Cloud-based and open banking, and the adoption of such technology by small local banks, is becoming part of the not-so-distant future.
In February, Jack Henry & Associates Inc. (Nasdaq: JKHY), the Monett-based technology company, announced a cloud-based strategy that will allow financial institutions to convert core services and functions, such as loan and deposit processing, general ledger reconciliation and posting payments, to a cloud system.
“We’re essentially rewriting everything we do with Jack Henry into a public cloud environment,” said David Foss, Jack Henry’s board chair and CEO.
Moving to the cloud is anticipated to increase security and provide more flexibility, reliability and consistency, officials say.
Foss said announcing the plan early on – it’ll take three to five years to fully roll out – allows industry customers and future prospects to have time to align their product strategies with Jack Henry, if they choose to do so.
Jack Henry offers software and technology services to banks and credit unions around the country, such as credit card processing, core platforms, cybersecurity and loan origination. Foss said Jack Henry’s customer base is approximately 8,000 financial institutions out of about 11,000 in the U.S.
According to Foss, the COVID-19 pandemic changed the need for banking technology for everyone, but especially for the age groups that didn’t use many digital banking services prior.
“Boomers are using mobile banking at a much greater rate than they were three years ago because of the pandemic,” he said. “They didn’t go into a branch during the pandemic and they had to adopt digital technology because that was the only way to get banking done.”
Foss said the banking industry is going to experience a shift at some point, as generations X and Z and millennials will eventually become the main consumers for financial institutions.
“Those folks will absolutely expect to use digital technology to do all of their banking services and we are going to be there when the demand really starts to happen,” he said.
In early September, Jack Henry selected Google Cloud as its main cloud-based partner; terms of the deal were undisclosed.
“Google is interesting in that they are very committed to the idea of serving community, regional and national institutions just like we are,” Foss said, noting Jack Henry also would work with other cloud platforms, such as Amazon Web Services and Microsoft Azure, but Google is the lead partner.
“They have that same view of community, regional and national institutions being the heartbeat of America. They, just like Jack Henry, want to ensure that these financial institutions have the opportunity to be successful in the future and are receiving great technology solutions to serve their customers.”
Foss said Jack Henry has been in business for 46 years, and although the company serves customers nationwide, its entire history has been focused on helping community institutions compete against the major money center banks.
Centering on community
Old Missouri Bank is one of those community bank customers.
Chief Operations Officer Steve Bishop said since he started at OMB in 2020, there has been a swing in the direction of updating technology utilized by the bank and provided for its customers.
Bishop said OMB is a newer client of Jack Henry, and the company now handles most of the bank’s “tech stack.” Previously, OMB worked with Fiserv Inc., a competitor of Jack Henry.
Bishop has additional perspective on Jack Henry’s latest strategy, as he worked for the technology company twice in his career, as well as for Citibank, before joining OMB.
He said he was surprised to hear Jack Henry’s new direction, as this means the company will have to do some major rewriting of its current core structure. However, he said it can be of benefit moving forward to community banks.
“I don’t know who my competitors will be a few years from now, and they may not even be open yet, but I need to have the ability to adapt and be nimble enough that I can have those services I need to compete,” he said.
Foss said the planned cloud-based approach creates open banking where a primary financial institution can offer a digital presentation where bank customers can see all their financial accounts in one place, even if they are held by various institutions.
Foss said an example of open banking would be if a customer has a credit card at one bank, a 401(k) account at another financial institution and a mortgage loan at a credit union, the customer’s primary bank could offer the ability for their client to view all accounts on one digital sign on or application, without having to switch all their accounts to that primary bank.
“Through industry surveys, we have learned that the average person has between 20 to 30 different banking relationships,” he said. “The average person feels financially fragmented and is financially unhealthy. They don’t know how to manage their money very well, because they are using so many different applications. The goal is to help you as a consumer manage your money more easily.”
Bishop said he suspects some banks might be hesitant to make this change once the cloud-based platform starts to roll out, it’s a new offering.
“Banks are typically very conservative,” he said. “No one wants to be the first adopter.”
Mark Folk, senior corporate communications manager at Jack Henry, said any financial institution that is not ready to convert to a cloud-based strategy will not be pushed to do so and Jack Henry will continue to support the technology the banks already have in place.
According to an article from Deloitte, a group made up of over 330,000 financial firms, moving to cloud-based banking will synchronize the enterprise, drive business innovation, build resilient operations and enhance information technology security.
Bishop added any community bank is going to tell its potential clients that the best thing the bank can offer is customer service.
If banks are able to combine the power of new technology like cloud-based services with continued local support, it might be able to open new doors for smaller financial institutions.
“The big banks have big money,” Bishop said. “They have massive accounts and we don’t even play in that ballgame. For community banks, wherever they are, our claim to existence is that we’re there with the community and supporting the customers in that community.”
Bishop said OMB is going to continue to look for tech opportunities as they become available, but also be smart about what technology is actually needed.
“You don’t need everything, so it’s figuring out the things that you need and making sure that we get those in place.”
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