see is that even though each generation has very distinct financial behaviors, the one thing that's common across all of those generations, even the very youngest, even Gen Y and Gen Z that we talk a lot about now, whenever they have any question or problem with their money, it's a catastrophic feeling. If a member sees a balance that is materially different than what they were expecting to see, they experience a catastrophic kind of fear. And in that moment, no matter their age, all they want to do is be able to, in real time, talk to someone or connect with someone that they trust, preferably someone they know or I should say knows them.
Brynn Ammon
Finopotamus: What are some of the pressing technology topics you hear from credit unions?
Ammon: What we're starting to hear are lots of discussions around resiliency. There are plenty of cybersecurity issues and incidents that have made people wake up and go, oh wait, maybe I should pay attention to my recovery posture. What's my security stance? How secure am I? What kinds of things should I be paying attention to from a resiliency standpoint?
That’s one of the big components. I think some of the other things that we're hearing about now include AI. And I know that as we start talking about AI, it always has to go back to data, because then you can't have good conversations about AI without good data.
Finopotamus: It’s interesting to see banks and credit unions sharing ideas at an event like this. Do you think that technologically speaking, the wants and needs or credit unions are different from banks?
Ammon: I do think so. I think there's a reason that we have chosen to keep the [credit union] business unit separate. We’re in a situation where we're doing a lot of consolidation within the company. But there is this observation that the needs of our credit union customers are different than the needs of our bank customers. And that's driven from a number of things. I think credit unions historically have had to innovate maybe faster in order to be able to compete against banks, against big banks.
Credit unions always have felt kind of like the scrappy little kid on the block. They're out looking for ways to get ahead in that regard. I think in that space, that's one of the components. I also think that credit unions process in real time, most banks don't. Even though there are components of their systems that do allow for real-time processing, most banks just don't adopt it. But our credit unions demand it. They demand real-time processing. And so that adds a different layer of complexity around how you service and the tools that you come to market with.
Finopotamus: Regarding Banno Business, are more credit unions interested in commercial services, and this is just good product timing, or do you think having products like Banno Business will prompt more credit unions to consider commercial services?
Ammon: I think that calls for an “all of the above” kind of answer. I think more credit unions have been interested in commercial services for more years than a lot of people in the industry really even kind of care to admit or really recognize in some ways. There have been a lot of credit unions doing a lot of big things with commercial for quite some time – for decades. And there's been always this underlying level of the traditional member business loan – that $50,000 and below ability for a credit union to do business loans that always existed without a cap. Credit unions were serving and have been serving those SMBs for years and years and years through consumer accounts or through, you know, a way that they may not have called commercial or traditional commercial.
I think that there's now this convergence of how do I take that play and that market and grow it up into a commercial strategy? So yes, I think it's already always been there a little bit, but then I do think that there are now credit unions that are saying, oh, this really is something that we can get good at. And they're going out looking for a more structured strategy around commercial.
Finopotamus: Is there confusion about AI among credit unions – what it is or isn’t, or what it can and can’t do? How it relates to data and analytics?
Ammon: I think there's confusion amongst everyone about what it is and isn't and can and can't do. Credit unions, fintechs, mom and dad, you know, everybody. It's such a catchall name for so many different components.
That's part of the of the challenge and also part of the confusion. Are you talking about generative AI? Are you talking about machine learning? What kind of things are you talking about? Are you talking about a ChatGPT or are you talking about going out and building your own models?
Regarding data, there’s a systemic problem. There are a couple things at play. One is that it's hard, so it's hard to wrap your head around the whole concept. Data science as a discipline is something that's relatively new to credit unions. Like really getting good at understanding data outside of like traditional research driven fields.
The other part of it is that I think it takes – there’s almost this culture thing that has to happen around data like leading from the gut versus leading from the numbers. And you have to find the mix of both to end up being successful, to have a good data strategy.