Core provider Jack Henry is looking to technology to address changes in today’s payments landscape and client concerns following the collapse of Silicon Valley Bank while preparing to launch new solutions to address cyberthreats in the financial services industry.
Bank Automation News sat down with Lee Wetherington, senior director of corporate strategy at Jack Henry to discuss the tech provider’s clients’ needs, prepping clients for FedNow and new products in 2023. What follows is an edited version of that conversation.
Bank Automation News: What are bank clients focused on following the collapse of SVB?
Lee Wetherington: The collapse of SVB accelerated deposit churn that started in December of 2022, leading to a demand for stronger deposit relationships post-SVB. According to Jack Henry’s 2023 benchmark survey of chief executive officers, growing deposits is now the top strategic priority for banks.
The best deposit strategies are targeted, tiered, segmented and strategic. Smart banks know which segments of their deposit base are most at-risk for churn and flight. They’ve been proactive in reaching out to depositors who are disproportionately significant to the bank’s liquidity. Progressive banks also offer automated savings and investment options that make deposit relationships sticky and accretive.
The most successful banks are those who not only price deposits strategically but also get creative with the old tools of CDs and savings accounts and, for example, offer re-financing of CDs mid-term or create hybrid bundles that balance the bank’s need for liquidity and low cost of funds with the customer’s desire for better rates.
Even before SVB, banks looking to shore up deposit gaps among Gen Y and Gen Z were offering mobile-only account opening that doesn’t force account funding upfront, as well as early-paycheck access that has become a staple among neobanks like Chime. More banks are now following suit.
BAN: What tools should banks have in place to enable seamless integration with necessary fintech partners, including those in payments?
LW: Banks have to be effective matchmakers between their customers and the most relevant fintechs. They have to be really good and efficient at identifying, vetting, integrating and embedding fintechs of choice into their digital experiences in meaningful time frames. That means banks must have open digital platforms with well-documented, self-serve APIs that fintechs can consume easily.
According to the 2023 Strategic Priorities Benchmark survey, 90% of financial institutions plan to embed fintechs into their digital experiences over the next two years, and 63% of banks plan to embed payments fintechs specifically.
Given the growing headwinds that payments fintechs face in terms of tightened access to venture capital, slowing growth rates in ecommerce and growing regulatory scrutiny, Forrester predicts that one in every four payments fintechs will fail this year. This means banks must take extra care in vetting payments-related fintech partners in 2023.
Broadly speaking, payments are growing in complexity and fragmenting the number of ways in which people pay and get paid. Small- and medium-size businesses must be able to accept payments across a growing and complex array of payment rails, tender types and digital wallets. Many businesses must now accept between nine and 12 different payment types.
Successful banks will abstract away the growing complexity of payments and make it really simple and easy for businesses of any size to accept payments from anybody anywhere in the world. Universal payments acceptance will be critical for businesses’ cash flow, especially if an economic downturn materializes this year. Open-loop approaches to payments, especially P2P, will also gain traction.
BAN: How does FedNow change the payments game?
LW: For the first time in 50 years, you have a new public instant payments rail coming online. FedNow is going to inaugurate a new era of innovation around new payment use cases and reimagined older use cases on those FedNow rails. If you are a bank and you are not looking intently at signing up and being at least a receiver of FedNow payments, you must think about how that will affect your ability to accept deposits. This year, payments strategy is also deposit strategy. According to our latest research, 60% of banks plan to add FedNow as a payments service.
BAN: How can banks lean into a changing payments system?
LW: The average smartphone in the U.S. has 14 financial apps on it, including payments apps like CashApp, PayPal and Venmo. Changes in the tech stack underneath banking over the last 15 years brought us things like banking-as-a-service (BaaS) and payments-as-a-service (PaaS). PaaS is why you can get payments services from all kinds of different entities, with and without bank charters. This ecosystem disruption has created widespread financial fragmentation for consumers and makes it difficult for them to understand where they are with their money. The average American now uses between 15 and 20 different financial service providers.
While it’s delusional to think banks can stop customers from using all of those other apps and providers, banks can use open-banking APIs and rails to aggregate a complete picture of the customer’s finances back at the bank. This secures first-app status for the bank and gives customers the financial confidence to act on next-best product and service recommendations. This is one of the most powerful ways banks can use technology to capitalize on a systemic challenge and turn a headwind into a tailwind this year.
Nearly 30% of banks are also planning to offer PaaS over the next two years. They’re planning to embed their payments capabilities into non-bank third parties. This is another way banks can lean in and monetize their charter and expand their payments franchise.
BAN: What is Jack Henry working on launching in 2023?
LW: We’re really excited about the launch of two new next-gen, cloud-native solutions: Banno Business, our new cash management solution designed to eliminate business email compromise (BEC); and Financial Crimes Defender, a real-time AI and machine learning-fortified platform that provides visibility into fraud across all channels.
Every bank and fintech in the country has experienced more fraud in the last 12 months than they’ve ever experienced historically. A big part of the problem is the prevalence of screen scraping in our industry — which makes it very difficult for banks to distinguish valid login attempts from fraudulent ones, leaving systems vulnerable to credential-stuffing attacks and other cyberthreats that continue to plague the industry at large.
This is why the CFPB [Consumer Financial Protection Bureau] is scrutinizing screen scraping and proposing new open banking rules later this year. The good news is that banks can replace inbound screen scraping with API-based open banking rails and ultimately eliminate credential sharing altogether.
At Jack Henry, we continue to phase out inbound screen scraping on our Banno Digital Platform and replace it with direct API connections to five of the biggest financial data exchange platforms. In fact, we’ve already eliminated screen scraping from hundreds of thousands of apps across millions of accountholders, and we will complete that process on Banno by the end of this summer.
Eliminating credential sharing is an important milestone for the industry and will inaugurate a new and more secure era of financial data exchange. Unlike the indiscriminate data extraction performed by screen scraping, open-API aggregation allows accountholders to specify, minimize and fully control their data and how it’s shared with third-party providers — including the ability to grant or revoke data permissions within their primary bank’s digital banking experience. It bolsters trust in the bank and improves financial security for the customer. It’s the right thing to do, and we’re excited to be leading that effort.