Banking Briefing: More eyes on core banking software
- Core banking software may not have been as scrutiny-grabbing as BNPL or crypto, but now that the industry is growing, the CFPB is taking notice.
- Meanwhile – what’s up with Apple’s recent acquisition of Credit Kudos? And just how do banks play a role in consumers’ mental health?
Last month, Tearsheet spoke with Jack Henry CEO David Foss on the company’s move to unbundle its core. The decision is a pretty drastic one as far as core banking decisions go. It means that instead of forcing financial institutions to buy the entire combo meal, it’s giving them the option to pick and choose – whether they just want the cheese burger, the fries, or that weird bag of mini-carrots.
“We’re now starting to think differently about what banks and credit unions are going to want to do in the future. You may not necessarily want to go buy this one big thing. You may just want to buy components out of that big thing – some of the things that you would have done historically in a core, you’re probably going to want to do with a fintech in the future,” said Foss.
The shift is noteworthy in that it may speak to Jack Henry’s confidence in its offerings – and its strength in the market. For example, for its fiscal second quarter, its revenue increased by 17% year-over-year. According to senior equity analyst Brett Horn, payments is “a key component of growth [for the company] going forward.” And in fact the company recently boasted that 67% of financial institutions on The Clearing House’s RTP network are its own clients.
The growth in core banking has to do with incumbents’ push towards digital transformation and an increased focus on maintaining consumers’ interest as they become more dependent on digital banking services.
But the market, while growing, is now being put under the lens. During his opening remarks to the Community Bank and Credit Union Advisory Councils earlier this month, Rohit Chopra, director of the CFPB, accused the market of being “heavily consolidated.” He pointed out that, as it is now, Jack Henry & Associates, Finastra, Fiserv, and FIS serve 78% of all U.S. banks.
This can have some negative effects in the long run, according to Chopra, including making it difficult for financial institutions to switch core banking software providers.
In the comments he made, Chopra also mentioned that the CFPB is currently taking steps to address this dynamic:
“I have asked our staff to work with core services providers and our federal partners, including to answer questions related to banks’ collective bargaining on core services’ contracts. We will also work with other agencies to examine third-party service providers and potentially referring complaints to other law enforcement agencies.”
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