Q&A with Lee Wetherington, senior director of corporate strategy at Jack Henry

core provider jack henry Silicon Valley is looking to technology to address changes and customer concerns in today’s payments landscape following the bank collapse, while preparing to launch new solutions to address cyber threats in the financial services industry.

Bank Automation News sat down with Lee WetheringtonPreparing customers for FedNow and new products in 2023, senior director of corporate strategy at Jack Henry, to discuss the technology provider’s customer needs. What follows is an edited version of that conversation.

Bank Automation News: What Are Bank Customers Focusing On After SVB Collapse?

Lee Wetherington: The collapse of the SVB accelerated the deposit churn that began in December 2022, increasing demand for stronger deposit relationships after the SVB. Growing deposits is now the top strategic priority for banks, according to Jack Henry’s 2023 benchmark survey of CEOs.

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. He has been proactive in reaching out to depositors who are disproportionately important to the Bank’s liquidity. Progressive banks also offer automated savings and investment options that make deposit relationships sticky and incremental.

The most successful banks are those that not only strategically store value but also get creative with the older instruments of CDs and savings accounts and, for example, offer to refinance CDs over the medium term or create hybrid bundles that bank balance the liquidity needs of and low cost of funds with customer desire for better rates.

Even before SVBs, banks looking to bridge the deposit gap between Gen Y and Gen Z were offering mobile-only account openings that don’t oblige account funding to be carried forward, as well as early paychecks. Access which 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 including payments with essential fintech partners?

LW: Banks need to be effective matchmakers between their customers and the most relevant fintechs. They need to be really good and efficient at identifying, vetting, integrating and embedding fintechs of choice into their digital experiences in a meaningful time frame. This means that banks must have open digital platforms with well-documented, self-service APIs that fintechs can easily consume.

According to the 2023 Strategic Priorities Benchmark survey, 90% of financial institutions plan to embed fintech into their digital experiences over the next two years, and 63% of banks specifically plan to embed payments fintech.

Given the growing barriers to paying fintechs in terms of tighter access to venture capital, slower growth in e-commerce, and increased regulatory scrutiny, forester predicts that one out of every four payments fintechs will fail this year. This means that banks should be extra careful in vetting payments fintech partners in 2023.

More broadly, payments are growing in complexity and fragmenting in the number of ways in which people make and receive payments. Small and medium-sized businesses need to be able to accept payments across a growing and complex array of payment rails, tender forms and digital wallets. Many businesses now have to accept between nine and 12 different payment types.

Successful banks will remove the increasing complexity of payments and make it truly simple and easy for businesses of any size to accept payments from anywhere in the world. Universal payment acceptance will be critical to the cash flow of businesses, especially if an economic downturn hits 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, a new public instant payment rail is coming online near you. FedNow is about to inaugurate a new era of innovation around new payment use cases and old use cases re-imagined on those FedNow rails. If you’re a bank and you’re not looking to sign up and at least be a recipient of FedNow payments, you should think about how this will affect your ability to accept deposits. This year the payment strategy is also the deposit strategy. According to our latest research, 60% of banks plan to add FedNow as a payment service.

BAN: How can banks adapt to the changing payment system?

LW: The average smartphone in the US has 14 financial apps, including payment apps cashapp, paypal And Venmo, Changes in the technology stack beneath banking over the last 15 years have given us things like Banking-as-a-Service (BaaS) and Payments-as-a-Service (PaaS). PaaS is the reason why you can get payment services from all kinds of different entities, with and without bank charters. This ecosystem disruption has created widespread financial fragmentation for consumers and made 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 that banks can prevent customers from using all those other apps and providers, banks can use open-banking APIs and Rails to aggregate a complete picture of a customer’s finances 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 the systemic challenge and turn a headwind into a tailwind this year.

Around 30% of banks are also planning to offer PaaS in the next two years. They plan to embed their payment capabilities into non-bank third parties. This is yet another way banks can lean on and monetize their charter and expand their payments franchise.

BAN: What launch is Jack Henry working on 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 over the past 12 months than they have 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 separate legitimate login attempts from fraudulent ones, leaving systems vulnerable to credential-stuffing attacks and other cyber threats. who keep the industry going. Big.

This is the reason that CFPB [Consumer Financial Protection Bureau] Investigating 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 eventually eliminate credential sharing altogether.

At Jack Henry, we continue to phase out inbound screen scraping on our Banno digital platform and transition it to a five largest financial data exchange platform with direct API connections. In fact, we’ve already eliminated screen scraping from hundreds of thousands of apps across millions of account holders, and we’ll be completing that process on Banno by the end of this summer.

The elimination of credential sharing is a significant milestone for the industry and will usher in a new and more secure era of financial data exchange. Unlike the indiscriminate data extraction performed by screen scraping, open-API aggregation allows account holders to specify, curate, and fully control their data and how it is shared with third-party providers – including Includes the ability to grant or revoke data permissions within digital banking of their primary bank. Experience. It enhances trust in the bank and improves financial security for the customer. It’s the right thing to do, and we’re excited to lead that effort.