Thank you for joining us for the afternoon component of the 16th Annual Electronic Payments Symposium. We have four sessions for you this afternoon after the five this morning, and we are very excited to kick off the afternoon with Greg Adelson, who is CEO of Jack Henry. Thank you for being here.
Yeah, thank you.
We really appreciate it. Lots of good stuff to talk about at Jack Henry, and I wanted to just kind of lead off thinking, kind of reflecting on your just about at the one-year mark since you took over as CEO. You've been with the company a very long time, but talk about how you're building on the success of your predecessor, priorities for the balance of fiscal 2025, which, hard to believe, is coming to a close pretty soon. Then just as we start to look into fiscal 2026, we'll kind of start top down there with just your top of agenda items.
Yeah, for sure. I started July of 2024, but I had been with the company for 14 years. My predecessor, Dave Foss, who did a great job leading the company for eight years, I had worked for him the entirety of my time at Jack Henry. I was very involved in the strategy creation and execution of what we've been working on. There are a couple of things that I still have as part of my priorities that were things that we talked about a couple of years ago, the biggest one being the tech modernization story and our level of execution on that, which we can talk about later.
That story of what we're doing with building out the core in a public cloud native format, kind of rebundling what we call the 30 main components and building those out into microservices, that's the big part of that. The other big things is just making sure that we maintain the culture that we've established over time. We like to call out the fact that we believe our culture, our service, our innovation, our strategy, and our level of execution is far superior to anybody else in the industry at this point in time. I want to make sure we're maintaining that. We'll talk a little bit later about our SMB strategy that we've announced. That's been a big focal point of mine over the last year and something that we will continue to drive.
We've talked a little bit in other meetings as well as earnings calls around our product rationalization. That's really about taking some of the products that we have that are low margin or lower growth and looking at ways to either divest of them. These are all very small businesses, by the way, or products, typically from $5 million- $20 million in revenue. Should we divest of those? Should we cash cow them? Should we sunset them? We're doing a much better job of that. Lastly, we are really focused on driving more wins in the $5 billion-$50 billion market for our core banking wins and core credit union wins. That's been a big focal point. As you've seen through our announcements over the first half of the year, we've been pretty successful at that so far.
Right. So you got a full plate.
Yep. Yep. A great team to do it.
Yeah, for sure. I wanted to kind of take your temperature on kind of the overall backdrop because coming out of November elections, it felt like an awesome environment for banks, right? It felt like you're going to see deregulation, you're going to see a strong U.S. economy. Now in the last few weeks, obviously, consumer confidence kind of fading a bit, a lot of tariff uncertainty, uncertainty around growth. I'm just wondering, are you guys seeing any impact of that uncertainty either on customer decision-making in your core banking business or in card transactions within your issuer processing business? Anything worth calling out?
It's a great question. I think it's a week-to-week answer. I can tell you, I did survey our sales heads last week and kind of went through each of our main sales groups. We are seeing zero slowdown on the core side at all. In fact, I think our decision and our pipelines continue to accelerate in some fashion. Now, remember, we're 100% domestic too. There isn't anything going on on the international side from a tariff perspective. We may have some vendors of ours that we might have some things that we'll have to talk through, but not from a sales perspective. We're not seeing that. Really, the only thing we've seen any slowdown is people making some decisions to move from one of our products to another one of our products because it isn't something that's urgent for them to do.
They may be slowed down. Financial crimes is a perfect example of you moving from Yellow hammer, which is our existing product, to Financial Crimes Defender. They may want to slow that down because they do not have to make that move today, and it is a more costly product for them. Other than that, no slowdown at all. In our card business, which is predominantly debit, which you tend to see at a time of consumer uncertainty, you see a slowdown in debit and more of an increase in credit, which is a much smaller piece of our card business. Candidly, at this point in time, we have not seen it. We have seen a little bit of a leveling off, but we have not seen a slowdown. We will continue to monitor it. Again, it is a week-to-week.
We've seen more issues related to weather and things like that where people aren't getting out, so they're using more of their credit card to do purchases that way or Uber Eats or whatever it would be to kind of bring some of that stuff home. The reality is we have not seen an overall drop in that volume.
Okay. That's certainly good to hear because there's a lot of speculation out there across the economy. How are you guys thinking about the M&A landscape just for the banking industry for the remainder of this fiscal year and into next? I mean, do you get the sense that any of this macro uncertainty could complicate or stall out M&A plans among the banks?
I'll give you some data points that I've read recently. For the first two months of the year, there had been a slightly, actually, January was pretty active. February was the lowest M&A month all the way back to August of 2023. Okay? Interestingly, in the first two months of the year, the M&A market between a $1 billion institution and a $5 billion institution is the second largest of any other year. In that one segment between $1 billion and $5 billion, we're seeing a lot of M&A continuing to happen as well as announcements. Below $1 billion and above $5 billion, it has slowed down a little bit. In January, it was pretty active. In fact, we saw a lot of activity with our client base, both for mergers of equals and mergers of just smaller institutions. We'll wait to see.
I still think the big boom that everybody's expecting to happen will increase. I don't know if we're going to see what everybody anticipated, but we're going to continue to see. We've actually ramped up our install groups to make sure that that happens on a timely basis.
Understood. Let's spend some time just talking about the line of sight that Jack Henry has into this fiscal year's revenue. I know that's been a big topic since the beginning of the fiscal year. You reiterated guidance on the last earnings call. The ramp in growth between the first half and second half is obviously higher than in kind of a traditional typical year. Just remind us what the drivers of that are. I guess more importantly, sitting here today with three-plus months left in the fiscal year, how do you feel about the visibility on what you need to do in both Q3 and Q4?
Yeah, fair question. Just to remind everybody, our fiscal year is July 1 through June 30. We are approaching the end of our Q3. The second half of the year for us had much easier comps. That's number one. Number two is that we have really great insight into the number of wins that we've had over the last couple of years where those installs are now starting to come in the second half of the year. They end up going into what we call our cloud revenue because it moves into our private cloud environment. That's really where the bulk of where you'll see growth is in the cloud side.
You're also going to see it in our complementary segment where we have a lot of products that get added on to a core win, both from a complementary and a payments perspective. When the core goes live, a lot of those products go live with it. Really between core and, by the way, Banno is in the complementary segment as well. You'll continue to see that, which is our digital offering. Back to your comment, we have about 90% visibility into what we do from a recurring basis. That 1% gap of what we have as our range between 7%-8% for our guide is roughly $22 million. It's not a lot of money, but it can sway the outcome from the low end to the high end significantly based on what really does happen.
We have been very confident, which is why we reiterated to where we were and to stay in that range. Time is going to tell. We will be a lot smarter in the next couple of months as a few things come out. I think as you look at where we are going for our May earnings call, we will be able to kind of, I think, shrink that level of guidance and certainty a little bit more today.
Right. You'll have a better sense of where within that range you're going to land.
Exactly.
You're going to land. Okay. It sounds like the confidence level on getting somewhere into the range is still high.
Yeah, we still have not changed that. That's correct.
Okay. Got it. Core takeaways. In a typical year, you target 50-55, and it seems like clockwork, you guys pretty much get there. You have a great sales force. This year, you had 17 in the first half, and not that it's always going to be perfectly ratable, but naturally, that raises the question of how do you do kind of roughly double that level in the second half. Anything around leading indicators or just pipeline or specific feedback from your sales force that tells you, "Yeah, we still feel good about that.
Very much. Yeah. I think we also need to start off by saying that not every core win is equal. One of the things that we have done over the last year in particular is win larger deals. I announced last year that we won 15 deals that were multi-billion in assets compared to five the year before. We have already won six this year, two of those being $7.5 billion institutions. A $7.5 billion institution is greater than a $1 billion institution. We are winning larger deals, and there are still several more $5 billion plus opportunities in our pipeline. To answer your question and to put this in perspective, last year, we won 22 core deals in the fourth quarter alone. We always have a large fourth quarter. It is the end of our fiscal year. There are a lot of sales incentives.
There is a lot of other things that go with that. There is a lot of work that gets done. We feel very confident that we will track to that 50-core win or above this year. I do want to remind everybody that winning 50 this year compared to maybe winning 57 last year are far greater. One of the things that I have been talking about is that we will be calling out more asset size as well as the number of wins because I think it will put it in better perspective of what we are truly doing to be successful in this larger market that we are going after as well.
Yeah. I mean, I guess just thinking through that even one step further, I mean, at some point, does it make sense for Jack Henry to talk about some kind of bookings dollar number just so people can see average contract size or anything along those lines?
Yeah, that's something to still be discussed. To your point, as we roll out more of our core components, the core itself won't necessarily be the core anymore, right? Because we may sell two or three components to an $80 billion institution. They didn't want to buy the full core, but they wanted to buy our general ledger, our authorization management, our exception processing. How do we count those, right? We are actually looking at a different way of figuring that out. The short answer to your question is we are on track and feel very confident with our pipeline and our win rates.
Okay. Yeah. I mean, are you seeing more, I guess I'll call it upfront attach rate? In other words, when you first win a core, that those customers are taking more modules upfront?
I will not say more. I think it is still very consistent. The average Jack Henry core client has 56 components tied to it. Typically, when we win those on the banking side, about 50 on the banking side and 35 on the credit union, it grows to about 56. We do have some with well over 100 of our products today, but the average is that. We are not seeing anything more. I would say that we have been more successful with winning new deals with Banno, where we have had opportunities to displace one of our more traditional competitors in the digital space because of Banno Business and things that we have been able to do there. We have also been more successful in winning things with Financial Crimes Defender and replacing some of the big competitors that we have on that side.
That's where I would see, but the attach rate isn't necessarily growing to anything greater than what it is today.
Okay. I want to hit on competitive landscape in core banking. We actually had a note out on this yesterday from some recent checks that we've been doing. Part of what we talked about in our note was a recent ABA survey that came out. I mean, not to toot your horn just because you're sitting here, but you guys did really well, actually, in that survey. I recommend everyone check it out. It's actually got a lot of detail in it. I'm curious just to get your take on the overall lay of the land because as you've already articulated, Jack Henry is moving up market, right? You're winning deals of an asset size that in the past you did much less of. Conversely, we have others talking about having more success from their perspective is more down market.
Is it fair to say that there is more competitive overlap, if you will, among some of the bigger traditional vendors than there was historically? What's your take on that?
Yeah, let me answer two different things. Just because you tooted our horn, I'd like to a little bit. The ABA core survey is very important for you to see because for the first time since they've been doing this survey, they actually name names. It always used to say player A, player B. Everybody could point and say they were player A. Nobody could invalidate that data. Now the names are there, and it's very clear where we are compared to our biggest competitors. That's out in the market. We're seeing a lot more from prospects that are now getting that data because we've been telling them the things that we're doing. When I talk about culture, service, innovation, strategy, execution, that's all very well articulated in that document.
Exactly.
Right? It is very interesting. Now, to answer your question, I think there are a couple of components to this. I have been at Jack Henry for 14 years, and I have been involved in all of our sales deals because I led payments for a long time, and then I was COO prior to becoming CEO. I do not remember a deal that we did not have our two largest competitors that were already in the deal. From an RFP perspective, I do not see them necessarily, quote, going down market. I see them refocusing from maybe lack of focus over the last five to seven years when they got into the acquiring business. When I look at win rates and I look at the things that we talk about, the 57 core wins that we talk about are 57 competitive core wins.
None of them are moving from a Jack Henry platform to a Jack Henry platform. If we announced those, we'd have 80+ easily, but we don't announce those. Some of the ones that they're talking about, we know that they're still their own customers staying with them or moving to one of their platforms, but they're announcing them as a new win. I think part of that dynamic of what is being discussed about them going down market or maybe, as I use the term, refocusing down market, is that they're keeping customers that they had, and they're moving them to a different platform. Okay, that's great. They did win the business back, and that's all well and good.
I don't consider that the same as us taking business from our competitors and moving them to a completely brand new platform, which is us, which is a huge move, by the way. Only about 100 of those decisions even get done a year, and we won 57 of them last year. I think what we are seeing is a continuation of some level of irrational pricing sometimes, right? There are times where we've gotten involved in a deal where I've said, "We're not going any lower." I mean, if they want to go to that price, they can have it, and we'll walk away. That has happened a couple of times. The reality is that you can't always continue to win on price for a long time.
You have to be able to provide that level of technology innovation because the bank or the credit union, the one thing that they have to recognize is that if they want to survive, and that is Jack Henry's sole mission, is to make sure the community and regional financial institutions continue to thrive in the United States. That is all we're focused on. As we like to say, we do not have a plan B. That is what we do. We will ensure that we are building the right technology. They can take the money that will buy them some time, but that is not going to ensure that they are going to grow. Through technology, through innovation, through other things, that is what is most important for their ability to win and survive and thrive.
That price-based competition that you referenced and maybe in some cases, like you said, bordering on irrational, has that dynamic intensified over the past 6 months- 12 months?
Yes. Particularly from deals where, again, they're trying to keep their current clients.
Right. Okay. Got it. All right. Let's switch gears a little bit. I want to flash back to your investor day, which I guess was six months ago. It feels longer.
Yeah, September. Yeah.
September. Yeah. You guys gave an algorithm for pretty consistent margin expansion. This past quarter, margins were definitely a bright spot in the quarter. How are you thinking about balancing growth with margin expansion for the balance of this year? Just more generally and structurally, what are some of the margin levers that you have at your disposal? How do you and Mimi think about that?
Yeah, for sure. What we announced as part of our guidance and reiterated investor day was a 20-40 basis point improvement each year as kind of our guide. Twenty kind of being our floor, minus a macro event, we feel very confident that we can get to 20. Forty is not a ceiling. As a reminder, last year, we went to 60 basis points improvement. We just want to make sure that we're providing a solid range for our investors to see where we're going. By the way, we feel very confident in what we're tracking for this year to be in that range or better. That's it. Now, what are we doing to pull the levers there? Obviously, the number one piece is headcount. We do a tremendous job of controlling headcount without doing layoffs.
In the history of Jack Henry, we have never done a layoff more than 20 people in the history of the company, 48 years. We are always able, and that's back to culture. That's why we have an average tenure of 10 years at Jack Henry as well. It is really important for us to figure out ways to do process improvement, to do other things where we signal to our staff that we do more with the same. That is an important comment because if you want to get the best ideas in your organization, you get them down in the contact center, and you get them down in the areas of the organization where they're living out every challenge that you can see in your organization, and they have the best ideas.
If you end up telling them that every time they come up with a great idea, they're going to lose their job, you're not going to get very good ideas. We're all about making sure we protect the employees that we have today, and we really only affect what we hire. If you look at our growth last year, we only had 2% headcount growth last year, even with all the growth that we ended up doing. That is by design. Thirty percent of our staff are trained in process improvement, Kata, so Toyota stuff, Kata in the Classroom. Thirty percent of our staff is trained on that. They're all green belts. We have another portion of our group that are black belts and others that go around training, and we do a lot of work with that.
We have been focused on process improvement for about 10 years. We have been driving that in the payments business for a long time, and then we took it out. Now AI is playing a part of that. We are building out ways to do QA, to move code faster, to hire less people in our HR department because everybody wants to come work at Jack Henry. We get a lot of applications. Ways to improve that process, ways to improve our billing process, ways to expedite how we do contracts. One of the big things that came out of the ABA is they wanted customers to work on contracts faster. Yeah. We did 55% of our contracts last quarter without ever touching a legal person.
Really? Wow.
That's all through AI and other process improvements.
Maybe the lawyers don't have to worry about that.
No, I mean, and trust me, we've got plenty to do, but it keeps us from hiring more lawyers, right? So that's the other part of that.
Okay. I mean, since you brought up AI, I mean, I'm curious how you're integrating it into your products. I mean, does it become a revenue driver? I mean, clearly, you're seeing some efficiency benefits on the margin side, but.
Yeah, in both cases. We're taking what we call a responsibly bold and balanced approach, meaning that we want to make sure that we're being very aggressive internally, but outside, there's still a lot of things that you got to be careful on.
Be careful, yeah.
We have rolled out AI into one of our products called Banno Conversations, which is a one-of-a-kind product, actually, in the market. We rolled it out several years ago. It's an authenticated chat that happens between the bank or credit union and their customer or member. That allows them to put transactions in the flow of the chat, all kinds of things that you'd be able to do because it's all fully authenticated. We added an AI component to that, and we've rolled it out to two customers. They've been able to give us the data back that they're seeing about a 50%-55% decrease in their overall cost of their contact center by being able to use the stuff that we created for them. Then we refine it.
One of the things that we do to keep that responsibly bold and balanced approach is we keep a human in the middle. We make sure that there's still a human on the bank or credit union side or in the Jack Henry side because we don't want somebody asking a question of that AI and it is coming back with, "Yeah, Elon Musk is an idiot," whatever. I mean, whatever the.
You need some of that team in over.
You have got to be able to have that oversight. We are 100%. The other part is everything we are building in our new components for the core, general ledger, several of our other key things, all have AI being built into them as well.
Okay. Great. I want to come back to the topic of complimentary solutions. You touched on a couple of them. There is Financial Crimes Defender, there is Banno, etc. I guess which kind of have the most momentum in the market right now? Are there any others that are kind of coming down the pike that you would say, like, "Hey, keep an eye on this one a year from now?
Yeah, that's a great question. Back to the innovation component. Banno Business has been out for about 15 months now. We have 212 customers live, 110 in the install queue. That's about 30% of our retail base on Banno today, which we have roughly 1,000 clients using our retail application today. Lots of opportunity in there. We continue to see as we build feature parity to our biggest digital competitors, we're seeing more and more of a win rate versus that competition. That will continue to be driven. Financial Crimes is a little bit newer, a little bit slower rollout, some of the things I mentioned earlier about the slowdown of moving from our existing product, Yellow hammer, to Financial Crimes.
We have a pretty good win rate versus the two big key competitors in that space as well and expect to have a nice uplift in 2026 and in fiscal year 2027 for both of those products, Banno Business and for Financial Crimes. Two other things that I would highlight. One would be what we're doing with our SMB product, which is in a partnership with Moov, which I think we're going to talk about in a little bit. We're very bullish on what we're doing there and the uniqueness of that offering that has really got us excited. The second one is very excited to announce that we'll be launching this week for our first customer is our Enterprise Account Origination solution, which is something that we've been building for the last almost three years.
It is basically taking our account origination solution that we bought, which was a company called BOLTS several years ago, and tying it into our LOS solution, which is called Loan Vantage. Loan Vantage is a single platform for both consumer and commercial loans, minus mortgages. We do not do mortgages, but every other commercial loan that you can think of, consumer and commercial tied to the account opening solution tied together. It is a single platform for all that. It is going to compete very favorably with the likes of several players that are out there today. We are excited because that is something that we have been focused on. Again, we delivered at the same timeframe that we said we were going to do.
Three years ago, we said we would deliver it in the first quarter of this year, and we delivered it in the first quarter of this year.
That's great. Great to hear. Yeah, I do want to talk about Moov. You guys announced that also back at your investor day, right? Maybe for those who are a little less familiar, talk about kind of the SMB strategy broadly and the partnership with Moov that's underneath that.
Yeah. It starts with the fact that just so you all know that I actually have a payments background. I've been in payments since 1995. I started at a merchant acquiring business. When the other two of our largest competitors were going down the merchant acquiring route, we made a very strategic decision not to. I won't spend time with why, but a lot of it is because it flies in the face of what our mission is that I already told you, to make sure that community banks continue to survive and thrive. We wanted to find an SMB solution that would allow us to do that, that we would be able to sell it through the financial institution and not sell it around them.
Fortunately, we've been working on this for a while, and we ended up teaming up with a company called Moov. Some of you may be familiar with them, but they are the very first public cloud native acquirer processor built with direct connections to Visa, Mastercard, Amex, everybody else. Why that's important is because it's public cloud native. It matches up really nicely with what we have been building on the back end with our new public cloud native core and a lot of our technology. It's enabled us to do some things that are very unique. Oh, by the way, the other thing is the Moov CEO, and Moov is backed by Andreessen Horowitz, Commerce Ventures, Bain Capital, Visa are all investors in Moov.
One of the things that we were excited about is the CEO of Moov is the former co-founder of Banno, the company that we bought in 2014. We know him very, very well. Our CTO is the other co-founder. Those two together are a dangerous group. You put them together; you come up with some really great ideas. We challenged them to help us figure out a way to make this work. Why it's important is we are able to sell this through our financial institutions, and it has four unique features that I want to point out. One, it's got instantaneous decisioning. A lot of the applications that are out today usually take two to three days for that SMB to get approved. We've already figured out about a 98% instant decision rate.
That is great for the SMB to know whether they're approved or not. Once they are instant decisioned and they're approved, they get a message directly to their phone that says, "You are now able to start taking payments on your phone." Tap to Pay is the application. We will be the very first provider live with iOS and Android available for Tap to Pay. Most everybody has iOS today. Nobody has Android. About 40% of the phones are Android. It is very important to have that as part of your overall offering. You get instantaneous approval. You get instantaneous ability to start taking payments. The point-of-sale device is the phone. The bulk of where we're really chasing is the sole proprietors.
If you think about sole proprietors, they do not necessarily want to invest in some of the big devices that are out there on the market. Being able to use their phone is a perfect example of a great tool utilization and less costly for them. Think about the plumber who has a plumbing company, has a plumber on site fixing your faucet or whatever. As they are leaving, they are taking their payment directly. They are not carrying around a point-of-sale device. They are using their phone. Great application. Sole proprietors, it is a perfect example. The other thing that we are able to do through Moov that nobody else has been able to take advantage of is there are eight settlement windows with both Visa and Mastercard. Most people do not know that because nobody takes advantage of the eight.
We're going to be able to take advantage of all eight settlement windows, meaning the SMB has the ability to get their money eight times a day. From a cash flow perspective, that will be significant as compared to what they see out in the market today, even from the likes of Stripe and Square and others. The fourth one is, I think, the most significant, and we're actually patenting this. It's an ability for us to not only send the deposit of whatever that total amount is, but actually give them every single transaction that they did that equaled that deposit. In today's world, the SMB has to go back and manually reconcile, especially a sole proprietor has to go back and manually reconcile every transaction that equated to that deposit amount.
We did some proof of concepts, and we saw that it was taking about five to six hours per week for them to do that. That is 25 hours-30 hours a month that they are going to save in not having to do that, where they will get every single transaction on their phone. They will be able to upload it into QuickBooks or Xero or whoever they are using. We are able to do that through technology that we have built along with Moov, and that is where the patent is coming in. Very excited. We have presented this to our clients, to prospects. Honestly, we got a standing ovation at an advisory board meeting from our clients, which you do not get very often. We got a standing ovation when they were able to see the demo and everything that we are doing.
The next question is, where are you going live? We are going live in May. We'll have our very first customer live in May. Our plan is to push this out to all 1,000 Banno clients by the end of September. Most people are going, "Well, how are you going to be able to push it out to 1,000?" We're not going to charge our clients for this. We're charging the SMB. We'll be making the money just like Stripe does, just like Square does. The concept of extra deposits for the bank, stickiness for the bank, all kinds of other things. This also will not be our only phase. We are already working on several other phases to bundle more solutions like AP/AR. We have a relationship with a company called Autobooks. We're actually their largest investor.
There is an opportunity for us to leverage things that we do with them as part of this solution as well. A whole bunch of that I am kind of compiling in, but that is where the bundle will be able to be accessible as a sales mechanism to our banks and credit unions that they would be able to resell. For this first phase, we are treating it just like they would be if they were a Stripe or Square.
You're going to say you're selling payment processing to the sole proprietors.
Exactly. With a lot of unique features.
This one's better, right? The solution's better. Okay. Interesting. I mean, the FI should be incented to push it. I mean, is there any rev share back to them?
It depends on a couple of components. The short answer is no. The reality is that they're seeing about four and a half times. I'll give you a couple of data points. Only 16% of sole proprietors that have a retail account at their bank or credit union have their business account there too. Why? Because most community and regional banks don't offer this type of solution. They end up banking at XYZ Bank, Community Bank, but they take their commercial account to Chase or to whomever. When only 16% are doing that, there's a huge opportunity for us to decrease or increase that number of penetration. You may or may not know that the average deposit for a commercial account versus a retail account is four and a half times that size.
If we're able to increase their deposit growth and increase their stickiness and penetration with those customers, that's a big win for them, again, as part of the initial phase.
Right. It is deposit gathering, it is customer stickiness.
Exactly right.
Okay. Yeah. The incentives are aligned, right?
Again, getting the feedback we already got from our customers is validation that they're good with this.
Yeah. Let's just say that you hit this target, you've rolled it out to all 1,000 Banno clients by September, I think you said is the goal. Can that start to move the needle on revenue in fiscal 2026, do you think?
Some in 2026, more in 2027. We have not worked on our 2026 budget yet, so I am not really ready to confirm anything at this point. The short answer is we believe this will be the fastest growing opportunity that we have at the company specifically over the next five years.
Okay. That's a big statement.
It is. One of the things that I do want to recognize is that we're doing this also in partnership with Visa and Mastercard. We did just announce yesterday our Mastercard agreement that we're doing with them. Visa was announced about a month ago. They are helping us significantly with building out the marketing aspect of this to help our banks be successful selling the product to the end SMBs, to get assets involved to help us promote it. When we presented this to both the card associations about a year ago, they were very impressed.
More volume for them, right?
It's more volume, but also it's the ability. They have the same belief that we do, that if we're able to keep these transactions through the community banks and credit unions, then they're going to be around and be a lot more successful, and they have that same belief. That was something that we sold them on when we presented this. It was myself and Wade and Ben, our CTO, that went and presented. We spent a lot of time with both of those brands, and we've now finished both of those contracts.
That's great. Have you done any kind of Salesforce retraining too?
It's a great question. Now, the biggest part of why we're pushing it out is it doesn't require a ton of training because we're able to push it to all 1,000. What we want to do in our next phase is we actually, I told you I have a merchant acquiring background. We've already hired a couple of people that I know very well to come in to help us build out that part of the pipeline.
Come in with that mindset.
Exactly right.
Right. It sounds like the next evolution is almost more like a small business, like a bundle, right? We will help you with your cash flow management and kind of go beyond the point of sale.
Yes. It's much more of a traditional SMB bundle of solution sets, like I said. You got accounting software, you got AR/AP, you got acquiring, you got other components that you want as a small business. We're already forecasting to have three or four phases of this over the next 12 months- 18 months.
Okay. All right. We'll look forward to that. Where are we in the cloud transition, going from on-prem, private cloud, private to public? I know that's been a journey. You mentioned it at the outset as one of your priorities. How far along are we? When are we done?
Yeah. Let's start with the private cloud transition. We're 75% penetrated in our base today. That's both banking and credit unions, 75% penetrated. Will we ever get to 100%? No. Will we get north of 90%? We believe so. That still gives us about a four- to five-year runway, at least, at doing about 30-40 migrations per year. We're on track this year to do close to that 40 that we've been doing. Why is that important? We get an uplift from in-house to private cloud of an average of 1.75 times the revenue. It's about one and a half on the credit union side. It's about two on the banking side. So an average of 1.75. We'll continue to see that. We'll continue to focus on it.
There will be an opportunity at some point here in the very near future for them to skip the private cloud and go directly to the public cloud. Back to that question, we announced in February of 2022 that we were going down this path of building out the public cloud-native core. At that point in time, we announced that we would be done with the first phase, which was a retail deposit-only core for both consumer and commercial clients, public cloud-native at the end of calendar year 2026. Back to our level of execution, we are six months ahead of that timeframe. We will be releasing that in the first half of calendar year 2026. What does that mean?
Is that we'll have some customers that opt to use that as a way to test the process and use it as a side core, use it as a lot of other things that they'd be able to do. The difference is that it will all be one big application. There is a big advantage for our clients to do that with us versus somebody else. The second part of your question is, when is it going to end? Our plan is, and I'm not ready to commit to this yet because, again, I like to do what we say we're going to do. The reality is we believe it'll take us two to two and a half years to build out the lending side of that.
Sometime in 2028, maybe into 2029 at this point, I need a little more time to get that finalized. Sometime two, two and a half years later, we expect to have the lending. That will be a full core. We will have a full core built. There is nobody close to having a full core built. Even people that have had a head start on us, they're not even close to building out the lending side because it's really tough to do. Anyway, that's really what our focus is, to make sure that by that 2028- 2029 timeframe, we have a full core to be able to move people. That should align very nicely with the regulators and everybody else as well.
The one thing that we've been able to do a really good job with our customers is Banno is cloud-native when we built it. We built it six years ago. It's cloud-native. Our customers are very used to working with us in a cloud-native environment. The regulators are used to working with us in a cloud-native environment. I think we're a little bit ahead of the game from some of our competition because of that. Now we've started to move our enterprise account origination. We moved some of our payment platforms all into the cloud as well.
Yeah. Okay. All right. We'll continue watching for that. Last topic. We have a minute and a half left. Capital allocation.
Yeah. So, capital allocation. We are very committed to our dividend policy and approach. I think Vance Sherard just reminded me we hit 21 years of consecutive growth on our dividend side. We are very actively always looking at repurchase options and things along that line. We have definitely made some through the year, and we will continue to look at purchase buybacks on that. The other part that I would say is that we are looking at M&A opportunities that will augment or accelerate what I just described around our SMB strategy, around our overall payment strategy, what we are doing with our tech modernization strategy. One of the things that we are going to be very focused on is that we do not want to buy anybody that we have to rebuild that is not already public cloud-native.
Our focus will be companies that are already public cloud-native that will allow us to accelerate and not have to rebuild. There are a couple of companies right now that we're looking at that could fit that bill depending on kind of where we end up in the process. That will continue to be a focus. I am a big person about execution. I think you can kind of hear that. As I said, we're a do-what-you-say-you're-going-to-do kind of company. We have a lot of great strategies out in front of us. I think if we just continue to execute on what we're doing, we're going to be okay.
Excellent. I really appreciate the time. Thank you, Greg. That was great.
Thanks.
All right. We're going to have Mastercard up in five minutes.
Thanks.