Welcome back to Evercore ISI's 8th Annual Payments and FinTech Innovators Forum. I'm David Togut. I lead the payments and fintech team here at Evercore ISI. Really delighted to welcome the management of Jack Henry to the fireside chat, Dave Foss, Board Chair, Chief Executive Officer; Greg Adelson, President and COO. Timing is very fortuitous since Greg will be succeeding Dave on July 1. Thanks so much. Really thrilled to have you both here with us.
Thank you for having me.
Happy to be here, Dave.
I also want to thank Vance Sherard from the IR team who's joining us as well. So, Dave, congratulations on 8 successful years as Jack Henry's CEO and Board Chair. Greg, on your promotion. Greg, perhaps you can share how your various leadership roles at Jack Henry have shaped your views as you take the helm as the next CEO of the company.
Yeah, I appreciate it. So I've been at the company for 13 years. I came into the company right after our iPay acquisition, led that acquisition for the first three years. Really, the founders had left and I'd come in and taken over. And then Dave tapped me to actually run all of our payments businesses. So I ran that for the next five years, our card business, Remote Deposit Capture, and then the creation of our PayCenter application, which we unveiled under my guidance. And then Dave asked me to become COO of the company. We hadn't had a COO in about 14 or 15 years. So I was in that role for four years. I was president for the last two. And I picked up the sales group. But as COO, I basically had responsibility for everything but finance, legal, risk, and HR.
So I've had all of the technology, all of the products, and again, the sales. So that's helped me kind of get the foundation of what I needed for this role. But Dave and I, fortunately for me, Dave's been my only boss for 13 years. So every role I've been in, he's the only person I've reported to. So we have a really good common approach to our philosophical way that we look at the company, not only how we run the company, but how we look at our associates, how we look at our customers, and how we look at providing value to our shareholders. So I think that foundation of working with Dave all these years has really helped. I've been part of building the strategies that we're embarking on today, our tech modernization strategy, the One Jack Henry Initiative that we started four years ago.
I think that continuity and consistency is what I hope our associates, our customers, and our shareholders will embrace.
That's great. Thank you for that. Before we dig into the businesses, if you could update us on your Gen AI strategy, both in terms of potential revenue opportunities as well as cost efficiencies as you implement them. I mean, for example, on the December quarter call, you mentioned your new Data Broker solutions. So perhaps we could start there.
Yeah, you want me to take that one? I'll take that one. So I think there's a couple of things. So, well, let's look at it from a revenue opportunity. So there's been several products that we've used, kind of machine learning, AI over years. But we've also been including generative AI into a lot of our discussions. So excuse me, our Financial Crimes Defender product that we've rolled out that has some generative AI built in with a company called Feedzai, which is one of the world's leaders in AI fighting fraud. So that's been you mentioned data broker. So we've actually leveraged and worked with Google and the BigQuery capabilities that Google has to build out some of the opportunities in our Data Broker solution, just so everybody knows what Data Broker is.
So basically, it's a central repository that we've created to house the core data, the payments data, the digital data, the fraud data, all in one central repository, all protected in the Google Cloud through their security mechanisms and things like that to allow our customers to have very easy access to their data. The key to the generative AI component of that is that most of our community institutions don't have the wherewithal to really bring in data scientists. And so the idea is to be able to create a very simple way for them to access that data, utilize that data without having to worry about bringing on data scientists or us supplying data scientists. As a byproduct of that, we're also creating the executive dashboard that will be used for the C-level folks.
And again, if you think about this where a CEO is literally at their desk asking questions verbally, I'd like to see my deposits for this particular branch at 3:00, literally being able to access that data at that type of fingertip. So those are the things that we're rolling out later this year with AI. On the generative AI, on the operational side, we're also looking at our risk team, our technology team have been working together to make sure that we build the right guardrails within the company to protect both our IP, protect what we're doing in the environment with PII, PCI. So we're still kind of working through some of the dynamics of that. We've approved a couple of functions, the Enterprise Gemini release of Google. We just approved that within the organization to utilize, again, within certain guardrails.
I think there's some automation that we believe will be a part of what we do in our call centers, what we do in some of our operational groups, but then dynamically what we can do on the development side. Yet to be determined at this point, but we're working through a lot of that as we speak.
I'll tag on one thing to Greg's comments, Dave, if you will. So one of the things we challenged all the leadership team within Jack Henry a few months ago, okay, go off and figure out where are the best uses for Gen AI in your area of the business. And that means everything, legal and HR and so on. And so now at the beginning of April, they have all been off kind of working on their projects. At the beginning of April, they're all presenting to each other. So for the legal department, our general counsel will say, here are the uses that we see for AI, and here's how we want to do this. For HR, here are the uses for Gen AI and how we want to do it. And so the goal will be to coalesce that around a single corporate strategy.
We obviously have all the things we're doing for our customer-facing things. But internally, we'll have a single corporate strategy where we can marry up everybody's initiatives and make sure that we're feeding off each other to introduce efficiencies in the organization. So I'm really excited about that session in April where we can kind of really understand the opportunities that people see within their lines of business.
That's great. December quarter was your second highest quarter ever for new sales, including 14 core competitive takeaways. You've indicated you're winning 50% to 55% of the 100 core RFPs that come up on the market every year. Which features of your core processing system are really resonating most with FIs? What new features are you adding to the core?
Yeah, it's an interesting question because I wouldn't say there is anything in particular in the core that is a particular feature that's resonating. What's really leading us to all those wins, I think, is the overall story. So the reputation Jack Henry has for innovation. We're constantly innovating new solutions, rolling out new products. If you listen to the earnings calls, you hear about me almost every quarter, at least every other quarter, talking about a new product that we have in market that has been created by Jack Henry for our customers. So there's that reputation we have for doing innovative new technology, delivering that new technology. Put that together with the reputation we've had forever for delivering the best service in the industry and the level of comfort that our customers have in giving recommendations of Jack Henry as an outstanding technology partner.
We are in a reference selling business. Every banker knows other bankers, and every credit union executive knows other credit union executives. They all talk about, what's your experience with these companies? What are they doing? I think today, in the environment we're in today, Jack Henry is being recognized as the leader when it comes to innovative technology, the leader when it comes to service, and the leader when it comes to a corporate culture that really supports partnership. So people want to be part of that. It's still a hard decision to make to leave your core. I mean, that's a really sticky application. Going through a core conversion is really hard. So people don't take that decision lightly.
But when they do decide, okay, it's so painful doing whatever we're doing. We have to make a change. Jack Henry, well over half the time, is the beneficiary in that decision process.
Just to add on one thing that I think is important. So we wake up every day in our employee base on what we can do to ensure that community and regional financial institutions remain competitive in their environments and kind of the key of the middle market or middle economy. And I think what really resonates with these institutions is that we do this. As Dave just described, our service and technology supports that. And we don't necessarily see that with a lot of our competitors on where their focus is. And so I think over time, as our technology and our service have really become at the top of the food chain, and then you see what we have as a mission every single day in our employee base, it really resonates with the prospects and the customers. Thanks for that.
Just sticking with tech, of course, you've got the tech modernization strategy, which you started talking about almost two years ago at Investor Day. Along with that, you've recently launched PayCenter, Banno Business, and Financial Crimes Defender, which you referenced earlier. You've also underscored recently that four of your 14 core competitive wins in the December quarter were with multibillion-dollar FIs. The question is, are you finding that tech modernization is helping you move up market to serve the larger financial institutions? And what are the biggest drivers of success as you move up market?
Yeah, I think the answer to that is absolutely yes. And so one of the things I highlighted on the last earnings call was, and I was very frank, I think, in the comment, we have never had a $20 billion prospect show up at a Jack Henry client conference to kind of really understand Jack Henry. We have customers that are over $20 billion in assets, but we've never had a prospect come and say, hey, I'm interested in looking at Jack Henry. At this past conference in October, we had three $20 billion banks there that were really doing a deep dive on Jack Henry and trying to understand our technology. A big driver of that is what you just alluded to, Dave. It is the tech modernization story that we've been very public about now since February of 2022.
People are really starting to understand what we're doing. The most important point is they understand how different it is from what anybody else in our industry is doing. They understand that it is real. We've had a number of larger institutions, primarily banks, that have contacted us as they kind of heard about the story, and they're trying to figure this out. Their CIOs or CTOs have come in and done deep dives with our technology team. They come back and say, okay, these guys are doing something totally different, something real. The reason that's important is because a lot of these larger regional banks, they're running very old technology from whoever they have their technology with. They view a conversion to a new solution on the core side as very risky.
And so they're trying to figure out, if we're going to actually go through a conversion, we've got to ensure that it is something that's really going to pay dividends on the back end. The tech modernization story is all about how do you get to the public cloud. So not private cloud, which is the environment all of us have been operating in for several years. This is all about public cloud. And so they're all trying to figure out, how and when do I move to the public cloud? Who's the partner that I should work with to do that? And as they've done the deep dive on Jack Henry, they're realizing Jack Henry has a real solution, a real story. We're not in market with everything yet. And I've been very open about that.
When I announced it in 2022, I said it'll be at least five years before we have a customer fully live on the public cloud. Still holding to that. We're still on that five-year trajectory. But now that people are able to see things that we're doing and see what this experience is going to be like, that's created some really solid opportunities for us, I think, in that space, that kind of larger regional bank space.
What are the sales cycles on these three $20 billion prospects?
Yeah, they're long. So the average sales cycle for a core deal is it's usually at least a year. On an average core deal, I'd say these are more like 2 years, probably 2.5. We're engaged with them. When they all showed up in October, I think all of them were probably two, three, four, six months into the process. So we still have a long ways to go. But again, we've never had anybody in that space show up as a prospect. And now to have several going at the same time is a pretty good sign, I think, that our story and our strategy is resonating.
Among the December new sales, were 135 new Banno Digital Suite customers, including 56 for Banno Business. What are the key reasons you're winning with Banno, both on kind of core Banno Digital and then Banno for Business? What are the most differentiated features of the products?
There's a couple. I think one of the things that we have in Banno is a feature called Banno Conversations. It's an authenticated chat that allows the institution to have a conversation with one of their customers through a fully authenticated way, which means you can share data. You can share transactions. If there was a fraudulent transaction that you didn't think was yours, you can actually attach a copy of the information through this authenticated channel. Nobody in the industry has that today, really in any industry. That's been a really key feature. We've also added a lot of the components that we have, what we call add-ons. Not that this is rocket science, but we have the ability to do Spanish. We have the ability to add other things truly at a moment's notice based on the dialect that comes through.
The other big one that I'd say is the biggest differentiator is what we have done to eliminate screen scraping in the product. So we announced earlier this summer that we no longer allow screen scraping of the Banno platform. So we have formed and created API, direct API integration with Plaid, Finicity, Akoya, MX, Intuit, all of them, all the big aggregators that are out there. And the only way that you can access the data is through that API. So what is important about that is it eliminates the shared credentials. It happens in credential stuffing today, where folks get access to somebody's username and password. So we've eliminated that. We hold the username and password for our customers. That is a big differentiator in the space. And as you all know, there's some regulatory noise about eliminating screen scraping down the road.
This gives us a big head start on anybody else in the industry.
I think, if I can, I'll tag on one other thing. We'll use your audience here as a little focus group. So I don't know who any of you bank with. I don't care who any of you bank with. But I would bet $1, whoever you bank with, you probably have an internet banking experience and a mobile banking experience. And they are two totally different things. You can do things on your PC through the internet banking experience that you can't do on your phone through the mobile banking experience. They look different. They feel different. Almost any bank or credit union, that's the experience that you have. We have solved that problem with Banno. It is a single platform running on the public cloud, no matter what device you're using, tablet, phone, PC, I don't care.
The user experience, look and feel is the same. The functionality is the same. Every bank and credit union out there is trying to figure out, how do we get to that? When do we get to that? We've been in market with that now for four years. So this is a well-proven solution. We have more than 11 million registered users on that platform today. And they're enjoying that benefit of a single experience, regardless of form factor.
So 25% growth in Banno Digital users in the December quarter, up to 11 million registered customers. Can you sustain a 20%+ rate of growth in Banno Digital registered customers over the next couple of years?
Yeah, I mean, I think the dynamic is really based on the implementation queues. So some of them are larger customers with larger bases. So it's hard to say. But I think when you look at our growth over the last four years, we've been in that double-digit growth. So what level of double-digit growth remains to be seen. But we still have a ton of runway in our own existing core base. And as I've mentioned on the last earnings call, we are going to take Banno outside of the Jack Henry core base in calendar year 2025, along with a couple of our other strategic products, and sell them as a bundle. So that will help sustain the existing growth rates.
Just double-clicking on that for a minute, when you first talked about tech modernization, I think this was probably May of 2022 in Dallas, you talked about selling a lot of modules. I think about a year later, you said you were maybe pivoting a little bit from module-based selling of tech modernization to more focus on core?
No, no. It's still a module-based. I mean, so it's all the functionality of core. So if you think about a core system, essentially what we did was we kind of reimagined core into 30 discrete functions. And each of those discrete functions will be a module sitting on this platform, the Jack Henry platform. So that is still the strategy. That hasn't changed at all. The idea is that we will sell bundles. And it's very likely, as I've said over and over, very likely that a lot of customers will buy a bundle of those solutions that looks exactly like the core that we've been running forever. But that's the customer's choice. I just think human nature is to want to do things pretty much the same as what I've been doing in the past.
So we're going to give them that option to buy a bundle that looks just like the core that they've been running in the past. But what we've done now is we've expanded this platform. So we created this platform on the Google Cloud. We have all these core functions sitting on the platform. But essentially, everything else that we're developing today also sits on the same platform in the Google Cloud. So Financial Crimes Defender sits on that platform. Banno sits on that platform. Payrailz that we just acquired a year, a little over a year ago, sits on that platform. So the idea is that it's all plugged together on a platform in a single environment where you can take advantage of all that easy integration and data flow. And then back to Data Broker that Greg alluded to earlier, Data Broker sits underneath this platform.
All the data for all these things that are sitting on top, they all flow into that Data Broker solution. So it's payments, fraud, core data, GL, everything in there. Using the reporting tools and AI that are available in the Google Cloud environment, we can then interrogate all that data and really make it much more useful for our customers. So the strategy has not changed. It has broadened a little bit. But it's definitely the same strategy.
Got it. OK. Your newest offering, open banking solution, is now generally available. What features, including the turnkey API access, are the most differentiated?
Well, that's kind of what I was describing as part of the Banno offering. So I think, as I described it, it's really the only one. A lot of our customers, and what their interest is, is that they want to have a relationship with Plaid, or they want to have a relationship with Finicity. They've got to go build that relationship directly. They're probably not going to get the same level of attention to build an API direct as we did based on our volume. And it took us several years, honestly, to build a lot of that out. And so what we're doing is we're selling that as a service. So you're able to get all five of those aggregators in a single SDK and be able to utilize it, whether you use Jack Henry Banno solution or you use a third party.
We're selling it to some of the third parties as well. The Q2s and the Alkamis and others will have access to that as part of it. The biggest differentiator is that it is truly an API-first solution. There isn't any credential, I mean, shared credentials as part of that offering. We're starting to get that out today.
Got it. And then, Dave, historically, you've had sort of an open approach with a lot of the best-of-breed providers. And I think you've said, historically, they're all invited to your conference, with the exception of the core competitors.
That's exactly right.
So maybe talk about how you work with the broader ecosystem of best-of-breed providers. What's the revenue model for Jack Henry? Are you getting paid per open API when you connect in an Ensenta or somebody else?
Yeah, I think it's counterintuitive to a lot of people that we, since Jack Henry was alive and running this company, we've had this philosophy that we want to make it easy for our banks and credit unions to connect fintech solutions into our technology stack. The philosophy was, our job is to help our customers be successful. It is not their job to make us successful. And so if we really believe that, we should enable them to choose whatever solution they need to solve whatever problem they have. If it's a Jack Henry solution, that's great. But if it's not, that's okay. They need the flexibility. And we need to enable them to make those decisions. And so with that in mind, for years, we had a very robust middleware solution that we offered to customers.
The thing I would stress all the time was, using that middleware solution, we would connect Jack Henry complementary products into the middleware and get the same data out of the core as any third party could get. So the middleware solution wasn't favoring the Jack Henry solutions. It passed the same data, regardless of whether it was a Jack Henry complementary solution or a fintech solution. We've carried that concept forward now as APIs have become the primary mode of connectivity. We have fully functioned APIs. We use the exact same APIs to connect Jack Henry solutions to Jack Henry solutions that we provide to fintechs to connect into our environment. Along that same line of trying to make it easy, so we have a sandbox, essentially a development sandbox online.
So if you're a fintech and you want to try and learn how to connect into the Jack Henry ecosystem, it's publicly available. You can go into the sandbox. You have to get credentials licensed so that we know who you are and what you're doing. But you can go to that sandbox. You can play with integration and kind of figure it all out on your own. And then probably no need to pay Jack Henry for any help to do integration into our systems if you understand how to use APIs and how to do that development. I'll give you a real quick example. About a year ago, I got a call from a CEO in our space, fintech CEO that I've known for years. And he said, hey, Dave, we need some help getting connected to your marketing team.
And I was like, okay, why do you want to connect to our marketing team? Well, because we built all the integration into your product. And we have customers live now with your solution. But nobody at Jack Henry knows who we are because we just went into the sandbox and licensed the credentials. And we did everything on our own. But now we'd like to do a press release talking about what we've done. And I've got to make sure we get permission. And I was like, that is the ideal scenario for us. We have helped this fintech serve their customer. The customer's happy. The fintech's happy. We didn't have to do any work for them, unless if they wanted us to do work, we'd be happy to do it for money. But we're not going to help them for free.
It was just kind of a great example, I think, of what we're trying to accomplish when it comes to integration. Then you make the point that we let almost anybody come to our client conference. So at this last conference, we had 254 fintech vendors there, non-core. Every one of them, almost, is a Jack Henry competitor. And so customers walk into that and they're like, what in the world is this? You have all these competitors in here. But again, if you're being true to that philosophy of helping our customers be successful, you should make those choices available to them. And so we really are very committed to that concept. And I know a lot of people think, oh, it's crazy. It's counterintuitive. But it is part of the reason, I think, that our customers love working with Jack Henry. They know they have options.
I think because they have so many options, oftentimes, they will choose the Jack Henry option because they know we're not trying to put them in a box and say, you must choose the Jack Henry option. We're saying, here are all these choices. Oftentimes, they choose Jack Henry because we give them choices. As far as pricing is concerned, it depends on the individual solution and kind of what we're trying to accomplish. Is it a payment solution? Or is it a GL reconciliation? There's a million different options out there. I think we have about 1,000 fintechs already using the API layer. There's all kinds of different variations. But generally, they license the connectivity, the API connectivity. Sometimes there is a per-click charge on that. Usually, there is not. It's licensing and then paying an annual fee for access to the APIs.
But again, we're trying to make it a reasonably priced solution for our customers so that they can get the functionality they need.
Got it. In Evercore ISI's proprietary 2024 Bank Tech Outlook, we surveyed 72 bank and credit union CEOs, CFOs, and CTOs. The whole sample included 21 Jack Henry customers. The sample as a whole expects their IT budgets to grow 4.2% this year, calendar 2024. That's down from 6.4% in 2023. The underlying data, even though the growth was a little lower than for 2023, though, did show that an increasing percentage of bank CXOs expect their budgets to be up. We saw a broadening of customers or banks that were going to spend more in 2024 versus 2023. In general, they were in lower spending growth buckets. What are you seeing from your data sources with respect to 2024 bank IT budget growth?
Well, so I always read your report every year. I was a little surprised by that 4% number because we are definitely seeing a bigger number than that. Most of the other surveys, industry surveys, including the one that we conduct, were more in the 5%-10% range. Our survey was just a little under 10% as far as the expected increase in spend for the year. That increase, by the way, is not driven by CPI or something like that. It's a true increase in spend on technology. One of the reasons I cite regularly on that topic is, if you're running a bank or credit union today, if you're the CEO of a bank or credit union, almost any problem you're trying to solve today, technology is the answer.
There's almost no choice for banks and credit unions other than to continue to spend more because they have to use technology. They have to be modernizing their experience, both in branch for their employees and for their customers. I think it's totally logical and almost inevitable that that spend number should continue to increase year-over-year because they have to use technology to solve almost any problem that they have.
In terms of pricing, we found in our proprietary bank tech outlook that bank CXOs expect prices from core processors to increase 2.7% in calendar 2024. That's down a tick from 3% in 2023. What are your expectations for 2024 price increases, considering your pricing is often based on the asset size of a bank instead of CPI? I know there's a bit of a mix in there.
Well, today, because most of our customers are not running in-house, most are running in our private cloud, our pricing is really dependent on number of accounts processed, number of active users per transaction. Most of our solutions are not asset-based anymore. There may be an asset component in there. But it's really around number of accounts processed and so on. And so as most of our customers are continuing to grow, meaning they're adding accounts, they're adding customers, the price goes up generally in line with their growth tied to number of accounts as opposed to asset size. So CPI is still in the equation. But that's not the primary driver for revenue growth at Jack Henry in that segment. It's really around the growth of our customers. Many of our customers are acquisitive. We tend not to support little, tiny banks and credit unions.
We tend to be up from that layer. Well, it's the institutions up here that are acquiring and merging the little guys in. And so we get growth when they acquire somebody. But then also, organic growth is a key driver for us as well.
How should we think about 2024 account and transaction growth for Jack Henry, if that's one of the proxies for pricing or revenue?
I don't have a specific number as far as expected account growth for this year, other than that it should be in line with what you've been seeing from us in the past several years. So the core segment is performing, as you know, really well right now. And I don't expect any slowdown in the core segment.
Yeah, and the same thing on the payment side and everything else. I mean, our transactions have been pretty consistently growing at the same pace. We do a variety of comparisons. And I think, as I mentioned before, some of it's the size of the clients that we're actually implementing. Each new core client that we get on the banking side drags along about 50 complementary products with it. Each credit union drags along about 35 complementary products with it. So as we win these other new cores and by the way, our core asset size average has gone up in the last year, too, from a little less than $1 billion to $1.2 billion as our average asset size of our banks and our credit unions is a little less than $1 billion, up from around $750 million.
And so some of that is, as Dave described, as normal organic growth of the particular institution. Some of it is some of the wins that we've had. As we noted on the last earnings call, four of those were multi-billion dollar banks as well.
Got it. And then, Greg, just given your background in payments, in the instant payment network from the Fed, FedNow, I think you've indicated Jack Henry has 35% of the live FedNow clients. Can you quantify the uptake of FedNow in terms of transactions, thinking about the adoption curve of FedNow versus Zelle, where it's now a pretty mature product? I mean, what can we expect from FedNow in terms of uptake? And what do you think the key milestones are that we should be watching?
So a couple of things. So one, we have 150 institutions live on the Fed today. So that is roughly between 30% and 35% of what's available today in the market. I think I would compare more to RTP than I would to Zelle because it's more of a similar product. So I went back and did some analysis on the first 150 clients we had on RTP versus the first 150 clients we have on Fed, again, recognizing that the bulk of those transactions today on the Fed and even RTP are still on the send side, not the receive side, not on the send side. So it's typically an ACH transfer from a larger institution to another one. It's a Grubhub or Uber driver moving money from their digital wallet into their account.
And so when you look at those two dynamics, one, it took less than 8 months to get 150 institutions live on Fed at Jack Henry. It took almost 2.5 years to do the same 150 on RTP. When you look at the average transaction size, interestingly enough, and I can't give you an answer why, RTP is almost $550 per average transaction on RTP. It's around $250 average transaction on the Fed. Interesting dynamic. Most of the transactions, as I said, are the same use cases, regardless of whether it's RTP or Fed. What happens in the future is, I think, as the use cases become more prevalent on business applications or government-to-consumer applications, Treasury, IRS, other things that end up having opportunities to send money directly into your bank account versus what traditionally happens today using a prepaid card.
And I think the displacement of prepaid cards in that model is where you're going to see. The good news is that we're working with the Fed and actually The Clearing House. I do regular calls with their I just had a call with the CEO of the Fed. And what we're trying to do is figure out the best use cases to roll out because, as you know, you can't sit there and boil the ocean. We need a few use cases to get people interested. And so the dynamic of what it means to Jack Henry, hard to say at this point. Nothing's been materially changed with either Zelle or the RTP at this point. And part of that is the concern over fraud. And so I mentioned Financial Crimes Defender earlier. One of the key things that we've built in Financial Crimes Defender is a real-time component.
And why is that important is because we built and are building separate modules to actually sell into our PayCenter application for Zelle, for Fed, and RTP, separate modules to fight fraud for all three of those components. If you're able to combat the fraud, then more and more institutions are going to be willing, to one, open up the send channels, and two, open up more Zelle transactions than they do today.
When you look at the average transaction size for FedNow, could you guess at what you think the mix is between, let's say, consumer-driven versus business-driven?
The short answer is I don't know yet. I don't know based on what I saw.
Got it. Okay. What would need to happen, for example, for an application like bill pay to be widely integrated to FedNow, where a consumer could essentially automate payment of their bills through FedNow versus using one of your competitors' products or maybe Bill.com?
Yeah, so we are doing that with our Payrailz acquisition. So we're building what we did with Payrailz is iPay, our—well, I don't want to use a legacy, but the one we've had the longest period of time; it is truly a bill pay application. Payrailz and what we're turning Payrailz in is truly a money movement platform. So the ability to do least-cost routing, the ability to move transactions, as you described, to bill pay through a real-time payments channel, those are all capabilities that we have as part of the Payrailz application. And you'll see more and more of that happen to combat what happens today in Bill.com or direct or combat what happens today in other third parties that you can do bill pay through today.
Great. So on the December quarter call, Dave, you indicated that you're substantially increasing your implementation resources given the very recent expansion of acquisition activity by Jack Henry core clients. How big is this expansion? And do you think we're returning to a significant pickup in M&A after kind of a couple of quiet years?
Yeah, so it's really one installation team on the banking side, one installation team on the credit union side. And to answer the second part of your question, yes, we are, I believe, going to return here sometime soon to kind of more normal M&A activity. All the indicators are there on the banking side. Interestingly, we run into more and more credit unions that are trying to figure out either do I do a merger or do I acquire a bank? A lot of credit unions now talking about acquiring banks. In fact, we've had one credit union come to us and say, we want a full-time implementation team because we plan to acquire just consistently for a while to do acquisitions.
In talking with investment bankers who are in the business of selling banks to other banks, their feeling, too, is that that market is going to come back here soon. But we already have several that are in flight. One of the interesting things for us in that space is when a bank is going to acquire another bank, one of the first calls they make before anybody else knows what's going on is they call us. Why? Because they want to reserve a spot so that they can time it when they've closed the actual deal. They want to be able to convert that bank as quickly after they close the deal as possible. Well, they know that our implementation timelines run oftentimes 6-12 months out.
They know that if they're going to do a deal if they're contemplating a deal today and they think they're going to close it in six months, they better call us today to tell us about this deal in six months. So we very regularly know about deals that are not public in any way. The employees of neither bank know what's going on. We know about it well in advance. So we have a good ability to predict what's coming as far as M&A activity. Even if the deals haven't closed, we know what kind of volume is going on as far as interest levels and negotiation and all that kind of stuff. So we believe that certainly before the end of our fiscal year, which is June 30, we'll see some more of those indicators of banks looking and credit unions looking to acquire other banks.
Got it. Jack Henry has low debt on the balance sheet. You've got strong cash reserves. What are your capital allocation priorities among dividend, share repurchase, and acquisitions? And then specifically with respect to acquisitions, what would be the most attractive type of deals to Jack Henry at this point?
An attractive deal would be something really cheap that generates a lot of revenue. About that, Dave. So capital allocation really hasn't changed much at all. We used to be known as a serial acquirer. We did a lot of deals over the years. We are a very, very competent acquirer. And so that is always top of mind as far as I'm concerned, trying to find a deal that fits strategically with what we're trying to do. We are committed to our dividend policy. So absolutely no change in that. And then absent either of those options, we do share buybacks, although it's not a stated policy. We try to do share buybacks to offset any dilution through grants. And then we do other share buybacks opportunistically as we can. We are carrying some debt now.
So we also have to be mindful of the desire to continue to pay down that debt. As far as what things would be attractive to us, the challenge for us is we don't really have any big holes in our product portfolio. We've been innovating all these new things here since there was really no M&A opportunity for the past three, four, five years. We've been doing a lot of innovative things. We've kind of reproven to ourselves that we're really good at creating new solutions and rolling them out ourselves. When you don't have really any holes in your portfolio and you've proven that you can build things and deploy them very successfully, M&A becomes one of those, well, if we see something kind of float by that looks really interesting, we should take a look at that.
I would say there's nothing that is kind of we're really hot on right now as a topic. It would be more an opportunistic thing at this point, that something that comes by that either solves a problem that we're contemplating in one of the things we're working on, like tech modernization, or something that's brand new that we have just discovered as an opportunity. It would be something like that probably that we would pursue.
Understood. Thanks for that. I'll pause for a minute and see if there are any questions from investors.
You have a lot of exciting products. Can you talk about your investments in security, cybersecurity, and such?
Sure. You're talking about for our customers? Because we deliver service to our customers. We also, of course, do it internally. Or do you want both?
I just think in general, the risks.
Yeah . So that has expanded dramatically in the past five or six years. We are a large private cloud provider, so data center provider. We have a very robust team led by a Chief Information Security Officer, a Chief Risk Officer. And we've continued to build out our team, build out our security infrastructure. And we use a combination of off-the-shelf industry standard tools plus things that we develop in-house to make sure that we're doing everything we can to manage the security infrastructure appropriately. I will point out that one of the advantages of us moving to the Google Cloud over time here is in the Google Cloud, I'm not a security expert, but I am told by the experts that it is one of the foremost security infrastructures in the world in the Google Cloud environment.
We feel really good about our ability to even up our game more as we continue to move solutions into the Google Cloud environment. Now, I will point out that, as I said, we have this business within Jack Henry where we help our customers secure their infrastructure. We brand it as Gladiator. We do patch management and monitoring and all those types of services for our customers as well. We really do have a broad level of expertise in that area. It's ever more expensive. I'll just say that. It adds no value.
Terrific. Congratulations to you both. Thanks again for coming. I had a quick question about the decision to offer some of the solutions to non-core customers. So if you're selling to a core customer, it would seem to me that Banno would be a huge advantage in those conversations in selling the core and that selling some of these new solutions to non-core customers has the potential to cannibalize some of the core wins that you might have. So I imagine this is something you guys have obviously thought about.
A lot.
Yeah. So we'd love to hear kind of how you made that decision and a little bit more about that dynamic.
Yeah, I can start if you want to add anything. So I think we did think long and hard. So we take a ton of our products. So we have well over 100 of our complementary products that go outside the Jack Henry base today. Actually, Dave was really the grandfather of that particular solution.
Could we just say father? How about father?
Yeah, just go grandfather. And so we went with an opportunity to look at how that worked over time. I think the key is that these three particular products that we've talked about on the most recent earnings call, when you look at Digital, you look at Card, and you look at Financial Crimes Defender, they really work really well together when you digital the payments application and the ability to fight fraud. So what we decided is, as we took a pause, is that we said we don't necessarily want to open up for all of the core opportunities as we do with a lot of our other products, but look strategically at a few cores. And so we have targeted three particular cores that we're not going to talk about today and that we are going to build our solution around.
But it's really the opposite of what you're thinking. You mentioned earlier there's 200 core decisions a year. About 50% of them don't make a decision. So that leaves about 100 deals that actually change of some magnitude. And we win 50-55 of those. Well, of those hundreds that we don't win, the biggest reason why they don't want to change is because they don't want to go through a core conversion or there's some other financial. But it doesn't mean they're happy with their digital provider. And if they're stuck with their digital provider because they don't make a core decision, this creates an opportunity for Banno, which today we couldn't have played in any of those 100 opportunities, to get into the game.
As I like to say, is that if you think about the three hardest things to do if you're an institution, it's to change your core, change your digital provider, and change your card processing provider. Well, if we can get two of the three done ahead of time, then moving the core becomes a lot easier because they've already done two or the three of the hardest. We believe that this will even be a more direct way than we did in the old ProfitStars strategy, which really didn't have a strategy around going after the core. It was just selling additional product sets. This truly has a way for us to look at opportunities that make sense for those 100 or so plus every year that don't make a decision to move. And it's a much stickier product.
I think the light turned red, so.
Just a quick closing question. Have you considered outsourcing a significant portion of your software development and maintenance to low-cost locations, India, Eastern Europe?
So we have about 20% of our staff today is offshore. So we have contractors around a variety of areas, India being one. But we have some in Bulgaria. We have some in other areas, too. The biggest thing that we're looking at is there are opportunities to do more nearshore and looking at things that would be more in our time zones, things along that line. So we're going through a strategic kind of review of what that might look like. We brought on a couple of people that have run that at other companies. So it's too early in the process. But as I mentioned today, we already have about 20% of our staff that's offshore today.
Understood. Greg, Dave, thanks so much for spending the time with us. Greatly appreciate your insights and participation in our conference today.
Certainly for inviting.
Thank you, Dave.