David B. Foss
Board Chair and Chief Executive Officer at Jack Henry & Associates
Thank you, Kevin. In this third section of today's call, I'd like to provide all of you with an outline of our product technology modernization strategy. This is not a product announcement. It's a strategy discussion designed to set an expectation regarding the evolution of our Company.
I won't be sharing any specific sales, revenue or profitability numbers with you today, and I probably won't be able to answer all of your questions. I want to be clear about that upfront. I'm sharing this with you today because it's important for you to understand how Jack Henry plans to innovate and remain a leader in our industry for many years to come.
Many of the recent innovations we've made, and you'll continue to see, are directly tied to this multi-year strategy, and we've got developers working behind the scenes on this new technology for more than two years. The strategy we're sharing today further expands upon Jack Henry's highly-successful, open API, digital banking platform.
Before we get into the details, let me first set some context for this strategy. You've heard me say many times that we are a well-rounded financial technology company focused on serving the technology needs of community and regional financial institutions. That is our primary audience, and we've been focused on that market for the last 45 years.
Today, we serve close to 8,500 financial institutions through approximately 300 different solutions, and we have more than 850 fintech providers currently connected into our ecosystem. While other providers in our space have shifted direction in the last few years, we continue to be 100% focused on serving the full and complete financial technology needs of community and regional financial institutions. The reason we and our clients have been successful for so long is that we've continued to evolve our business in a measured, thoughtful way to help our clients meet the changing needs of their account holders.
In the early days of our Company, when people visited branches for their financial needs, our focus was on automating everything that was being done on paper. We refer to that as the first generation of financial technology solutions. Then the Internet came along, and it caused disruption as people begin to move away from visiting local branches due to a desire to conduct more business online. What did we do then? We made more services available via the Internet to ensure a seamless experience between online, mobile and branch banking. That was the genesis for the second generation of financial technology.
Today, we are at a pivotal point similar to when the Internet was introduced. Things are changing to the point that our industry requires someone to innovate a next-generation solution. Many nontraditional banks have entered the market blurring the lines between traditional and non-traditional providers, and people have learned how to manage their finances digitally. At the same time, a new hybrid monetary ecosystem has emerged as new currencies like crypto have become more mainstream and are actively traded through platforms like Coinbase. It is also becoming more clear that Central Bank digital currencies, or CBDCs, are likely on the near-term horizon, and our clients will need a strategy and technology solution to address customer demand for these options.
So why does all this matter? The simple answer is these dynamics are fundamentally changing how people want and expect to bank. This is especially true with the younger generation. A recent Javelin report shows that non-banks now provide 65% of financial relationships for Gen Yers and 69% for Gen Zers. Fewer are going into branches or calling customer service. They expect to do everything digitally.
The emergence of new financial apps has created an unprecedented level of financial fragmentation. It's not uncommon for someone to use between 30 and 40 different financial applications and services to address their financial needs. This may be great for some people, but this fragmentation also impacts the ability of people to make informed financial decisions, and that can lead to poor management of their finances.
For community and regional financial institutions, this digital transformation presents both upside opportunity and downside risk. To capture the opportunity, our clients need a clear growth strategy focused on the customers and customer niches they will serve. They need a product and services strategy that enables them to provide the best solutions to their customers, while delivering service in a customer's moments of need and relevance. And they need a technology modernization strategy that makes all of this possible, even as additional changes occur in the future. That's where we come in.
Let's talk about what Jack Henry is doing to help our clients capitalize on this opportunity through our product technology modernization strategy. Let me start with our end goal here, and then I'll talk about how we're going to get there. At the highest level, we are focused on developing a single, modern, open banking platform that enables easy access to a broad ecosystem of Jack Henry solutions and high-grade third-party fintech offerings.
What do we mean by next-generation technology? Essentially, it is technology that is component based. So services are isolated and able to run independently, giving community and regional financial institutions the ability to customize and build platforms that work best for them and their account holders. It's a technology that is cloud-native, which means it's built on the cloud and not just hosted on the cloud. This is a really important distinction from other public cloud offerings because it enables greater flexibility, faster upgrades and efficient scale.
It's a technology that is open to allow our clients to have the best of both worlds. They have access to our best-of-breed capabilities and they can have fintechs of their choice into the Jack Henry ecosystem. It's technology that is not tightly coupled to any legacy products, databases or other technologies, and it's technology that is digitally-centric, which puts the financial institution at the center of their customers' financial lives.
Over time, we will be applying the same next-generation technology approach to virtually all of our services across the Jack Henry platform. There are four parts of our technology modernization strategy. These parts are related, but they are not linear. First, we are redefining the core processing system. Second, we're providing multiple integration options supported by our open philosophy and technology. Third, we're delivering industry-leading capabilities across a single next-generation platform. And fourth, we will operate as more than a core processor by providing a full banking ecosystem.
Let's talk about each of these four areas of focus. The first is to redefine core processing system and what a core processing system is. Essentially, we are unbundling services that traditionally would be in a core processing system and making them discrete services that can be customized and rebundled. Examples of services that we would unbundle and place in the public cloud are new account opening, wire processing, deposit processing, and account servicing.
Since these services will be housed in a safe, secure cloud environment, we can easily make updates so that they can stay current independent of the other services used by our clients. This benefits our clients and that they will have greater flexibility, options to choose which services make the most sense for them and speed to market. We already have several clients running in a beta testing environment with the first of these unbundled services.
I want to be clear that rebundling core services in the public cloud is a longer-term strategy. We plan for this to happen in stages over the next few years, and we expect no immediate impact on our existing core processing systems. Over time, Jack Henry clients will be able to choose if they want to use cloud-native services and they will not be faced with what we know today as a full core conversion. Meanwhile, we will continue to invest in and service our existing cores at the same rate as in the past.
The second part of our strategy is to provide multiple integration options supported by our open philosophy and technology. You've heard me say before that Jack Henry has always operated with an open philosophy, and we are continuing to expand on this. A key part of this is integrations and the flow of data between them. We have several data integration options, some of which we've offered for a long time.
The newest one is real-time data streaming, which is constant data streaming to all systems on the platform at the same time. Those systems are updated in real time. There is no waiting for information to flow through overnight or for someone to respond to a request. This is essential to support the real-time nature of services like payments and fraud detection.
The third part is delivering industry-leading capabilities across a single next-generation platform. We've made significant innovations to our capabilities in many key areas of focus for our clients. You've heard me talk about our success with several of these in the past, including digital banking, our PayCenter payments hub, our lending suite and our new financial crime solutions.
This third part of our strategy brings all of our best-of-breed capabilities into a single technology platform that has the same look and feel and the same underlying technology infrastructure. This is a big deal. None of the single point solution technology providers can capitalize on the use of this next-generation technology like we can.
The fourth part of our strategy is operating as more than a core processor by providing a full banking ecosystem. This is what pulls it all together. We just talked about creating a single technology platform that contains our best-of-breed solutions. This ecosystem goes beyond that by also providing access to leading fintechs and third parties, such as Dell, Finicity, Autobooks and Alloy, all through a single platform.
We have a significant head start on building this ecosystem because we have 800 -- over 850 integrations completed and are adding more each day. Additionally, we are the only platform provider to have relationships with all four major financial data aggregators: Finicity, Plaid, Yodlee and Akoya. These companies enable financial institutions to provide their account holders a complete financial picture in a safe, secure way that eliminates screen scraping.
Additionally, we currently have relationships with all of the major public cloud providers and are running workloads with all of them today. We will be offering a broad range of selection and/or optionality with each provider as well as private cloud options, bringing the best technology to bear for our clients.
I know this is a lot of new information, so let's use an analogy to tie all of this together. Think of any traditional core solution as a sport utility vehicle, an SUV. Regardless of who you buy your SUV from, it's still an SUV. It's not a pickup. It's not a luxury car. You can hook a trailer to the back. You can put a luggage carrier on top. You can tint the windows and repaint the exterior, and you have a very nice, very functional SUV, but it's an SUV.
All of the core providers in the industry have been in the business for years of selling really nice SUVs. At Jack Henry, for clients who choose to adopt our next-generation technology strategy, this new approach will enable them to choose how they want to customize their vehicle. We'll sell them the frame with a pre-established wheel base, but the buyer can choose whether they want a V8, a V6 or a plug-in hybrid engine. For us, that might mean AWS, Azure or a private cloud.
Additionally, they can decide if they want an SUV, a pickup or a luxury sedan built on that same frame. They can buy the components if they're built correctly. They buy the components from Jack Henry or from another supplier because the components, if they're built correctly, will fit in our vehicle without any modification.
In this scenario, fintech solutions are aftermarket add-ons. They can be built right into our ecosystem, leveraging reusable components to give the Jack Henry client a tightly integrated, purpose-built and efficient solution, even as some of the components aren't purchased from Jack Henry. This, of course, is an extension of the open philosophy Jack Henry has supported for most of our history.
Although we will offer the flexibility for our clients to configure their offering in any number of ways, we believe that because we offer that flexibility and many best-of-breed solutions, most clients who are charting their strategies for the future will want to buy most of the components in a bundle from Jack Henry. If the client wishes to purchase a bundle, just like what we referred to as a core solution today, we will certainly offer them that option. This strategy puts the community and regional financial institutions at the center of their customers' financial lives, and it helps address the financial fragmentation I talked about earlier.
In the end, our clients will benefit from all of this because they will be able to build, customize and evolve digital experiences and products. They can offer access to leading-edge services and capabilities, whether through Jack Henry or a third party, through a single platform to create a unique value that their competitors simply can't deliver. And they'll offer personal service in moments of need and moments of relevance so they can sustain their competitive advantage of service and trust.
I know your first questions will be how much will this cost and what additional revenue will it generate. So let me address those. On the cost question, we continue to invest about 14% of our revenue in research and development and technology. That will not change. In fact, I mentioned that we've been investing in this strategy for more than 2.5 years, and we've continued to invest in existing systems while maintaining our 14% spend.
We've been able to do that because that 14% commitment is based on a rising revenue number. This is important for our existing loyal base of clients because it means we can continue to support all of our current core and complementary solutions at the same rate as before even as we invest in this new strategy.
As to additional revenue, it's really too early to say. As I said, this is a long-term strategy for us, and it will not happen overnight. That said, there are certain things that we are doing now, such as building out our own capabilities and rolling out new services based on this strategy. And I can tell you that we have already won some new core deals because of this strategy, and we expect that to continue. Why? Because most financial institution CEOs know they need modern technology and they wanted from a company like ours that has a 45-year track record of delivering and supporting a broad set of capabilities and solutions in a manner that is responsive to their evolving need who offer banking-as-a-service options to their customers.
Community and regional financial institutions are the lifeblood of Main Street America. As we've discussed, however, many of them are at crossroads. The personal service and experience they are known for is being disrupted by technology as non-traditional financial service providers have entered the market. The way people bank has fundamentally changed, especially for the younger generation. This has created fragmentation as consumers and businesses try to manage their finances across multiple providers.
As a well-rounded financial technology company, Jack Henry is in a unique position to provide modern technology and services to help community and regional financial institutions capitalize on this opportunity and strengthen connections with their account holders.
I believe that 2022 is the most significant year for our Company since the early 2000s when we executed our profit start strategy, and that strategy turned into a game changer for us. I sincerely believe that the strategy is right and the long-term opportunity will be significant for our Company and our clients. You should expect to hear a lot more about our work around this strategy as we move forward.
With that, I'll turn it back to Kevin to introduce Q&A.
