By John San Filippo
On February 7, 2022, Jack Henry & Associates, whose assets include the Symitar credit union brand, announced via press release a broad and progressive technology strategy designed to carry the company and its customers decades into the future. Finopotamus caught up with Jack Henry CEO and Board Chair David Foss to discuss this new strategy and how it will impact the credit union space.
Since much of this new strategy centers on the concepts of banking as a service (BaaS), Foss thought it was important to provide Jack Henry’s definition of the term.
Two Flavors of BaaS
“As far as I'm concerned, there are two different flavors of banking as a service,” said Foss. “The one that lots of people are talking about is this idea that your financial institution hooks up with a fintech and you put your processing abilities underneath that fintech. Now you help the fintech succeed because you have the charter and you have the ability to process transactions and all that kind of stuff.”
In other words, it’s the financial institution that’s providing the service to the fintech. According to Foss, several institutions around the country have used this BaaS model to generate more revenue. However, he pointed out that this approach raises a few issues.
“My first concern is that there are only so many fintechs to go around,” he explained. “So if you're thinking you're going to embed your financial institution underneath the fintech, there are only so many of those opportunities out there.”
A bigger concern has to do with the financial institution’s brand. “Now the consumer doesn’t have any relationship with the financial institution,” Foss noted. “Instead, they have a relationship with the fintech. They don't care who is underneath processing those transactions. The consumer is only loyal to the fintech, not the financial institution.”
While this BaaS model can be a viable option, Foss feels that it puts the fintechs in a position to take advantage of financial institutions. In the BaaS model that he favors instead, and on which Jack Henry’s new strategy is built, financial institutions remain at the center, with fintechs embedding their respective technologies into the financial institution’s platform to expand and extend the services offered by that financial institution.
Institution-Centric BaaS
Foss said that when this topic comes up, a common response is: We're already hosting things through our website. What's the big deal? He made it clear that this means much more than just adding a feature to a website.
“Forget that for a minute,” he said. “Imagine going to your credit union’s mobile banking application and finding not only all the stuff that the credit union normally does, but embedded in there is the ability to get directly to your crypto balance, or the ability to get to your investment account with Prudential, or access to your mortgage at another financial institution. If it's done right, you can even move money between those accounts directly within the mobile banking application.”
The goal, Foss explained, is to create a seamless member experience where members can find – and act on – all of their financial information in one place. He added that because the typical consumer has 20 to 30 financial relationships, putting everything in one place can be a monumental task, but well worth it for the member experience. In his view, Jack Henry is uniquely positioned to deliver on this promise because the company already has relationships with all four major data exchanges: Finicity, Plaid, Akoya and Yodlee.
Rethinking the Definition of Core Platform
The centerpiece of Jack Henry’s new technology strategy is an as-yet-unnamed platform that, while not exactly a core processing platform, is intended to complement and eventually supplant other Jack Henry cores.
“Think about what we’ve known forever as a core system,” said Foss. “A core has all these different functions. If we carve out all those functions and turn them into components – for example, one component is wire processing, one component is new account opening, one component is deposit processing – all these different functions become discrete services that are sitting on this single platform. Additionally, we'll have all these fintechs sitting on the same platform using the same connectivity tools.”
He added that, at that point, it doesn't matter to the credit union whether that solution is purchased from Jack Henry or purchased from a fintech because it's all running on the same platform. What’s more, that technology can be presented either through digital channels or in-branch within the credit union.
“Now it's about creating this differentiated experience for the credit union and the member, as opposed to what's your core and what are the complimentary things you can connect in,” said Foss. “It's a whole new definition of what ecosystem the credit union is running in.”
What does this all mean for credit unions that are running Episys, Symitar’s flagship core processing platform?
“That's a key point that I want to stress,” said Foss. “There's no decrease in current spend at Jack Henry on Episys. I'll just tell you that flat out. We are not slowing down on that at all, because we recognize we have the most widely installed single core platform in the credit union space. We are committed to enhancing and supporting that platform for many years to come. I've told our team that 15 years from now, we are still going to have a whole bunch of customers running on Episys.”
Jack Henry’s new strategy, he added, is designed to fit the needs and appetites of each individual credit union. Some credit unions may be satisfied to simply run Episys for the foreseeable future. Others may want to run the new platform alongside Episys, making the transition to the new platform slower and more manageable. Still others may see the need to embrace the new technology fully and move all their processing to the new platform. The choice is theirs.
“A key point to note is that today, we already have more than 850 fintechs integrated into this platform,” said Foss. “We took all the integrations we had [for Symitar and Jack Henry Banking cores] and we wrote them over again. So now they can sit in this new environment, but all those connections that we've created over the years are still valid. They're still there, even though it's all running on a new technology today. That means we start this game with 850 or more integrations already available.”
Beware of Shiny Objects
With so many options available, the challenge is for credit unions to choose solutions that meet specific needs rather than simply deploying the next hot technology.
Said Foss, “What's your strategy to grow your credit union? Or what niche are you trying to serve? That'll help weed out a whole bunch of stuff.” Once a credit union has a short list of functionalities that it wants to enhance the member experience, the next step is to consider which fintechs meet those specific needs.
“You’ve got a short list of those general topics,” said Foss. “Now, which fintechs fit into those general categories? That can really help you whittle down the list of options pretty quickly. But it all starts with strategy.”
Foss is speaking from experience. “We’ve seen that happen where people get kind of enamored of the shiny object and they go chase it,” he said. “Maybe they had a successful implementation, but does it solve a problem for them? No. They got excited about the shiny object as opposed to really creating a strategy and slotting those things into a defined strategy for the credit union.”
Foss claimed that this new technology strategy is unique in the marketplace, combining the resources of an industry leader with the latest technology and a very forward-thinking roadmap. The company expects this to give its customers a real advantage over other financial institutions going forward.
“There are all these new cores and startups and you could certainly pursue one of those as a credit union executive,” concluded Foss, “but if Jack Henry's doing even cooler, more modern work, with a 45-year history of successful delivery, why would you not choose Jack Henry?”